Choosing the Bitcoin storage method that is right for you!
Storing Bitcoins securely is one of the significant challenges one has to face when they are investing, trading, or at least using this Cryptocurrency or any Crypto for that matter. This is the price you are paying for all the convenience you get from using Bitcoins.
Crypto holders must consider three important factors when they choose their storage method. These three factors are Safety, Security, and Convenience. Safety is essential for preventing the accidental loss of Bitcoins. Security is for preventing the theft of Bitcoins by protecting them from hackers and convenience for being able to transact Bitcoins seamlessly without any time consuming lengthy procedures.
Sometimes these factors conflict with each other and balancing all of these three aspects in a single storage method is very difficult. For instance, if you prefer a storage method with a lot of conveniences while spending your Bitcoins, you are making them vulnerable to theft as it is convenient for hackers as well to steal them.
Likewise making your private key extra protected by making a lot of copies of them and giving them to friends and family to keep them safely might help you in never losing your private key permanently, but you will never know if that private key can fall into the wrong hands. If it does, all your Bitcoins can easily be stolen. So balancing these three factors is essential. The amount of Bitcoins you are willing to store also matters a lot while choosing your storage method.
The golden rule followed by most of the cryptonizers out there is using two different storage means, depending on the volume of Bitcoins you want to store.
The first one is by storing small amounts of Bitcoins with a lot of conveniences but less security, and
The second is to store a large amount of Bitcoins with less convenience but heavily secured.
Storing a small amount of Bitcoins
There are many easy to use services out there in the market to store your Bitcoins. But all of these services share on fundamental weakness, which is security. A potential hacker can breach all the layers of security and can steal your Bitcoins.
This same problem applies to traditional online banking as well. Any hacker can hack your bank account by just using malicious software which can observe and record your keyboard presses and steal your password. But banks provide a lot of security measures like limiting the amount of daily withdrawals, confirming with the user in case of large transactions before authorizing the transaction, etc.
But since the Bitcoin network is decentralized, it is on us to protect our funds as there is no centralized authority to do that. So it is very much recommended to store huge volumes of Bitcoins in a cold storage which cannot be accessed remotely. But in case of a small amount of Bitcoins, there are three ways in which you can send, receive, and store your Bitcoins conveniently. They are:
Online hosted wallet services
Online Personal wallet services
Personal hot wallet
Online hosted wallet services are the most preferred wallets by most of the novice crypto traders and investors because they are straightforward to use with brilliant user interface and experience. Users of this wallets need not know anything about the internal working of the Bitcoin system and network. They don’t even need to download and install any software to store or spend their Bitcoins.
All they have to do is signup and login to their wallet through the wallet provider’s website. This sounds familiar because online hosted wallet services work like most of the traditional money transferring applications like PayPal, where all you have to do is load your funds in their hosted wallet and transact. All the other services like managing transfers, deposits, and security measures are taken care of by the hosted wallets only.
An important thing to remember when you are using online hosted wallets is that you do not have direct control over your Bitcoins even though you own them. This is because you will not be having access to your private key. The private key of yours and thousands of others are controlled and managed by the wallet service provides by investing a lot for keeping them secured.
If this provider goes bankrupt, you will lose all of your Bitcoins. Hence the vital thing to do if you are willing to use online hosted wallets is to search for reliable and credible service. This can be determined by the process service providers use to access Bitcoins. If you can access your Bitcoins by just giving your username and password, so can the hackers.
The most credible online hosted wallet service provider is Coinbase, and they use two-factor authentication to solve this problem. That means users need to use their cell phone or any authentication device along with their username and password to access their Bitcoins.
Online personal wallet services work just like Online hosted wallets but with a fundamental difference. These wallets provide all kind of tools required to transact Bitcoins, but they do not have control over your private keys.
Once the website loads on your computer or mobile device, you get to create your private keys from a password you enter. Whenever you want to transact Bitcoins to someone, a signed transaction will be sent to the web server, but your password is confined to your device.
This means these services will never have access to your password or the private keys and can never be able to steal your funds. If at all the company goes bankrupt, none of your Bitcoins will be lost.
The only important thing to remember while using your online personal wallet is your password. If your password is lost, the service providers won’t be able to help you in recovering them as they don’t have access to it. So keeping multiple backups for your password is the best thing to do while using this service.
Personal Hot Wallet is a software that runs on your device, and no third party is required. This software provides complete control over your bitcoins without compromising on your convenience. But you will have more significant responsibility while using these online wallet services.
Since your private keys are saved on your device, and it is connected to the Internet to communicate with the Bitcoin network, you need to be extra careful.
Your device should be protected from malware, and viruses that may lead to theft. Maintaining a personal hot wallet is just like using your physical wallet. There are fewer chances of you losing your wallet, but it is recommended to keep less cash just in case.
The device where your hot wallet is installed should be kept extremely secure. Losing your device is equal to losing all of your Bitcoins in case you failed to take a backup.