Bitcoin storage options
But bitcoin wallets save the private security key for each and every bitcoin address stored in the wallet. There are four main types of bitcoin wallets, and they each have pros and cons depending on whether you more highly value security or convenience. Online, or web bitcoin wallets, are stored and accessed on the cloud via remote servers.
Online bitcoin wallets are extremely convenient; they allow you to access your wallet and execute transactions from anywhere in the world, and they handle the process of generating new bitcoin addresses for each transaction for you automatically. However, online wallets also store your security keys on those same servers. They will control your addresses, your security keys, your wallet, and therefore, your money.
Unlike online wallets, mobile bitcoin wallets — run through apps on your smartphone or tablet — are only accessed through your private device. This provides the mobility and go-anywhere responsiveness of online wallets, but with an extra, critical layer of offline security. These fit into two main subcategories: Both are slightly less convenient than online wallets, but offer much greater levels of security — and, by extension, peace of mind for investors.
Unlike online wallets, desktop bitcoin wallets cannot be accessed from anywhere in the world and are therefore much less vulnerable to potential hacking. This greatly minimizes the exposure of your security keys to hacking. Of course, your desktop wallet can still be compromised if your computer gets infected with malware or keylogging software designed to root out and steal bitcoin keys. Short of that, however, desktop wallets are very safe ways to store bitcoins. Another bitcoin cold storage option, a hardware bitcoin wallet is even more secure than a desktop bitcoin wallet.
Hardware wallets are, you guessed it, bits of external physical computer hardware, much like USB sticks, that store your bitcoin wallet s. These devices are one of the most secure methods of bitcoin storage. In addition to being completely offline like desktop wallets, hardware wallets are further immune to nearly all computer viruses and malware programs that can steal from desktop wallets. Hardware wallets also have special, protected areas of the microcontrollers that store your private keys.
These prevent your keys from being transferred out of the hardware in plaintext, guaranteeing always-on encryption. In fact, to date, there have been no verifiable incidents of bitcoins being stolen from hardware wallets.
Of course, hardware bitcoin wallets may themselves need to be stored under lock and key. At Custodian Vaults, we provide secure, discreet storage for bitcoin wallets. Numerous investors are swapping bitcoin for gold in anticipation of the crypto bubble bursting.
As such, encrypting any backup that is exposed to the network is a good security practice. Single points of failure are bad for security. If your backup is not dependent of a single location, it is less likely that any bad event will prevent you to recover your wallet. You need to backup your wallet on a regular basis to make sure that all recent Bitcoin change addresses and all new Bitcoin addresses you created are included in your backup.
However, all applications will be soon using wallets that only need to be backed up once. Encrypting your wallet or your smartphone allows you to set a password for anyone trying to withdraw any funds. This helps protect against thieves, though it cannot protect against keylogging hardware or software.
You should make sure you never forget the password or your funds will be permanently lost. Unlike your bank, there are very limited password recovery options with Bitcoin.
In fact, you should be able to remember your password even after many years without using it. In doubt, you might want to keep a paper copy of your password in a safe place like a vault.
Any password that contains only letters or recognizable words can be considered very weak and easy to break. A strong password must contain letters, numbers, punctuation marks and must be at least 16 characters long. The most secure passwords are those generated by programs designed specifically for that purpose.
Strong passwords are usually harder to remember, so you should take care in memorizing it. An offline wallet, also known as cold storage, provides the highest level of security for savings. It involves storing a wallet in a secured place that is not connected to the network. When done properly, it can offer a very good protection against computer vulnerabilities. Using an offline wallet in conjunction with backups and encryption is also a good practice.
Here is an overview of some approaches. This approach involves having two computers sharing some parts of the same wallet. The first one must be disconnected from any network. It is the only one that holds the entire wallet and is able to sign transactions. The second computer is connected to the network and only has a watching wallet that can only create unsigned transactions. This way, you can securely issue new transactions with the following steps.
Because the computer that is connected to the network cannot sign transactions, it cannot be used to withdraw any funds if it is compromised. Armory can be used to do offline transaction signature. Hardware wallets are the best balance between very high security and ease of use. These are little devices that are designed from the root to be a wallet and nothing else.
No software can be installed on them, making them very secure against computer vulnerabilities and online thieves. Because they can allow backup, you can recover your funds if you lose the device.
Using the latest version of your Bitcoin software allows you to receive important stability and security fixes. Updates can prevent problems of various severity, include new useful features and help keep your wallet safe. Installing updates for all other software on your computer or mobile is also important to keep your wallet environment safer. Bitcoin includes a multi-signature feature that allows a transaction to require multiple independent approvals to be spent.
This can be used by an organization to give its members access to its treasury while only allowing a withdrawal if 3 of 5 members sign the transaction. Some web wallets also provide multi-signature wallets, allowing the user to keep control over their money while preventing a thief from stealing funds by compromising a single device or server.