Did you know that more than 100 million people around the world use or own bitcoin? If you’re looking into being part of this massive group, you’re probably wondering how you store your bitcoin. Like any form of cash, you need a wallet to protect it.
But crypto wallets work quite differently from traditional wallets. While it can be confusing, this guide will help you understand everything you need to know about storing bitcoin offline.
Keep reading to learn everything you need to know.
What Is a Bitcoin Wallet
As a digital asset, Bitcoin (BTC) needs to be kept in a digital “wallet.” Because BTC is essentially just strings of data, it can’t really be stored anywhere. Instead, the wallets we use today contain the passkeys you use to ‘see’ how much crypto you own.
These wallets also make sending and receiving your crypto much easier. Some merely handle basic transactions, while others incorporate extra functionality like built-in access to blockchain-based decentralized applications (dapps). These can allow you to lend out your bitcoin and earn interest on your holdings.
Digital Wallet Categories
As you can expect, there are several different types of crypto wallets. But they all fall under two categories: custodial and non-custodial.
Custodial
Custodial wallets are hosted by third-party hosts, like cryptocurrency exchanges. These offer a few great benefits. For one, they’re extremely simple to use. Secondly, it also takes all the responsibility of key management off your hands.
But, this does mean that you put all your trust in the third-party host. For example, when you want to cash out, you simply log into your account and enter the public key of the place you want to send the BTC. From there, the third-party host is responsible for entering the private key to complete the transaction.
While this does simplify things, it does increase your chances of risk. Custodial wallets are secure, but several trusted hosts and exchanges have been hacked in the past. Even worse, there have been several cases where governments have censored crypto transactions in custodial wallets.
Non-Custodial
As the name suggests, non-custodial wallets are the exact opposite. You have full control over your funds, and, in turn, have all the responsibility of protecting your access keys. Most bitcoin wallets on mobile devices are non-custodial types.
While these have their positives, especially considering their transactions can’t be censored, non-custodial wallets aren’t very easy to use. For one, the chances of losing your keys are much higher. If a key is lost, you’ve essentially lost your crypto forever. Unless you’re willing to pay to retrieve them, which can be extremely pricey.
To get the full benefits of a non-custodial wallet, users must create a set of habits to optimize security and safeguard private keys.
Digital Wallet Types
In addition to the main categories, crypto wallets can be placed into two sub-categories – hot wallets, and cold wallets. Very simply put, hot wallets have a connection to the internet in some way or another. While cold wallets have no connection.
From there, wallets are subdivided again into either software, hardware, or paper wallets. Each of these is classified as a hot or cold wallet.
For example, you can have a custodial hardware cold wallet. Or you might have a non-custodial software hot wallet.
Software Wallets
Software wallets are often hot wallets—staying connected to the web via desktop or smartphone apps. They can access your bitcoin, conduct transactions, display your balance, and much more. Some software wallets also provide extra features, such as exchange integration if you use a wallet created by a cryptocurrency exchange.
Many mobile wallets can make rapid payments in physical stores via near-field communication (NFC) or by scanning a QR code. Great examples are Trezor and Electrum.
Hardware Wallets
As the name suggests, these wallets are often kept on physical devices, like USB-drive and hard drives. Because you can keep your private keys and remove them from your device, hardware wallets are extremely popular.
To make transactions, all you have to do is connect the drive to your smartphone or computer. Most of them can instantly sign bitcoin transactions without requiring you to enter the key, preventing a hacker from logging your keystrokes or recording your screen.
Most hardware wallets are considered cold wallets because they don’t have an active internet connection until they’re plugged in.
Paper Wallets
Cryptocurrency users used to write or type their keys on paper, calling them ‘paper wallets.’ As technology has evolved, these have expanded to incorporate keys and QR codes, allowing mobile wallets to scan them.
However, because paper wallets are easily damaged or misplaced, many cryptocurrency owners no longer utilize them. While there’s nothing wrong with using paper wallets, you should keep them in a safe or deposit box. But, you should also check up on the wallet often to ensure it hasn’t deteriorated.
Storing Bitcoin Offline
If you’re looking for the most secure way to store your bitcoin, then opt for a non-custodial cold paper wallet. Because you control every factor surrounding your wallet and the crypto inside it, you ensure its safety completely.
Even better, these wallets NEVER come into ‘contact’ with the web, especially if you set them up correctly.
Setting Up a Cold Bitcoin Wallet
Creating an offline Bitcoin address is the first step in putting your bitcoin in cold storage. This address will have a “public/private key pair” produced without ever connecting to the Internet.
A public/private key combination is analogous to an email account and its associated password. To achieve the highest level of security, this key pair should never be exposed to the Internet.
