Where Are Bitcoins Stored

When dealing with cryptocurrencies, you need to think about safe storage to keep your assets at all times.

Given the fact that cryptocurrencies are digital assets, they don’t physically exist. You can’t put Bitcoin (BTC), Ethereum (ETH) or Litecoin (LTC) in your wallet with fiat money like USD or EUR. This is why it was necessary to create adequate forms of storage for digital currencies.

The web is always prone to cyber-attacks and web malfunction, so it isn’t really safe to just leave huge amounts of assets unprotected in an exchange platform account. Exchange platforms do offer some degree of protection for your funds, but in order to know that the security of your assets really depends on you, you need to have your own crypto storage. 

That’s why today, we’re going to take a look at how blockchain technology works and what kind of Bitcoin storage options are available for keeping your funds secure.

Cryptocurrencies and Blockchain Technology

Cryptocurrencies use blockchain technology. Blockchains are basically networks of blocks that carry transaction data and are used to facilitate all transfers of a certain currency that is native to the blockchain, like Bitcoin.

The Bitcoin network is the first and most famous blockchain in the crypto world.

When Bitcoin transactions are made, the funds are processed from sender to receiver through the blockchain. In order for a transaction to get processed, it needs to be verified by independent system nodes (miners) to make sure the transfer is legit. When enough transfer data has been processed by miners, a new block of the blockchain is discovered and your transfer goes through the network to the receiver destination.

Bitcoins don’t exist beyond the blockchain, and that is why you need your private keys to access your BTC. The private keys verify that a certain amount of BTC is actually yours, so when you store cryptos like Bitcoin in cryptocurrency wallets, you are actually storing private keys to your cryptos on the blockchain.

Bitcoin Wallets

There are numerous ways to store BTC, depending on what amount of Bitcoin you are looking to store, how often you want to use your funds, and for what. Maybe you just want some secure storage to store large amounts of BTC as a store of value, or you want to have small and moderate amounts at your disposal for everyday expenses such as payment for services or products. 

Let’s look at what types of Bitcoin wallets exist and how each of them works.

Hot Wallets

Hot wallets, hot storage, or online wallets are all terms that refer to crypto wallets that are connected to the internet. 

These wallets are based on specific software solutions that are meant to keep your private keys secure and ready for use in just a couple of clicks. Hot wallets are fast and easy to use and they are very convenient if you want to carry out BTC transfers often, even on a daily basis, because the software is optimised for handling quick transfers. 

Let’s say that you are a crypto enthusiast who is engaged in everyday trading of cryptos on exchange platforms like Coinbase or Binance and you need to store your assets somewhere safely, but you also need to have them ready for quick trading. Hot wallets are great for such needs and they are also perfect if you don’t plan to store large amounts of funds in them because, even though they have tight security, the fact that they are constantly connected to the web does pose a possible security threat.

It’s best to store small and moderate amounts of cryptos on hot wallets, or to connect a hot wallet with some cold storage solution, which means that your private keys aren’t located in the hot wallet. 

Desktop Wallets

Desktop wallets are hot crypto wallets that work as desktop programs for PCs and laptops. You have to install the wallet on your computer and access it from your desktop. 

These wallets are also referred to as software wallets.

Different desktop wallets have different privacy policies. Some of them store your private keys on their servers, and others store the private keys directly on your device, which means that in the event of a server hacking, your private keys would still be safe because they aren’t located on the company’s server.

However, when using desktop wallets, you should avoid storing your private keys on your computer and add an extra layer of security by keeping your private keys and passphrases on an external USB device, hard drive, or piece of paper. This way, you can prevent your funds from getting compromised in case of a malware infection of your computer, or if a coordinated cyber attack happens and your computer is part of the compromised web network.

Exodus and Wasabi are great choices for desktop wallets because they are fast, reliable, and have tight security measures.

Web Wallets

Web wallets work similar to desktop wallets, except that in order to access them, you need to use a browser. Web wallets are accessed through their native web platform, which means you don’t need to download and install any program on your computer, plus, you can use these wallets on your smartphone and other mobile devices.

Web wallets are very handy for access, exactly because you can use PC, laptop, and smartphone alike, but you should pay attention to the security protocols of the web wallet you are using and make sure not to store your private keys or passphrase on the same device you are using to access the wallet.

Some of the most popular and trustworthy web wallets are Blockchain wallet and Coinbase wallet.

Mobile Wallets

Mobile wallets are crypto wallets that are specialized for use on mobile devices. They are usually Android and iOS compatible and come in the form of wallet apps you can download and install on your mobile device.

Lots of web and desktop wallets come with mobile wallet support. Mobile wallets are great for quick access to your funds since you can literally exchange, send, and store your BTC in a couple of clicks.

Multi-Signature Wallets

Multi-signature wallets aren’t your typical crypto wallets. They are hot wallets that are super secure since they generate multiple private keys that are necessary in order to access certain funds. Companies and investors use multisig wallets because it means that multiple persons need to enter their private keys in order to unlock access to certain funds, which is a great security measure when it comes to large amounts of assets. 

Bitcoin Armory is one of the most popular multi-signature wallets on the market.

Cold Storage

Cold storage is the opposite of hot wallets in the sense of connection to the internet because cold wallets have no web connection and store data offline. They are unhackable by malicious individuals who would want to gain access to a certain Bitcoin address since they can’t be accessed through the internet.

Also, the thing with cold wallets is that they physically exist and store your private keys on them. Hardware wallets and paper wallets are the two forms of cold crypto storage and they are commonly used for storing large amounts of BTC or other cryptos.

Hardware Wallets

Hardware wallets are special USB devices that store your private keys securely, with no connection to the internet. They are encrypted with PIN codes, passphrases, and passwords to protect your private keys even if you happen to lose the device itself. 

Trezor and Ledger Nano X are the best hardware wallets on the market, they provide top-of-the-line cryptography solutions and they work perfectly with a broad range of hot wallets, which means you can use your funds quickly with a hot wallet, but have your assets protected by the security of your hardware device. 

These hardware devices are very user-friendly and easy to use, which is a key advantage.

The combination of a good hot wallet and a hardware wallet is something generally regarded in the crypto community as a great duo for keeping your funds easily accessible and safe.

Paper Wallets

Paper wallets are basically pieces of paper with oriented private and public keys along with QR codes that lead to your private and public keys. You can easily generate a paper wallet using Bitcoin paper wallet. 

This type of wallet is regarded as highly secure for storing large amounts of BTC. Still, you should be very careful not to damage it physically, misplace the paper, or let anyone besides yourself know about the location of your paper wallet.

A Few Words Before You Go…

As you can see, there are various methods for storing BTC. It’s important for you to decide which one suits your needs best.

Will you be using your funds mostly with your mobile device or with your laptop? Maybe you don’t plan to use your funds frequently and want to keep them safely as a store of value?

You should decide what works best for you and how you want to store Bitcoin depending on the answers to these questions.

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