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The likely reason why you choose Bitcoin over banks is that it gives you full control of your holdings. It provides you with a level of financial independence essential to achieving personal sovereignty.
However, that control comes with a big responsibility. You are expected to take charge of the security of your coins. This step-by-step guide walks you through the process of building a vault for your bitcoin holdings so that no one else can access them.
Quick Overview
- Pick the right wallets, set up reliable backups, and adopt best practices when sending bitcoin.
- Create strong passwords, use multi-signature wallets, and always have the updated wallet version.
- Put an inheritance plan in place so your bitcoin can be safely transferred to the next of kin when the need arises.
Why Does Bitcoin Security Matter?
You need to take the security of your bitcoin seriously because mistakes can easily result in the permanent loss of your coins.
For instance, if you send bitcoin to the wrong address or lose it to cons online, you can’t initiate a chargeback, and there is no customer support you can call to reverse the transaction.
Because of this permanent transaction finality and the pseudoanonymity the technology achieves, bitcoin wallets have always been prime targets for cybercriminals.
Some of the ways they target your wallets include using malware attacks, social engineering tricks, and exploiting software breaches. Often, you don’t even realize what happened after you signed a transaction without double-checking or clicking on an unverified link out of curiosity.
Bitcoin security is a crucial aspect of achieving financial sovereignty, as explained in this guide on personal sovereignty. By understanding the risks and choosing secure storage methods, you can hold bitcoin with confidence, knowing that your assets are safe and may even be passed down to your next of kin if necessary.
How to Secure Your BTC, Step-by-Step
Keeping your bitcoin safe and secure requires you to pick the right tools and know how to use them with the necessary precautions.
Here is a detailed breakdown of the critical steps you need to take:
Choose the Right Bitcoin Wallet
There are several types of Bitcoin wallets that are available to you to use. The one you pick depends on your holding goals and strategy. Do you plan to trade actively, use your BTC for everyday payments, or simply HODL?
Bitcoin wallets are categorized based on two key primary factors: who controls the keys and whether the keys are stored online.
Custodial wallets store your bitcoin on a third-party platform, like an exchange. This type of wallet is easy to use, much like traditional banking apps. However, they are the riskiest in terms of security because you don’t control the private keys. Of course, and without the keys, you don’t truly own your bitcoin.
Non-custodial wallets, on the other hand, give you complete control over your assets. You hold your own private keys, which means only you can access or move your funds. They may take a bit more effort to set up and use, but non-custodial wallets offer true ownership and a very high level of security when managed properly.
Hot wallets, which can be custodial or non-custodial, store private keys on devices where they can easily be accessed remotely. They are the most convenient for sending, receiving, and managing funds quickly from a phone or a computer. However, the constant exposure of the private keys to the Internet makes hot wallets more vulnerable to hacks. They are perfect for small balances for shopping or trading, not for long-term storage, especially of substantial holdings.
Cold wallets store private keys in a way that they aren’t exposed to the Internet. This makes them highly immune to online attacks. The most common types of cold wallets are hardware wallets and paper wallets. Cold wallets are perfect for large holdings, especially those that you don’t need to move often.
Air-gapped cold wallets offer the highest level of bitcoin security. They are completely isolated from any network connection, thus making it impossible to hack remotely. All transactions are signed offline, and the data is transferred to an online device using QR codes or SD cards. This way, private keys never leave the device or come into contact with an online network. Air-gapped wallets require skills to set up, but the provided level of security makes them worth learning.
Create and Back Up Your Wallet
It is critical that you back up your bitcoin wallet when you are setting it up. This is so that in the event you lose it, you can recover access to your holdings.
When creating a non-custodial wallet, you’d be given a seed phrase, a list of 12 or 24 random words. This is your backup, and if the wallet fails, gets stolen, or lost, the seed phrase would enable you to recover the holdings.
Never store the seed phrase digitally or online. It’s best to create three copies of this phrase. Write down the first one on paper, engrave the second one on metal, and put the third one off-site. Keep these backups secure and never share them, except in cases of absolute necessity.
You don’t get a seed phrase when setting up a custodial. You simply need to create an account, pass the Know Your Customer (KYC) procedure to verify your identity, and deposit funds. However, you can strengthen the security of a custodial wallet by using a strong password and enabling two-factor authentication (2FA). Some platforms provide an anti-phishing code to confirm the authenticity of code messages.
Transfer Your Bitcoin Securely
When moving your coins to a newly created wallet, remember that every transaction on the Bitcoin network is irreversible. Therefore, take the following precautions:
- Double-check the recipient address.
- Check transaction fees.
- Make a test transaction using a small amount first.
These measures help minimize the risk of loss, and once the funds have arrived, you can take further steps to enhance the overall security of your Bitcoin wallet.
Strengthen Security
Regarding passwords and 2FA, avoid reusing passwords across wallets. Also, ensure that two-factor authentication is set up using an authenticator app rather than SMS. The SMS is the most easily compromised 2FA method.
Consider using multi-signature (multi-sig) wallets for extra security. They require several private keys to authorize a bitcoin transaction, making it much harder for cybercriminals to access your funds. Setting up such a wallet can be done using hardware wallets, some software wallets, or specialized services.
Keep your wallet software and devices up to date. Developers regularly release updates to fix vulnerabilities and enhance software security. Running an outdated version can expose your BTC to security risks.
Create a Bitcoin Inheritance Plan
If you are holding a significant amount of bitcoin, it might be necessary to have an inheritance plan in place. Life is unpredictable, so you should ensure that your coins are accessible to the next of kin if there is a need.
You need to decide how the seed phrase or multi-signature keys will be shared securely with your next of kin. Consider using wills, trusts, or safe deposit boxes as a controlled way for them to retrieve funds. Document your instructions clearly so that the intended recipients understand the process.
If you need to, consult solicitors and financial advisers to make sure that your plan is legally sound. You should also explore the different technical solutions that have been developed and built to help with bitcoin and crypto inheritance plans.
Get Help With Steps to Securely Store Your Bitcoin
Securing your bitcoin requires careful planning, assembling the right tools, and having a consistent attention to detail. It is recommended that you manage everything on your own.
That is the core philosophy of Bitcoin. However, don’t hesitate to get professional advice from Bitcoin consultants like The Bitcoin Way. They can guide you on how to create a secure vault for your assets and how to achieve individual sovereignty.