- Don’t store all of your bitcoin on an exchange or hot wallet
- Use a hardware wallet (which costs money)
- or, Use a paper wallet (which is practically free)
As I continue to talk with new investors, I harp on the importance of cold storage for large amounts.
Many people store their bitcoin on an exchange, or in a hot wallet. This is fine for small amounts, but if you are considering putting a large chunk of change into bitcoin, and it’s a long term investment, then you’ll want to get the bitcoin into some secure storage.
More importantly, you don’t want to have access to this on the fly, especially not on your phone! The easiest and probably most popular way to steal bitcoin is still the $5 wrench method (someone holding a wrench threatening you to send all your bitcoin to their wallet).
So my solution is to print a paper wallet and put that piece of paper into a safety deposit box (along with PDF backups on a thumb drive). Get this out of your house! I also wouldn’t recommend keeping a safe in your basement with gold bars, but people can do as they wish.
Here are a couple sites I use:
https://bitcoinpaperwallet.com/
These are also a great way to fund a bitcoin address and put the private key into a sealed envelope to give as a gift (or perhaps raffle at an auction fundraiser).
You can then monitor your bitcoin address at blockchain.info using their blockchain “explorer.”
But Monty, how do I trust these websites aren’t keeping a copy of my private key? Don’t trust them! Test this first! My suggestion is to print 5-10 wallets at one time (put PDF backups on a thumb drive as well). Go ahead and put $100, or $200 (something enough, but still “small.”) onto one of the bitcoin addresses. Then wait… 3 months, 6 months? However patient you can be to confirm you believe no one is going to simply drain the wallet as soon as you fund it.
Then, you can send more bitcoin to the address (without taking it out of the safety deposit box). All you need is the public address to send bitcoin to. You’ll see the transaction show up on a blockchain explorer and it can’t be moved from that address until you import the private key into a wallet and then send it to a new address (presumably when you’re ready to cash some out, or spend it perhaps years down the road).
You could worry about using a printer that you can wipe the memory from or finding software that you can download, and then disconnect from the internet before generating your public/private key pairing to print. I’ve never bothered with that, and simply went with the test (with a small amount) and wait (until I’m ready to fund a larger amount) process I described above.
I hope this article helps you secure your bitcoins for long term storage and avoid the risk of an exchange getting hacked, or your hot wallet getting compromised. I’ll let you know when I get my settlement from Mtgox which was hacked in 2013 and has been in bankruptcy court for almost a decade… maybe this year?