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How To Safely Store Your Bitcoin
Congratulations on purchasing your first Bitcoins! Now that you’ve bought your Bitcoin, you’ll need to keep it secure. You can do this by transferring it off the exchange and into what is known as a Bitcoin wallet. The name wallet implies that you can do all the same things you can with a regular wallet. You can see how much Bitcoin you have, and use it to spend your Bitcoin. An important distinction to make is that because Bitcoin is decentralized and stored on the Blockchain, these wallets do not “store” your Bitcoin per say.
While exchanges like Coinbase do provide you with your own wallet, unless you are day-trading, it’s advisable to remove your coins from the exchange in order to prevent against issues like hacking – which unfortunately does happen.
In 2011, Tokyo based Bitcoin exchange Mt. Gox suffered losses of over $27.2 million and 80,000 users lost a total of over $460 million worth of Bitcoin after the exchange was hacked. Mt. Gox wasn’t some fly by night operation either, in fact at the time it was the largest cryptocurrency exchange on Earth. Yet poor security protocols and mismanagement allowed the attacks to occur. The company eventually filed for bankruptcy amid allegations of fraud, and much of the userbase’s stolen coins have not been recovered to this day. This is why it’s paramount that if you want to hold your coins for the long-term, you store them safely.
The understand wallets, we must first understand just how they work. Bitcoin transactions need both a private key (from the sender) and a public key (from the receiver) in order to process correctly on the blockchain.
A public key is a series of between 26 and 35 alphanumeric characters e.g. 1Co5CmEZNz35Am59EcFhKGRdNfLrzppGkJ
If you can this address to someone, they can send funds to your wallet. It is perfectly safe for you to give your public key, also known as your wallet address, to anyone, as they can only deposit into your account with this information. In 2013, a college student received 22 Bitcoins (then worth around $24,000) by holding up a sign with his public key in the form of a QR code on an edition of ESPN’s College Gameday.
Your private key on the other hand should be held by you, and you alone. Never give your private key to anyone.
A desktop wallet are a convenient medium between moving your Bitcoins off an exchange, while not having to carry around additional information like with a paper or hardware wallet. You can think of these like a Bitcoin bank account on your computer. Most desktop wallets will encrypt your private keys for you to add an extra layer of security. Here is a run-down of some of the more popular desktop Bitcoin wallets. All the wallets listed below are free, you should never pay for a desktop wallet.
Electrum – https://electrum.org
While it’s design may not win any awards, Electrum does the job it’s supposed to. The code is open source, which means there’s a much lower possibility of the development team slipping in something malicious. Electrum allows you to store and spend your Bitcoins with relative ease. It has the advantage of storing your private keys offline, and to go online in “watching only” mode, so if your computer gets hacked during the process, hackers won’t be able to spend any coins. It also has support for various hardware wallets.
Exodus – https://www.exodus.io/
Unlike Electrum, Exodus is not open source. However, Exodus does have the advantage of being capable of storing other coins like Ethereum, Litecoin and Dogecoin in addition to Bitcoin. The interface is also more user-friendly than Electrum.
It should be noted, that as desktop wallets require your computer to be connected to the internet, they can never be 100% secure.
CoPay – https://copay.io
CoPay operates on both desktop and mobile platforms, so it’s great if you’re looking to spend or receive Bitcoins on the go. It requires multiple signatures (ways of account verification) to spend coins, which is an added security feature. There’s a multiple user option as well, which is useful for groups and families. The software’s code being open source is always a plus.