How To Safely Store Bitcoins: Exploring Your Options

Cryptocurrencies, such as Bitcoin, are digital assets stored electronically on a blockchain network, with basically no physical existence. 

But how can you access and transfer these intangible digital assets securely?

There are two different options available: custodial and non-custodial (self-custody) wallets. Their main difference comes from who controls the cryptocurrency. So, in a non-custodial wallet, the user has complete control and not a third party, as we see in a custodial service. 

Wondering which option is best for Bitcoin? Let us share some information. 

Bitcoin is useful and valuable because of its robust security characteristics and ability to transfer value from peer to peer in a sovereign way. Unfortunately, the greatest losses to consumers have occurred when they give up these security characteristics in favor of the convenience offered by large exchanges, in which you buy crypto and they custody it for you. 

The largest public losses, like those incurred by the FTX collapse, Celsius, BlockFi, MT.Gox and many others were so disastrous because they lost or absconded with customer funds through mismanagement, negligence, or outright malice.

In the Bitcoin space, these losses (including the examples shared above) are entirely preventable because Bitcoin is so easy to self-custody. Unlike gold, stocks, or real estate, you can easily own, store, move, and transfer your assets without the need for a third-party custodian or asset manager. 

So in this article, we’ll explore the ways you can choose to self custody your Bitcoin.

How Do Bitcoin Wallets Work 

When creating a Bitcoin wallet, you receive two essential keys: a public key and a private key. 

The public key is utilized for encrypting data and forming your wallet address, while the private key enables you to decrypt this data or access your Bitcoin holdings. Protecting and securely storing your private key is crucial.

The blockchain is the record-keeper for your Bitcoin. It reliably records, stores, validates, and secures your Bitcoin ownership through encryption. To this day, no cryptocurrency has been compromised via blockchain data alteration, owing to the robust encryption techniques employed by proof of work blockchains. 

It would actually require several hundred years, or even thousands of years (given the current state of technology), to successfully breach a blockchain through brute-force hacking.

So, to store these private keys and secure your funds, there are a variety of methods available for you to choose from. Let’s review the most common ones.

Types of Bitcoin Wallets

Software Wallets/Phone Apps

Apps like the Coinbase Wallet or Muun Wallet are great software-based solutions to store your Bitcoin. While they are not perfect as far as security, they have reliable backup methods that allow you some redundancy in case you misplace your seed phrase–the 12 words that generate your wallet when you first set it up. 

These wallets are great for smaller amounts that need to be accessed and moved with some frequency. For large amounts, it is recommended to use a hardware wallet or some version of multi-signature custody (explore more below).

Paper Wallets

Because a “wallet” is really just an address generated by a private key, which can be generated by 12 random words from a list, access to your money is really just a matter of accessing information. 

In other words, you can own Bitcoin without ever interacting with an electronic device, and in fact, your security is greatly improved by doing so, and devices connected to the internet pose the greatest security risks.

By simply writing 12 words on a piece of paper or stamping them on stainless steel as a more durable option, you can take custody of Bitcoin and receive it to your address without ever setting it up via an online interface. This can be a very secure option as long as you properly store your seed phrase.

Hardware Wallets/Signing Devices

Hardware wallets store your private key on a physical device and allow you to access your money for spending through a physical interface that is needed to validate any transaction you initiate. 

Hardware wallets are (usually) essentially software wallets that do not have a built-in private key stored. So, while the experience of interacting with your hardware wallet interface is very similar to a software wallet, the actual validation of the transaction depends on a physical device to authenticate. 

This provides an added layer of security and keeps your private key from being on a physical device with internet access. These devices often have multiple secure elements. This means that the private key is safer and cannot be read from the device at a distance, similar to how credit card information can be lifted from your wallet.

Hardware wallets, especially combined together in a multi-signature format, are the gold standard for keeping your assets safe. Companies like Ledger, Trezor, and CoinKite are well-known in the space and have their own individual setup processes and security features.

Multi-Signature Software Wallets

We discussed private keys being the ultimate access to your funds, and if your key is lost or stolen, unfortunately, you are out of luck UNLESS you have your assets in a multi-signature setup. 

Software wallet providers like Sparrow Wallet are built to accommodate multi-signature setups. 

In a multi-signature custody configuration, you essentially split your private key into multiple pieces, with a 2 of 3 signature being the most common. 

The scenarios for collaborative multi-signature custody are endless, and there is no limit to how many keys you can have or what set of rules you apply.

Suffice it to say that if you lose one key but have access to the other 2, your funds are safe. If someone gains access to one of your keys but cannot get a second, your funds are safe.

If, unfortunately, you lose one key or pass away suddenly (leaving heirs and a treasure trove of Bitcoin), but your two trusted backups are intact, your funds are safe and can be transferred to your heirs according to your individual wishes. 

Multi-signature custody creates redundancy security as, by nature, it requires several types of permission. So it forces upon you as a saver the good behavior of HODLING your coins for longer due to the challenge of moving them around on a whim.

Collaborative Custody Solutions

The field of Bitcoin custody solutions is huge and ever-expanding. Companies like Unchained Capital, Fedimint, and The Bitcoin Adviser all offer various types of collaborative custody for individuals and institutions to achieve a wide variety of aims. 

The possibilities and permutations of structures are infinite, and one size does not fit all. If you find yourself handling a small fortune of Bitcoin, and you want to be sure it is protected, it is highly advisable to start considering collaborative custody setups. This will allow you to minimize the risk of loss and can help you feel secure about your ownership of the most valuable asset in the world.

That’s all for today!

We shared with you an in-depth exploration of crypto and bitcoin wallets and how you can use them in each circumstance. 

Last Words

Ultimately, taking self-custody is NOT DIFFICULT; it is just not widely understood or taught. Finding the best option can sometimes be challenging, especially when you’re just starting out, but with the right resources and advice, you can choose the right method. 

At Abundant Mines, we are on a mission to make sure you never lose your coins to a scammer or mismanager and that you have the confidence and competence to take ownership of your future. We want you to sleep easy, knowing that something like FTX can never happen to you as long as you take self-custody!

If you have more questions or need any advice, you can always reach out, and our team of experts will be here to cover all your Bitcoin needs.

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