Crypto Wallets: Where to Store Your Bitcoin
A key tenant to holding digital assets is having a proper level of security. Unfortunately, many beginner users store their tokens on the exchanges they bought them on, such as services like Coinbase. Keeping them on exchanges increases the chance of centralized cyberattacks, or losing your assets if the exchange company gets shut down or if your account lacks security measures such as two-factor authentication. Always remember, “not your keys, not your coin.”
Cryptocurrency wallets are one of the most actively developed applications in the space. Each wallet can store assets such as Bitcoin and Ethereum, but each also have their own level of security and complexity. Let’s review some of the options:
Desktop Wallet
Desktop wallets were one of the first iterations of software that allowed users to manage their own cryptocurrencies and private keys. While they were easy to access by operating on a Windows or Mac operating system, they weren’t very secure.
Web Wallet
Web wallets can be accessed via a web browser, similar to services like GMAIL or Facebook. The user’s wallet is stored on a third party server. While some web wallets are structured in a way where the user’s keys are stored locally on the user’s device, most have wallet access stored on third party servers.
Mobile Wallet
Mobile wallets are a good option for beginners. They are secured locally on your mobile device, establishing your own private key that not even the mobile wallet company can have access to.
Hardware wallets
Hardware wallets are specialized hardware devices that connect to your computer to store or send bitcoin transactions. Although the wallets interact with either a web browser or desktop application, the bitcoin operation themselves occur on the hardware itself - making hardware wallets very secure.
Paper Wallet
Paper wallets are simply private keys of a digital asset that are physically printed onto paper or other materials. Although this is a low-tech method, it’s an incredibly secure method for long-term storage as long as the user properly keeps them safe in the physical space.
Multi-Sig
Multi-Sig, short for Multi-Signature, is a method of using multiple signing devices to control access to your bitcoin. For example, say you wanted to move bitcoin out of your wallet. You would have to confirm the transaction from not only your hardware wallet but also a wallet on your mobile phone. This allows you to protect yourself from a single point of failure happening. I'm still studying how the technicals work on doing that on your own, but there are services like Casa that set this up for you. While you will technically be using a third-party service, they still do not control your private keys.
Again, each option has various levels accessibility and security and it’s up to the user to determine which wallet option best fits their needs. As more adoption continues, there will be larger institutions that will offer custodial services for people that would prefer third-party storage rather than manage self-custody. Examine your risk factors, and continue to to research.
This article, along with all content and opinions from BTC Examiner, is for educational purposes only and is not financial advice. Please reach out to your independent financial advisor before making any investment.
