Owning Your Bitcoin Means Storing Your Bitcoin
News surfaced that the popular Japanese exchange Coincheck halted all withdrawals and suspended trading for all cryptocurrencies other than Bitcoin. This had a negative price impact on the entire cryptocurrency market, sending several coins down by double digits overnight.
While the net effect on price will ultimately amount to nothing more than a blip, it's just another reminder of why you should never store your Bitcoins or any other cryptocurrencies on an exchange.
The Importance of Storing Your Bitcoin Securely
If you keep your Bitcoin on an exchange, also known as a hot wallet, you are missing the point. One of the primary reasons why Bitcoin was created in the first place was to give you complete control over your assets. When you let someone else store your Bitcoin, that entity ultimately owns it, controls it, and leaves you susceptible to a variety of catastrophic outcomes.
For instance, one of those institutions could decide to hold or restrict access altogether, (exactly what happened with Coincheck) and you have virtually no recourse to get your Bitcoin back. Additionally, hackers are constantly targeting exchanges in their attempts to steal Bitcoin. So if you're storing your Bitcoin on an exchange, you are very susceptible to hacks or security vulnerabilities that put you at great risk of theft without recuperation.
Where to Store Bitcoin
At Coinninja, we recommend storing all of your cryptocurrencies in one of the following 3 places:
- Paper Wallets
- Hardware Wallets (Cold Storage)
- Software Wallets
A Paper Wallet allows you securely generate bitcoin addresses and a corresponding private key. These are great for giving Bitcoin as gifts, or as an introduction to Bitcoin for new users as they don't need to download or buy anything to receive and store their Bitcoin - so long as they never lose the paper wallet.
Hardware wallets are the preferred method of storage for those who want to keep their Bitcoin secure, and minimize the security risk of unauthorized access. Most hardware wallets combine a pin and a list of secret words unique to each device to gain access to the wallet. The secret words must be written down and kept securely as they are the only way to access your Bitcoin if your hardware wallet gets lost or damaged.
We recommend the Ledger Nano Series Wallet or the TREZOR wallet for their combination of functional storage and simplicity of setup.
Software wallets do not have the same level of security as hardware wallets and are more prone to attacks or hacking attempts, but they are a great solution for those users who want to maintain control of their Bitcoin and use it for day to day transactions. Software wallets are apps on your desktop or smartphone. It's impractical to use cold storage (and it is risky to carry it around daily) for these types of use cases.
Our recommendation for the best software wallets are Electrum or Bread Wallet. We're also very excited about the upcoming release of our own software wallet called Coinkeeper - which will combine security and essential functionality with a simple and easily understood user experience.