How to Store Bitcoin (BTC) Safely
Bitcoin’s popularity has surged over the years, but with it comes a critical question - how do you store BTC safely? Security should be a top priority for any investor, yet many still overlook key risks.
In this guide, we’ll break down the essentials of Bitcoin storage, including:
The different types of Bitcoin wallets
Best practices for keeping BTC secure
Common mistakes to avoid
What Are the Types of Bitcoin Wallets?
There are numerous types of Bitcoin wallets you can use to store your BTC. Based on the access to your private keys, a BTC wallet can be either:
Custodial: A custodial Bitcoin wallet focuses on convenience at the cost of counterparty risks. Here, the service provider (e.g. a crypto exchange) stores your private keys on your behalf and controls access to your funds. This enables seamless account recovery but increases the risks of a loss of funds due to a hack, default, or exit scam.
Non-Custodial: Unlike their custodial counterparts, non-custodial BTC wallets offer you full control over your private keys and funds without any counterparty risks. However, in case you lose or forget your seed phrase, you won't be able to recover your wallet. Thus, following crypto wallet security best practices plays a key role in ensuring that you retain access to your funds in a non-custodial wallet.
Depending on its connection to the internet, a Bitcoin wallet can also fall into one of these two categories:
Hot Wallet: A hot Bitcoin wallet generates your recovery phrase online and stores it with the private key in an always-online environment. Most wallets are hot wallets, as they make it easier to transact BTC and use decentralised applications (dApps). However, this comes at the cost of security, as they are vulnerable to phishing, malware, and hacking.
Cold Wallet: Cold wallets generate and store keys in an offline environment. This isolates users' BTC holdings from potential threats (e.g., phishing attacks or malware infections). As a result, they are excellent for long-term storage but less suitable for everyday transactions due to their limited convenience.
You can find the most common types of Bitcoin wallets below:
Hardware Wallets: Non-custodial cold storage solutions that are considered the safest Bitcoin wallets in the market. They feature a hardware device, which is used for secure private key generation and storage. Hardware wallets add another layer of security to crypto transactions by requiring users to verify outgoing transfers via the hardware device (e.g., by providing a PIN code). This helps safeguard your assets even if an attacker gains access to your device.
Mobile Wallets: Mobile wallets are non-custodial hot wallets that store your private keys on your smartphone device. For increased convenience, they simplify user verification, which can increase the risks of hacks and theft. Two-factor authentication (2FA) and biometric authentication (e.g., Face ID, Touch ID) can mitigate some of these vulnerabilities.
Desktop Wallets: Desktop Bitcoin wallets are installed on users' computers or laptops. While they are non-custodial, they are always connected to the internet. Desktop wallets store private keys locally and usually offer more flexibility and control. That said, they are also vulnerable to hacks, phishing, and malware, especially if investors fail to implement the best practices of crypto security.
Web Wallets: Web wallets are hot wallets that store users' private keys on online servers. As these servers are controlled by third-party service providers (often centralised cryptocurrency exchanges (CEXs)), they are prone to counterparty risks. On the flip side, they offer increased convenience, seamless account recovery, and direct access to a full suite of digital asset products and services.
Looking for the best Bitcoin wallet in South Africa? Check this article on our blog to learn more!
How to Safely Store BTC: The Best Practices of Bitcoin Security
Now that you know the types of wallets for sending and receiving Bitcoin, it's time to take a look at the best practices to safely store your BTC. We have collected these tips and tricks in the below list:
Never share your private key or seed phrase with anyone
Use a hardware wallet for maximum security
Store larger amounts of BTC and long-term investments on a cold storage solution and keep small amounts of Bitcoin for daily, frequent usage on hot wallets to balance security with convenience
When it's available, use 2-FA to enhance your Bitcoin wallet's security
Store your seed phrases securely, backing them up offline and keeping them in places you have exclusive access to
Consider multi-signature (multi-sig) wallets, which require signatures from multiple private keys to authorise transactions
Keep the software of your Bitcoin wallet up-to-date to prevent bugs and vulnerabilities, as well as protect against security threats more efficiently
Always use strong passwords and PINs you haven't used elsewhere for your BTC wallets
Common Mistakes to Avoid
Everyone slips up - whether you're new to crypto or an experienced crypto user. Errors in the cryptocurrency space can be costly, as a simple misstep, like sending funds to the wrong address, may lead to an irreversible loss.
