What Bitcoin Storage Methods Are the Safest?

Hi Bit Coiners 🤍!!

Key Points

• Loss of access keys, computer malfunctions, theft, and other incidents can result in users losing bitcoin and other cryptocurrency tokens.
• Although some users find hot wallets more convenient, cold storage, also known as offline wallets, is one of the safest ways to store bitcoin because these wallets cannot be accessed online.
• Those interested in the safest storage should consider employing a non-custodial cold hardware wallet for all of their long-term bitcoin and cryptocurrency storage.
• In your heated wallet, only hold items that you want to utilize. Return your cryptocurrency to cold storage as soon as your transaction is complete.

Introduction

Only keep things in your heated wallet that you want to use. As soon as your transaction is over, put your cryptocurrency back in cold storage.

For people who utilize or are unfamiliar with cryptocurrency, a number of goods and services have been launched to make it more convenient; nevertheless, the growing rate of adoption and use has also resulted in a rise in theft and hacking. According to Chain lysis' yearly review of bitcoin theft, 2022 was the worst year ever in terms of the overall amount of cryptocurrency stolen, at $3.8 billion.

While there is no 100% safe way to store data, you may improve the security of your cryptocurrency and Bitcoin by utilizing a reputable Bitcoin wallet that supports cold storage.

Bitcoin Safekeeping

You become the owner of the quantity of bitcoin you acquire. Two keys are handed to you: a private key and a public key. The private key enables you to access your bitcoin or decrypt data, whereas the public key is used to encrypt data and generate your wallet address. This is the key that you are keeping safe.

The blockchain securely logs, stores, verifies, and encrypts your bitcoin ownership. Due to the encryption techniques employed, no coin has been taken by manipulating data on a blockchain to far. It would take centuries, if not millennia, to brute forcefully hack a blockchain with current technology.

Storage Types

Storage can be divided into two categories: custodial and non-custodial. For every kind, there are wallets that are hot and cold.

Custodial Wallets

A third party, like an exchange like Coinbase, is in charge of managing a custodial wallet. Under this arrangement, your private keys are stored by the custodian on your behalf, who guarantees their safety and may offer insurance on holdings up to a specific value. Since users started using these types of custodial wallets, exchanges have seen a rise in attacks on them. As a result, exchanges have taken steps to strengthen their services, like putting users' keys in enterprise-level cold storage to prevent access.

Wallets kept in custody may be warm or cold.

Non-Custodial Wallets

Wallets that you use alone to store your keys are known as non-custodial wallets. Wallets that are not custodial may also be hot or cold.

Hot Wallet

Software with an internet connection that keeps your keys is called a hot wallet. Because these wallets generate the private and public keys required to access cryptocurrency, they are a source of vulnerability. Although the majority of users access and transact with bitcoin using hot wallets, these are susceptible to hacking.

Hot Wallet

Since a cold wallet, also known as cold storage, is not online, there is far less chance that it will be compromised. These wallets are sometimes referred to as hardware wallets or offline wallets.

The Most Secure Bitcoin Storage

You will always be safer using self-managed, offline means of keeping your keys and protecting your bitcoin than using any of the many online choices.

Commercial Non-Custodial Cold Wallets

You'll find many options available, such as the Ledger Nano X or Trezor Model T. These are usually USB connection-type drives that connect to your device. When used with safety in mind, these commercial storage methods are safer than storing your keys in the wallet on your connected device.

Many of these wallets store your private key and come with software that works in parallel to your wallet device or program. This allows you to view and use your holdings without needing to enter your private keys.

You may find some of these products to have Bluetooth or other wireless capabilities while selecting one. If you can turn off the connectivity after using them—if it doesn't happen automatically—then these are also rather safe. The software, connectivity, and storage media on your device, as well as the requirement to utilize them on a device with a connection, are the weaknesses of digital wallets.
Hardware wallets are another name for commercial cold wallets.

Different Non-Custodial Cold Wallet Options

You may safeguard your bitcoin keys in a number of ways that are impenetrable to thieves and hackers. When encrypted and secured, USB drives can be utilized just as efficiently as a business wallet. When not in use, disconnect them, put them somewhere safe, create a backup, and use them in only one device—that is, to store your keys.

Pen and paper was one of the first methods of key storage, which involved keeping the keys within a locked safe. Although paper can decay or disappear over time, ink can flow, and it can be stolen, this is still a secure method. If you decide to use this approach, you should make sure that the safe is only opened by people you can trust and that you periodically check the paper.

Some users once printed the keys and QR codes on paper using QR code generators, then kept them in safes. Although you're giving other apps access to your keys, you can still accomplish this. Additionally, stay away from websites that will generate codes or anything else for you; you never know how a website will retain and use your information, and these sites are notorious for getting hacked or compromised.

Safety Measures

Backup

Make frequent early backups of your complete bitcoin wallet. A history of consistent backups can be your last chance to retrieve the money from the digital wallet in the event of a computer breakdown. Ensure that the backup contains every wallet.dat file, and then save it in several safe places (such as on a portable medium like a CD or USB). Additionally, make sure the backup is encrypted and has a secure password.

Updates for Software

Update your program frequently. A wallet with outdated bitcoin software can make it easier for hackers to compromise it. Your bitcoins will be safer because the most recent wallet software version has updated definitions and fixes. To keep your bitcoins secure, make sure you regularly update the operating systems and applications on your computer and mobile devices.

Multiple Signatures

The idea of a multi-signature, or "multi-sig," has become rather popular; in order for a transaction to be approved, it needs to be approved by three to five different people. As a result, there is less chance of theft because many controllers or servers are required to complete transactions (such as sending or withdrawing bitcoins). The individuals who can transact are pre-selected; if one of them want to transmit or spend bitcoins, the other members of the group must also approve the transaction. This is also known as a shared wallet, and it needs to be handled carefully.

If you choose to use multi-sig, make sure you are comfortable with and have faith in the other users before adding them to the wallet.

Recovery Phrases

Other names for seed phrases are recovery phrases, mnemonic phrases, and mnemonic seed phrases. Seed phrases are a set of randomly generated words that function as a master password for your wallet. If you ever misplace your storage devices or your access, these phrases let you get your keys back. Your keys undergo encryption, which is then used to create a string of characters that opens your wallet.

A recovery phrase might look like this:

The 64-digit hexadecimal keys are more difficult to write down, store, and/or memorize than these words. To keep your seed phrase safe and secure, you can even get a titanium stamping kit.

How to Use Bitcoin

Transferring just the quantity of bitcoin you wish to spend from cold storage to your hot wallet is the ideal course of action when you determine it's time to use it. Put any leftover bitcoin back into cold storage after you're done.

Anyone can view both the public address of your hot wallet and the amount you have put in it. If you utilize a blockchain explorer for the cryptocurrency you use, you can see an example of this. You won't attract the attention of criminals if your wallet is empty.

The Final Word

The use of cryptocurrency is growing among both users and criminals. It's important to keep your bitcoin keys safe because there are those who would rather steal from others than work. The safest way to save your keys is with cold storage techniques, but eventually, in order to access your bitcoin, you'll need to connect your storage device or enter your keys. The best defense against hackers taking your cryptocurrency is to use an offline device only when you really need to access and utilize your keys, and then to store it somewhere secure.