Beginner's Guides to Storing Bitcoin

Beginner’s Guide to Store Bitcoin

Beginner's Guide, Wallets

New bitcoin investors must choose how to store bitcoin for future access.  You must take responsibility for securing your bitcoin investment.  Technically, you are not storing your bitcoin though.  Rather, you are choosing where to store the private key that grants access to your bitcoin.   If the method you choose to store your private key is hacked or if you forget the information necessary to access your bitcoin, you most likely will never see that bitcoin again.  We analyze the pros and cons of the most common ways to store your bitcoin private key  — bitcoin exchanges, desktop wallets, mobile  wallets, and hardware wallets.  Our bottom line recommendation is to store the private key to most of your bitcoin in a hardware wallet.

Bitcoin Exchanges
Summary
Most bitcoin exchanges will hold your bitcoin in an online account accessed with a username and password, which makes it highly accessible and requires no additional steps after you purchase bitcoin.  There are several serious drawbacks that include losing  your bitcoin if the exchange shuts down, if hackers break into the exchange, or if hackers steal your exchange login information.  Always enable two factor authentication on every bitcoin exchange and use strong anti-virus to secure the devices used to access the bitcoin exchange.  You can learn more about these exchanges in our step-by-step guides to Coinbase, Gemini, and Bitstamp.
Pros
  • Bitcoin is easily accessible for trading or selling
  • Familiar user interface similar to online banking
  • Do not need a separate wallet
  • Do not need to make any withdrawals to a separate wallet
  • Do not need to store your own private keys
Cons
  • No control over your bitcoin and private key
  • Cannot access your bitcoin if the exchange is offline
  • Bitcoin stolen if the bitcoin exchange is hacked
  • Bitcoin stolen if the bitcoin exchange shuts down
  • Bitcoin stolen if your computer’s security is compromised

 

Desktop Wallets
Summary
Desktop wallets are software programs that allow you to access your bitcoin from Windows, Mac OS, or Linux.   Desktop wallets store the private key for your bitcoin on your computer’s hard drive and allow you to backup your private key to other locations/devices.  This means you control your bitcoin.   Still, your bitcoin could be stolen if the security of your computer is compromised by hackers or physical theft.   Always use a strong anti-virus program on your computer.  Read step-by-step guides to Jaxx and Exodus for more details on how to use those desktop wallets.
Pros
  • You control the private key to your bitcoin
  • Generally offer a great user experience
  • Some manage multiple cryptocurrencies
  • Some  allow swaps between cryptocurrencies
Cons
  • Must keep the desktop wallet software updated
  • Bitcoin stolen if the wallet software is compromised
  • Bitcoin stolen if your computer is stolen or hacked
  • Bitcoin may be lost if your login and backup information is lost

 

Mobile Wallets
Summary
Mobile wallets are apps that allow you access to your bitcoin from a cell phone and are the most convenient way to access your bitcoin and store your bitcoin private key. However, mobile wallets are not a very secure storage methods because cell phones are commonly lost, stolen, or compromised by hackers.  If you have a mobile wallet, use strong anti-virus on your cell phone and learn how to shut off access to the phone should it be lost or stolen.  Read the step-by-step guide to Bread for more details on how to use that mobile wallet. 
Pros
  • You control the private key to your bitcoin
  • Extremely convenient
  • Simple to use
  • Some manage multiple cryptocurrencies
Cons
  • Must keep the mobile wallet software updated
  • Bitcoin stolen if the wallet software is compromised
  • Bitcoin stolen if your cell phone is stolen or hacked
  • Bitcoin may be lost if your login and backup information is lost

 

Hardware Wallets
Summary
Hardware wallets are essentially specialized and secured USB drives for your bitcoin.  The private key to your bitcoin never leaves the hardware wallet.  We recommend hardware wallets for storing any significant amount of bitcoin because no one can access your bitcoin unless they have either (1) your 24 word backup passphrase or (2) your physical hardware wallet along with your 4-8 digit passcode.  Never copy your 24 word backup passphrase to a computer, cell phone, or any other electronic device.  On the downside, you will lose access to your bitcoin if you forget your backup passphrase and lose your hardware wallet with 4-8 digit passcode.   Store the backup passphrase in a secure location. Read the step-by-step guide to transferring bitcoin with the Ledger Nano S for more details on that hardware wallet.
Pros
  • You control the private key to your bitcoin
  • Your bitcoin private key never leaves the hardware wallet
  • Bitcoin stays secure even if your computer is hacked
  • Bitcoin stays secure even if your your computer is stolen
  • Bitcoin stays secure even if your hardware wallet is stolen
  • Support multiple cryptocurrencies
Cons
  • Bitcoin lost if your backup phrase and passcode are lost
  • Must trust hardware wallet manufacturer
  • Long shipping times due to consumer demand
  • Bitcoin may be stolen if hardware wallets are ever hacked
  • Not as convenient for selling and trading bitcoin
  • Learning curve to using the hardware wallet