The good news is that by staying vigilant, following best practices, conducting thorough research, and recognising frequent pitfalls, you can significantly reduce the risk of human error. Below, we've compiled some of the most frequent scenarios to watch out for:
Sharing your seed phrase with someone else: You should never do this, as it could enable others to recover your wallet and access your funds.
Typing wallet addresses manually: Manually typing the recipient's wallet addresses leaves significant room for human error. Instead, copy-paste addresses and double-check them before initiating the transaction.
Using a shared or unsafe device: A shared device could provide others access to your Bitcoin holdings. At the same time, if your computer, tablet, or smartphone is infected with malware, hackers could gain access to your private key or trick you into sending BTC to their addresses.
Downloading a fake wallet: A fake wallet is one of the most common crypto scams to avoid. Here, scammers try to convince you to download a fake wallet, which may look identical to a popular solution, to steal your assets. To prevent such a scenario, you should always do your own research, check for user reviews, and verify the URL of the website before downloading or installing anything on your device.
Falling victim to a phishing scam: Phishing has become the most significant on-chain attack vector of 2024, with scammers continuously targeting unsuspecting digital asset users to steal their funds. You should be aware of the current trends, always double-check every source, and do your own due diligence to protect your Bitcoin holdings.
Using public Wi-Fi: Public Wi-Fi networks are generally insecure and are vulnerable to man-in-the-middle attacks, where perpetrators intercept communications between you and the Bitcoin wallet service to steal your credentials. To avoid such cases, avoid connecting to public Wi-Fi networks or use a trusted virtual private network (VPN) service to keep your connection secure.
Not monitoring wallet activity: Failing to monitor your wallet increases the success rates of hackers and scammers. On the contrary, if you regularly check your transactions and review your wallet for suspicious activity, you could prevent incoming threats or help mitigate against ongoing attacks more efficiently.
Buy and Store Bitcoin Safely on VALR
To safely store your Bitcoin, it's crucial to understand the different types of wallets available and follow best security practices. Whether you choose a custodial or non-custodial wallet and whether you prefer a hot or cold storage solution, each option has its own advantages and risks.
Implementing advanced security measures like two-factor authentication, using hardware wallets for long-term storage, and never sharing your seed phrase can help protect your assets. By avoiding common mistakes like phishing scams, unsafe devices, and typing addresses manually, you can minimise risks and ensure the safety of your BTC holdings.
If you are looking for a wallet to buy and store Bitcoin safely, take a look at VALR. Despite being a custodial hot wallet, VALR has an impeccable reputation and operates a 100% fully-reserved platform that prioritises users' security.
In addition to features like 2FA, you can take advantage of strict internal controls, the balanced storage of customer funds in hot and cold wallets with multi-sig technology, and a regulated service with licences in South Africa, the EU and more jurisdictions.
Ready to step up your Bitcoin wallet security? Visit VALR's website to get started!
Frequently Asked Questions
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A hardware wallet, which is a non-custodial cold storage solution, is the safest place to store your Bitcoin due to its offline nature and secure private key management.
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Store long-term Bitcoin holdings in a hardware wallet (cold storage), secure your seed phrase offline, enable two-factor authentication, and use strong passwords.
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Buy Bitcoin from a trusted exchange like VALR, then store it safely using a hardware wallet for long-term security while enabling features like 2FA for added protection.
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You can store Bitcoin keys on a USB drive by using a cold storage solution, though a dedicated hardware wallet offers better security due to encryption and tamper resistance.
Risk Disclosure
Trading or investing in crypto assets is risky and may result in the loss of capital as the value may fluctuate.
VALR (Pty) Ltd is a licensed financial services provider (FSP #53308).
