Bitcoin offers financial freedom and independence. But being independent of third parties like banks also means, that you will have to make sure that your Bitcoin is safe and secure. But how do you securely store bitcoin? In this article, we will cover some means of Bitcoin self-custody as well as their (dis-/) advantages.
Why Self-Custody Is Important
Some people might say, that they don’t mind leaving their Bitcoin in the hands of custodians (like a bank or a cryptocurrency exchange for example), at least those keep them safe right?
Not necessarily… In the short history of Bitcoin, there have already been plenty of hacks or other events that caused the loss of user funds. Just recently the big lending platform “Celsius Network” disabled its withdrawal function, effectively preventing users to access their funds.
But custodians losing or stealing your Bitcoin is not the only reason why keeping coins in someone else’s custody might not be such a great idea after all. Being dependent on a custodian means that you lose pretty much ALL the benefits Bitcoin grants you. A custodian can censor your transaction, keep you from withdrawing your coins, arbitrarily exclude you from the network, invade your privacy by tracking your balances and transactions and the list goes on. In order to use Bitcoin to its full potential, you will need to take matters into your own hands. But how do you securely store bitcoin?
Level 1: Hot Wallet
A Hot Wallet is the entry-level self-custody solution. It is a Bitcoin Wallet that stores your private keys on your own device (eg. Smartphone).
A great smartphone Bitcoin Wallet application is BlueWallet. It lets you easily create a self-custody Bitcoin Wallet, while also offering features that will increase security and privacy if you care to use them. BlueWallet also supports the Lightning Network, which is the second layer of Bitcoin. At Starbackr we try to offer the best support for both layers, but most of the behind-the-scenes stuff is happening on Lightning.
When creating a self-custody Bitcoin Wallet you will get your mnemonic words (ofter called Seed-Phrase, Backup-Phrase, or simply 12-24 words). This phrase can be used to restore your Wallet at any time. It is an all-access key to your stash, so keep it safe and NEVER disclose it. With great strength comes great responsibility.
“Hot” in this case means that the device that holds the keys to your Bitcoin is always connected to the internet. This in itself is a security risk. Anyone with remote access to your phone, could potentially steal those keys and access your stash. This might be perfectly fine for storing smaller amounts, but as soon as your Bitcoin vault gets bigger you should consider buying a hardware wallet / cold wallet.
Level 2: Cold Storage / Hardware Wallet
If you want to store Bitcoin securely for a longer time, you should consider buying a Hardware Wallet. Hardware Wallets are single-purpose computers, specifically designed to secure your private keys. They are “cold”, meaning they are not connected to the internet. A hacker cannot access them remotely. And most hardware wallets are also well equipped to withstand a physical attack.
The cool thing about them is that they keep your private keys from “leaking”. Even the computer or smartphone you connect your hardware wallet to, does not actually have access to the keys.
Hardware wallets are easy to set up and offer great security out of the box. If you plan to keep your Bitcoin savings for a longer time, you should definitely get one.
We at Starbackr use the BitBox02, manufactured by Shift Crypto in Switzerland. Click here to find out more about the BitBox02 (Ref-Link).
