Safely Store Bitcoin and Other Cryptocurrencies
Cryptocurrencies I Have seen people lose their Bitcoin in every way imaginable, and I want to help you avoid the most common mistakes.
Will your storage medium last 10 years? Will your family be able to access it in the event of your death?
Have you considered that the same events that will cause Bitcoin to go up in value may cause you to lose control of it?
What is the best way to store Bitcoin?
Hardware wallet is unquestionably the best way to store Bitcoin. There are three good options: Trezor, Ledger, and KeepKey. I prefer the Trezor, but pick any of them, then write down your seed on paper, and put that paper in a safe.
What’s your excuse for not using a hardware wallet?
Most of you are not using a hardware wallet. You keep Bitcoin with an exchange like Coinbase, or an app running on your phone or desktop. But these come with major risks:
Will your Bitcoins survive the shift to a Bitcoin economy?
Bitcoin is an extremely risky investment. If Bitcoin goes up tenfold or a hundredfold, what will come down? It could be the dollar’s value. It could be the banking sector. It could be the entire global economic regime.
We have no idea how governments will react: will they try to ban Bitcoin, confiscate it, or embrace it?
If you are relying on someone else to keep your Bitcoin safe, will they survive that change?
Don’t trust exchanges and other third-party custodians
Mt Gox logoWhen you buy cryptocurrencies, you are betting that our economy will experience a dramatic shift to digital money. We have no idea which businesses or apps will survive that shift or how long it will take. Imagine if you had to pick just one company to bet on the future of the Internet during the dot com boom. Are you smart enough to pick Amazon.com rather than AOL or Pets.com? The only thing that you can trust to survive almost any economic upheaval is a backup stored on paper (or even better, metal) under your control.
Don’t trust desktop or mobile wallets
Most people who decided to keep their Bitcoin in an app came to regret it.
Multibit was a great wallet in 2015 but now doesn’t work on many computers.
Modern computers are notoriously insecure. Key loggers and remote access can record your keystrokes and copy all your files.
At one point in the lifetime of Windows XP, it only took a few minutes for the average computer to become infected once exposed to the Internet.
Operating systems today are much more secure but are you willing to bet that someone won’t find a catastrophic Windows zero-day exploit when the Bitcoin market cap is $1 trillion?
Don’t trust file backups
Did you know that DVDR’s can fail in as little as five years? Flash drives might fail after 10 years – we really have no idea how stable flash memory is over the long term. Hard drives last 3-5 years when used, and we don’t really know how long they last in storage, but the oils will dry up and the motor bearings will eventually fail. Archival grade gold DVDR’s are supposed to last 100 years, but will you still have access to a DVD reader in 2030? In short, we have no idea which digital storage mediums are safe for the long term, so all your Bitcoin wallet backups might get corrupted.
Don’t trust paper wallets
Photo by Steve Johnson on Unsplash
Paper wallets and brain wallets were good for their time, but I know many people who misplaced their paper wallet or forgot the exact phrase they used for their brain wallet. Some people who used a paper wallet found out that it could only be decrypted using the exact browser used to make it. Paper wallets and brain wallets also compromise your privacy by forcing you to keep all your Bitcoin in a single address.
What about my altcoins?
Trezor and Ledger now both support many coins and hundreds of tokens, so you have no excuse not to use them for your entire portfolio. Both Shapeshift and Exodus now work with hardware wallets to let you visualize and manage your entire portfolio.
A BIP-39 seed is the way to go
Hardware wallets today use a BIP-39 mnemonic code for generating deterministic keys. A BIP-39 seed phrase is a list of words (usually 24 for a hardware wallet) which generates an infinite number of addresses.
BIP39 codes are supported by many different coins besides Bitcoin. While something better than BIP39 may come along, it’s very likely that as long as Bitcoin is around, there will be some implementation of the BIP39 algorithm to restore your wallet.
You’ll be able to get your Bitcoin back even if the company that made your hardware wallet is long gone.
Keep your recovery seed safe You can generate the seed completely offline and without usinTrezor with Cryptosteelg a computer – just plug in your hardware wallet directly to a power source. Instead of paper, use a Billfodl or CryptoSteel to keep your recovery words protected against fire or flood.
Because they are universal, a BIP-39 seed is also the best way to secure your legacy for your family, so consider adding instructions to locate your recovery seed in your will.
If you are concerned about the security of your seed words, you can cut the list of 24 words in half and keep them in two places.
Never type your seed directly into your computer — even just to print it on paper because your handwriting is bad.
Remember that hardware wallets will never ask you to type your seed directly into your computer. When restoring your seed, they all use some kind of indirect entry method (such as entering the words out of order) to protect against key loggers.