To keep this wallet away from the web, save the webpage that produces the keys and disconnect it from the Internet. Once disconnected, open the saved URL on your desktop, and then generate the keys using a wallet-generating tool.
Print the Page
The next step is to of course print the document.
You might be tempted to write the key pair down. But, as long as your printer and computer are not connected to the Internet, pressing the print button is entirely secure (thereby avoiding the potential for human error when writing out dozens of randomly generated numbers and letters).
Congratulations, the difficult part is finished! You have now generated an offline Bitcoin address and saved a physical copy of it locally for future reference. You can now reconnect to the Internet safely.
The printed page should have both alphanumeric and QR code forms, as well as the associated private key.
If you want to keep a significant amount of money in this wallet, we highly advise you to put it in a secure location. If there isn’t much on it, consider the paper wallet to be similar to a $20 note (this is what makes it a fun way to give out some Bitcoin).
Using the Wallet
You’re probably wondering how you use this Crypto wallet if it’s never connected to the internet. Well, most generator tools are client-side address generators. This means they create public and private Bitcoin key pairs through your browser.
The above-recommended tools are client-side address generators. They create public and private Bitcoin key-pairs locally through your browser. The advantage of this strategy is that you can load the JavaScript locally and be confident that it’ll stay the same.
Since this tool is open source, the code may be inspected at any moment.
So with secure private and public key pairs, you can transact with a paper wallet in several ways. For example, with the public key, you can load the wallet with bitcoin as you would with any other kind of wallet.
When you’re ready to spend your bitcoin, you’ll need to do a few things first.
You must import the private key of the wallet into a Bitcoin wallet that is connected to the Internet (a “hot” wallet). Any wallet that allows you to import private keys will work. With the Bitcoin.com Wallet, for example, you just hit ADD/IMPORT and follow the instructions.
After successfully importing your paper wallet into your “hot” wallet, any monies previously transmitted to the paper wallet are now available for spending.
Please keep in mind that cold storage wallets should never be reused. Once you’ve redeemed them online, you may generate a new one by following the steps indicated above.
Redeeming Bitcoin With a Bitcoin ATM
Alternatively, you can use a Bitcoin ATM, which allows you to buy cryptocurrency. The term “ATM” is misleading, as they don’t dispense any cash. Rather, they are kiosks that link to the bitcoin network and let clients buy crypto tokens using cash they have deposited.
Bitcoin ATMs are rarely administered by large financial institutions and do not provide consumers with access to a bank account.
Buyers often scan a QR code that corresponds to their own bitcoin wallet address. Following the purchase, a record of the bitcoin will appear in the customer’s wallet, but this process may take several minutes.
Most bitcoin ATMs will have a minimum and maximum amount of currency that may be deposited. All bitcoin ATM operators in the United States must register with the Financial Crimes Enforcement Network (FinCEN) and follow the Bank Secrecy Act’s anti-money laundering regulations (BSA).
Depending on the quantity of the transaction, the bitcoin ATM may need your cell phone number in order to send you an SMS verification code. Alternatively, before completing a transaction, you may be required to scan a government-issued identity, such as a driver’s license.
There are several pros and cons to using a bitcoin ATM – have a look!
Some Safety Precautions For Other Wallets
While paper wallets are seemingly the most secure type of digital wallet, they’re not very convenient. If you decide to use another type of wallet, consider some of these safety precautions.
Backup
You should back up your complete bitcoin wallet frequently and early. A history of frequent backups may be the sole option to restore the cash in the digital wallet in the event of a computer failure.
Make a backup of all wallet.dat files and keep them in various secure locations (like on a USB, on a hard drive, and on CDs). In addition, create a secure password for the backup.
Update Software
Always keep your software up to date. The most recent version of wallet software will have a stronger security mechanism in place, boosting the protection of your bitcoin. A wallet running outdated bitcoin software is vulnerable to hackers.
Because of the strengthened security of the wallet, if your software is updated with the newest security updates and protocols, you may be able to avoid a major crisis.
You should take it one step further and keep your mobile device or computer operating systems and applications up to date, too.
Multi-Signature
Multi-signatures have become increasingly popular. For a transaction to take place, you’ll need approval from more than one person. The persons who may transact are determined at the outset, and when one of them wants to spend or transmit bitcoins, others in the group must authorize the transaction.
This reduces the risk of theft because no single entity can carry out a transaction.
Storing Bitcoin Offline
There are several ways to store your crypto. But storing bitcoin offline is the way to go. Opting for a cold wallet is often far more secure than a hot wallet, and it places all the control in your hands.
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