Different Ways To Store Your Bitcoin
Everyone has different ways of doing things. It always amazes me how something can seem so logical to me, so obvious, that there’d never be another way of doing it, only to find out that someone else thinks my method is plain idiocy. The Bitcoin ecosystem is no different, particularly when it comes to the discussion of how one should go about securing their bitcoin in long-term storage. Everyone seems to have their way and a set opinion on why their way is the only way. Fortunately for you, I’m not like that. Rather, I feel that various kinds of storage are best depending on your particular circumstances. In fact, feel free to use them all. Don’t put all your eggs in one basket.
This post is going to cover several different methods of storing bitcoin. I have done more in-depth walkthroughs on some of these methods for my website, Incorporating Bitcoin. I will link to them throughout this post. You can also find reviews of many of the pieces of hardware I mention as well. You should be able to find a method that works best for you, from easy to difficult, thrifty to expensive, and everything in between.
The first method on my list is by far the cheapest but if you do it properly it’s arguably the most secure:
Yes, I recognize the irony that a digital currency hailed as the future of money often relies on analog, paper backups. There is a reason for this, however. Paper wallets are a very accessible way of storing bitcoin because you can create them for next to nothing on equipment you probably already own. And if done properly you can generate private keys without them ever touching anything connected to the Internet. This means that no malware, spyware, screen or key recording, virus, trojan, or compromising bit of code can steal your private keys. Once you’ve securely created your paper wallets and the memory of the device you’re using gets wiped nothing can pull that information back. Complete and total security.
A quick overview of the most widely accepted method of creating a paper wallet starts by booting a computer with no network connection from a flash drive containing a bootable OS. I recommend Linux, Ubuntu to be specific. You then open an archived copy of the webpage hosted at BitAddress.org. Do not use the live webpage for this process! You can then create paper wallets and print them to a printer with no internal memory connected directly to your computer. Again, networked systems are bad here. Once you’ve created them you can send bitcoin to them using your regular Bitcoin wallet. I recommend you then store these paper wallets in a water and fireproof safe or a safe deposit box. For a more in-depth walkthrough on how to properly create a bitcoin paper wallet, see my tutorial: How To Make A Paper Wallet.
If this method is too complex you can use an Android phone to assist you in creating paper wallets safely. There is an app called Bitcoin Paper Wallet. It is open source and does not have network access. This makes it fairly secure as long as you trust that your mobile phone is not compromised. You can increase security by turning on Airplane Mode during the wallet creation process. You can use this app to create paper wallets without having to go through the method above. You just press a button to generate a wallet, copy the information down in a safe place, and then do it again as many times as you need.
You can use either of the methods above without paper, in fact. You can use the feature found in either of the above methods brought to Bitcoin by BIP38, which allows you to password protect and encrypt the private key. Just put a password in the optional password box. This will change the private key that it spits out to an encrypted private key that you can only use if you punch in the password. You can create paper wallets and simply record the bitcoin addresses and their corresponding encrypted private keys in a spreadsheet. Doing it this way is actually one of the cheapest, most reliable ways to create and store paper wallets. Just keep the spreadsheet on a flash drive and you have a portable safe. As long as you don’t forget your password your funds should be secure.
To add another layer to the security of the methods above you can create paper wallets as multi-sig. I wrote a more in-depth discussion of multi-sig at my site as well. These are wallets with one bitcoin address but multiple private keys. Depending on how you create the wallet you can say how many keys you want each address to have and how many keys are required to move the bitcoin stored at the address. For instance, if you create a “2 of 3 multi-sig wallet” you create one bitcoin address with three keys. In order to spend the bitcoin at that address you would need to enter two of the three keys to sign the transaction. You can specify any number of combinations, like “2 of 2” or “5 of 9”. You can even do “1 of 4” if you want anyone in a group of four to be able to spend. You could then spread your stored paper wallets out over several locations. If one of the locations was compromised your bitcoin would still be safe.
Which leads me to wallet software that does electronic multi-sig wallets. There are several software wallets out there that allow you to create and join multi-sig wallet configurations. I most highly recommend Copay and BitPay. I find the offerings, both by the BitPay company, to be intuitive, feature rich, and beautiful. There are some others like GreenBits and GreenAddress, both of which I’ve written reviews for, as well. The most unique that I’ve seen, however, is Bither. It uses a combination of your main phone as well as an offline, spare, phone to create multi-sig wallets. It’s featured in a tutorial I wrote about using a spare Android phone as a DIY Bitcoin Hardware Wallet. Using more than one phone or a phone and a computer, or even both and a spreadsheet, you can create a fairly robust combination of ways to secure your bitcoin. Get creative!
