As the Bitcoin prices get higher and new investor pile in, it’s a good time to review how to store your Bit coins securely. Not only has Bitcoin’s value gone up over the past year, but the available options for Bitcoin storage have also increased. The choice can be especially intimidating for Bitcoin novices.
No matter what you choose, however, there is always a tradeoff between convenience and security. And while privacy is also a factor, here we assume you are not willing to go the extra step of anonymizing and completely eradicating your financial trail.
Type of Bitcoin transactions
Bitcoin usage can be separated into two independent variables: “Transaction volume” and “Transaction value.” Whether these values are high are low changes which Bitcoin wallet is best for you.
“Transaction Volume” is the rate of bitcoin transactions you make. This might mean one transaction per day, or only one per week. What counts as high or low is this case is fairly arbitrary.
Transaction Value is the bitcoin value of a given transaction. What defines a large bitcoin value is similarly ambiguous. A good rule of thumb is that a low transaction value is less than or equal to the amount of money you would be comfortable carrying around as cash in your pocket. Everything larger than that might be high value.
Multiple Bitcoin wallets might be the best solution for you
There is absolutely no need for you to restrict yourself to a simple solution. Maybe the way you use Bitcoin includes all the use cases listed below, such as regular small payments, regular large payments, and long-term investments.
Use multiple options in parallel to make the most out of keeping Bitcoins both accessible and secure.
Bitcoin solution for you
If you make many transactions of low value
If you are making a lot of transactions with low value (e.g., because you mostly use Bitcoin to buy socks, tea, or a VPN), then you should use a mobile wallet that you control the keys to. With a mobile wallet, your Bitcoins are always accessible as long as your phone has power. If you use a modern smartphone with an up-to-date operating system, your Bitcoins are secure.
If you make many transactions of high value
If a lot of money is at stake, like if you conduct a business that deals with Bitcoin a lot, or because you pay some of your staff in cryptocurrency, then you need a hardware wallet. Hardware wallets look like USB sticks and store your Bitcoin private keys on a Specialized Chip, similar to the secure enclave in an iPhone.
If you make few transactions of high value
If you have significant savings in Bitcoin that you do not need to spend or move frequently, then a paper wallet is best for you. Don’t use an online service to create your paper wallet, but rather create one yourself.
The most secure option is to get yourself a copy of the operating system TAILS, which comes with the Bitcoin wallet Electrum installed. Crawl under a blanket or tent, boot it up, and create a Bitcoin wallet. You write down the seed on a piece of paper and shut down the computer.
Even if your phone or computer were to get hacked, your hardware wallet would be unaffected. Since the wallet is password protected, someone who steals or finds your wallet would not be able to access it.
If you make few transactions of low value
If you only keep a small amount of Bitcoin and orarely spend them, have a look at an online wallet service, like Blockchain.info (they also have an onion site!).
Unlike with your mobile wallet, you will not have to worry what happens when you switch devices. You can log into your account using an email address and a password. When you sign up, carefully go through the security options to lock down your account from hackers while keeping it accessible to you.
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Many Bitcoin wallets for many uses
There are many ways to use Bitcoin, and as many ways to keep them. Be aware of what you want to use your Bitcoins for, and how accessible they need to be. There is often a trade-off between accessibility and security, but by spreading your Bitcoins across different wallets, you can find the optimal situation!
How to obfuscate transfers between identities
There are many ways to obfuscate transfers. You could exchange Bitcoins with someone else at a 1:1 exchange rate, though this requires great trust in the other party. You could also use an external escrow service. This option is rarely used, as the escrow company could possibly record compromising information about the transaction.
You can also protect your privacy by using an online wallet that doesn’t assign unique addresses to each user. An example of this are online exchanges. When depositing your Bitcoins into such a wallet, your coins might end up in the hands of someone else. Conversely, you might receive coins previously owned by someone else. These services are called Tumblers. It’s important to note that you won’t gain or lose any Bitcoins during this process.
A common Bitcoin exchange very likely abides to strict anti-money laundering regulation. They will keep records of all your transactions, possibly indefinitely, which they may hand over to a law enforcement agency. They might also ask for proof of your identity before they let you withdraw coins, a practice that might affect your privacy more than simply tracing your Bitcoin.
Another way to disconnect yourself from your Bitcoins is just to sell them. You could exchange your Bitcoins for cash or gold, but a better option is to exchange them for altcoins. That way the transaction is cheaper, safer and easier to execute anonymously online. You could even sell your Bitcoins in exchange for another Crypto currency with high volume and market cap, then buy them back on a second exchange shortly after.
Coinjoin is the most promising way to maintain your financial privacy with Bitcoin. It works by combining many transactions into one, so that it is not clear which inputs and outputs are correlated.
This can be done with software that eliminates the risk of funds disappearing or being stolen. Each of the signatures are created on the participants’ computers, so anyone trying to connect the signatures is unable to alter the transaction, or redirect the funds. The funds will always be in a Bitcoin address that you control.
Encrypt your browsing, chats, emails, backups
Secure your browsing
Always use HTTPS when viewing websites with any information related to your identity or Bitcoin transactions. This simple protocol is used to encrypt the traffic between the site you are viewing and your computer. A green lock icon in your browser’s address bar indicates that the website you are on is using HTTPS.
Encrypt your chats
For maximum protection, create at least one jabber account (also referred to as XMPP) for each of your online identities. There are plenty of free services available for you to choose from. Sign up through Tor and route all your chats through the Tor network, using the inbuilt Socks v5 proxy for extra security.
Make your emails private
Of all online services, email is most vulnerable to snooping and hacking. While a good email provider will make it very difficult for attackers to access your system, the provider could still voluntarily hand over your data to governments, when asked. Unfortunately for people seeking privacy, many email providers make it difficult, if not impossible, to access your email via Tor. Some even require you tie your email address to a phone number or real identity.
Secure and encrypt your back ups
How you back up your bitcoins depends on the software you are using. HD Wallets give you a string of random words that can be used to recreate your wallet. All you need to do is write those words down and lock them securely away. Be careful, though! Bad guys only need to know your words to steal your Bitcoins. It is generally considered unwise to store these words on any electronic device for that reason, but in the absence of secure physical space, it might be unavoidable.
Use separate wallets for each identity
It is easy to maintain a different Bitcoin wallet for each of your online identities. You could have a wallet for every need. For example, you could have:
- a wallet for incoming donations
- a wallet for your real identity
- a wallet for your advertisement revenue
- a wallet for your savings
You don’t need to download separate software for each of your identities. All you have to do is keep separate wallet files (files that contain your public and private keys). Just make sure not to confuse the separate files, and not to mix their funds.