Bitcoin (BTC) is the most valuable digital asset around the world. Therefore, you have to ensure you store it safely, or otherwise, you will easily lose it to hackers.
There are two places where you can store your Bitcoins. One of the places is in a crypto exchange inbuilt wallet and the other place is in a personal digital wallet that accommodates Bitcoin (BTC).
The crypto exchange inbuilt wallets are usually not that secure since you do not have control over the private keys of the wallet. Secondly, since exchanges are always online, their inbuilt crypto wallets are very susceptible to hacks. There have been several exchanges that have been hacked in the past resulting in traders losing their crypto holdings.
The safest place to securely store your Bitcoins (BTC) is in a personal digital wallet.
There are very many digital wallets out there that can accommodate BTC. The wallets can be grouped into two categories: Hot wallets and cold wallets.
These wallets are also referred to as online wallets. They are crypto wallets that run on devices like phones, tablets, or internet-connected computers. They are of two types: the inbuilt cryptocurrency exchange wallets and the desktop wallets.
Desktop wallets are those wallets that come in the form of an application that you download and install on your computer, phone, or tablet.
Hot wallets, both crypto exchange wallets, and desktop wallets are generally very convenient when it comes to their accessibility especially when making transactions. However, they generate your private keys on these internet-connected devices, which makes them very susceptible to hacks.
Hackers are always online looking for some loophole somewhere that they can utilize to steal crypto assets from naïve crypto investors. There have been numerous cases of investors losing their cryptocurrencies to hackers from their hot wallets.
And one of the main loopholes that hackers look for is investors who brag about the number of crypto assets they hold in specific crypto wallets. For example, if an investor on Reddit talks about how much BTC he olds in a certain wallet, that word will most likely also be seen by hackers who will start going after him and eventually get a leeway to access the private keys especially if they are stored on the internet-connected device.
Nevertheless, hot wallets can still be made secure. Some of the steps to take to ensure that the online wallets are secure include:
- Storing your private keys outside the internet-connected device. You can write it on paper and keep it somewhere safe and then erase it from your internet-connected device.
- Using a strong password that incorporates special characters.
- Use of two-factor authentication when login into your wallet account.
- Using a safe internet connection whenever you are accessing your hot wallet. You could use VPNs.
However, since there is still a chance that hackers may get a way around the security features, it is important to always maintain a very small amount of crypto coins in the hot wallets. Remember that other people on the blockchain can see the balance of the public address you used in a transaction.
Mostly, hot wallets are used for trading purposes. They are used to hold a small number of crypto coins for trading or use in other activities.
In most cases, it is advisable to move your BTC coins from a cryptocurrency exchange wallet where you are not in the custody of the private keys to a desktop wallet where you are at least in the custody of the private keys. And several crypto exchanges and Defi pools allow traders to connect their desktop wallets to their trading or investment accounts and they can be transacting from their hot wallets rather than from the exchanges’ inbuilt wallets.
Examples of commonly used BTC desktop wallets include:
- Bitcoin Core
- Jaxx Liberty
- Guarda Bitcoin Desktop Wallet
In a nutshell, a cold wallet is a wallet that is not connected to the internet. They are also called offline wallets and they are less susceptible to hacks.
When we say they are not connected to the internet, we mean that they automatically store the private keys in something that is not connected to the internet. However, these wallets come with parallel software that allows you to view your crypto portfolio on your devices (computer, phone, or tablet) without keeping your private keys at risk. And when you need to carry out transactions you simply connect the hardware device in case of a hardware wallet to your computer, phone, or tablet and authorize it to allow you to receive or send a certain amount of crypto assets.
There are two types of cold wallets: paper wallets and hardware wallets
The paper wallet is deemed as the most secure way of storing your BTC coins and any other cryptocurrency.
To generate a paper wallet, you visit certain websites and then generate both public and private keys, which you then print on a piece of paper immediately. The memory of the generated private and public keys is then erased from the website and the only way you can access the Bitcoins or other crypto assets stored in the wallet is by using the printed private and public keys.
You can choose to laminate the printed piece of paper and store it safely somewhere where you are the only person who can access it. In most cases, these wallets are used by investors who are looking to make long-term investments and do not intend to keep on using the wallet to send and receive Bitcoins.
Common websites where you can obtain a BTC paper wallet include:
- Verge paper wallet generator
This was invented after paper wallets and instead of generating the public and private keys and then storing them on a printed paper, the keys are stored in a hardware device that is then disconnected from your internet-connected device (the computer, the phone, or tablet).
A hardware wallet looks more like a USB drive device that you can plugin into your computer, phone, or tablet, use, and then unplug when done.
And contrary to the common USB drives that are affected by viruses, the cryptocurrency hardware wallets are never affected by viruses. They are programmed to immune to viruses.
Once the private keys are stored in the hardware wallet, they never come into contact with your internet-connected device even when you connect the hardware wallet to the internet-connected device.
The hardware wallets have a parallel software/website which you can log into to view your crypto portfolio. However for you to update the portfolio, by sending or receiving crypto assets, you have to connect the hardware device since it is the one with the private keys that authorizes any transactions from the wallet.
Examples of the most commonly used BTC hardware wallets include:
- Ledger Nano S.
- Trezor One.
- BitLox Bitcoin Hardware Wallet
- BlochsTech card
As a Bitcoin investor, the best way is to have all the three types of wallets: a crypto exchange wallets like Coinbase and Kraken for buying and selling BTC via an exchange, a desktop wallet to store small amounts of BTC that you intend to use in near future and a cold wallet to store the most of your Bitcoins for a longer-term.
The cold wallets are, however, more complicated and may require some technical knowledge, which is easily available online, to operate.