If you don’t have an old Android phone lying around there are several devices called Hardware Wallets that use specialized software running on specialized hardware and use encryption in order to store Bitcoin. These devices range in price and they all have a strong following. Some aren’t even out yet. But the truth is that every generation of Hardware Wallet continues to innovate and impress. Each of these devices is used to generate and store private keys. But they are also used to sign transactions, just like multiple paper wallets would be used to sign transactions. But instead of having 2 out of 3 or 5 out of 9 paper wallets, you just have your wallet and this device, just like the two phone solution above.
First up in the list of Hardware Wallets is the Ledger line of products. They offer an entire line of hardware wallets, each a strong offering. I personally own a Ledger HW.1 and a Ledger Unplugged, both of which I’ve written reviews and tutorials for. They all have their strengths and come at different price points. You really can’t go wrong with any one of these. But what I find most impressive is that you can use your backup on one Ledger device to restore your backup on another Ledger device, even a different model.
Second up is the Trezor. It is a device with a screen that runs as an isolated environment. It’s one of the most highly recommended hardware wallets in the Bitcoin ecosystem. Those that own them swear by them. They are reliable, durable, and highly regarded. Again, you can’t really go wrong with one of these.
Third is the KeepKey. It’s very similar to the Trezor in many respects, but the screen is larger. The thing about this one is, though: I can’t say enough about how sexy this wallet looks. It’s a black bar of awesome. It’s just plain cool looking. I would love to have one of these sitting in my safe just to show off. I used to complain about the price point, but it has come down a lot since I last looked. I now have no argument left against buying. I would seriously consider picking one up, but…
I had the opportunity to review the CoolWallet by CoolBitX Technology. Despite a couple minor annoyances, this was an extremely impressive showing by a lesser known name in the industry. In fact, it’s my hardware wallet of choice at this point in time. It’s roughly the same size as the Ledger Unplugged which is to say about the size of a credit card. It’s exactly the form factor I look for to carry around on a day-to-day basis. But I have since switched to a mobile device that doesn’t allow NFC or Android OTG. The fact that CoolWallet uses Bluetooth makes it the best wallet for my needs at the moment.
I have never really been a fan of physical bitcoin. Don’t get me wrong, pictures of Casacius coins are ubiquitous and they are beautiful. Newer ones like Titan, Denarium, or the series from Infinitum are also really sexy. Even the cheap ones like the Satori Coin, sold out of vending machines in Japan, are kind of cool looking. However, attaching an amount of bitcoin to them comes with a whole host of security issues. This goes for any coin, note, or paper wallet, whether made of paper, plastic, or steel. To be succinct: either a central authority must ensure and protect the bitcoin to be issued on demand or you must trust that the issuer or last person to handle it didn’t keep a copy of the private key on the physical coin with which to steal your funds.
One company has made it possible to convert bitcoin to physical form without limits. I did a review of a device made by Opendime which is a small, cheap, USB stick that allows you to deposit any volume of bitcoin to be spent or transferred like bank notes. You can easily check the balance of the Opendime by plugging it into a USB port and opening a file. The device can be passed on from person to person multiple times. As long as the seal is intact the private key is securely hidden and the funds are safe. And when someone wants to spend the bitcoin deposited in them they simply break the seal and sweep the funds. Not to mention, these devices are exactly what I was thinking when I read about credsticks in Shadowrun and Cyberpunk.
Do What Works For You
Whichever method or methods above that you choose, you can’t go wrong. In my opinion it all just depends on what is available to you, how much you want to spend, and how much “cool” factor you want to show off. There’s certainly nothing wrong with going ultra cheap and using old-school paper wallets, but there’s certainly something cool about connecting your bluetooth enabled card to your phone or pressing a button on a device and watching money move. But I highly recommend that you at least choose one method above and employ it as soon as you start to amass enough Bitcoin that the idea of losing it makes you nervous. I can’t stress it enough: If you don’t control your private keys you don’t own the bitcoin and that means you need a good long-term storage solution and backups.
This guest blog was written by Brian M Lundberg, aka subcypher, founder of Incorporating Bitcoin.