When you store your Bitcoin in an exchange, like Coinbase, Circle, or Kraken, that’s considered a hot wallet because it’s connected to the internet and can be used at any time. It’s definitely convenient to use an exchange, since it provides the easiest way to buy and sell Bitcoin, but if your account gets hacked or there’s some kind of security breach, you run the risk of losing all your Bitcoin stored there. You could end up with nothing!
Best Practices For Storing Bitcoins Long Term
There are many different digital wallets available, but it’s best to only keep a small amount of Bitcoin in digital wallets for spending. Instead, it’s much safer and securer to store your Bitcoins in cold storage. Cold storage refers to keeping your coins offline and away from a computer or network; there are many options available including paper, USB drives, and physical devices like Trezor or Ledger.
What Is Cold Storage
Cold storage offers an extra layer of security since your Bitcoin funds are not connected to a network that’s vulnerable to malicious attacks and hackers. A USB drive or even a piece of paper with your private key on it can be considered cold storage—it isn’t connected to an online computer, which makes it ideal for long-term storage. If you want some help choosing secure cold storage, check out our guide here.
Ways To Store Bitcoins Offline
Hardware wallets are a type of cold storage that makes generating bitcoin addresses easier, and more importantly, safer. They have a few downsides, though: they are a bit more expensive, and they can break or be lost. That’s where your recovery or seed phrase becomes very important.
Paper wallets are also very secure because they’re completely offline — you write down your private key on a piece of paper that you store in a safe place — but paper can fade over time or get destroyed in natural disasters like floods or fires.
Physical Hardware Wallets
Hardware wallets are physical devices that store your private keys electronically and can be connected by a USB port. These physical devices make it nearly impossible for your private keys to be compromised. A hardware wallet should be stored somewhere secure. Also, never give anyone access to your hardware wallet. The most popular hardware wallets on the market today are: Ledger Nano S, Trezor Model T, KeepKey and Digital Bitbox.
Exchanges and Online Wallets
This type of wallet should be used only as a last resort, when you need to make a quick exchange. You should not store significant amounts of bitcoin in exchanges or online wallets. If possible, avoid using any kind of web-based service. You’re better off using software and/or hardware wallets. The exchange or online wallet provider could suddenly go out of business, get hacked, or just flat-out steal your money!
Use Common Sense When Storing Crypto
Whether you’re storing your crypto on a hardware wallet or digital wallet, make sure you use common sense when it comes to safety. Digital wallets are much easier to hack into and because of that, hackers will do everything they can get their hands on them. So be smart with your storage and don’t store all of your coins in one place. If you have an extra computer lying around, consider using it as cold storage for some of your coins. This way if something happens to your main computer (and hard drive), at least some of your coins will still be safe. Another good practice is to keep backups of your private keys and password-protected PDFs of any paper wallets. You never know when a natural disaster might burn down your house or flood it, so having multiple copies helps protect against any loss.