Alright, so you’ve acquired some Bitcoin. Now, what’s the best way to store it safely in 2024?
TL; DR: Not your keys. Not your coins. If you leave Bitcoin on an exchange, it’s legally not your Bitcoin.
At any time, the exchange can freeze your account, disable withdrawal ability, or take several actions that mean you can’t get access to your Bitcoin, like what we recently saw with FTX, Genesis, GBTC, BlockFi, and other third-party wallet services.
We are here to help take you through the process of finding the right Bitcoin wallet for you. Although it seems like a straightforward question, there is a surprising amount of nuance to consider.
How much Bitcoin do you have?
How often do you plan to spend it?
Are you confident your keys are more secure with you than with a regulated custodian’s cold storage?
Let’s get into it!
Bitcoin is a Bearer Asset
Bitcoin is a bearer asset, meaning you can hold the keys to your Bitcoin yourself. When you maintain your own Bitcoin keys, you are in direct control of your money. It is not entrusted to any third party, like a bank.
In cryptography, a public key is used to encrypt messages, and a private key is used to decrypt them. If someone wanted to send you an encrypted message, they would encrypt it with your public key.
Your private key is the only way to decrypt that message, so as long as you are the only person who holds the private key, you are the only person who can read the message.
Understanding Bitcoin as a Bearer Asset: Master Your Cryptocurrency Security
Direct Control of Your Funds: Bitcoin offers the unique advantage of being a bearer asset. When you hold the keys to your Bitcoin, you exercise complete control over your funds, eliminating reliance on third-party institutions like banks.
The Role of Cryptography in Bitcoin Security
Encryption and Decryption: Bitcoin’s security is anchored in the use of cryptographic keys:
Public Key: Used by others to encrypt and send you Bitcoin.
Private Key: Essential for decrypting and accessing your Bitcoin, making its security paramount.
How Bitcoin Wallets Secure Your Crypto Assets
Generating Keys: A Bitcoin wallet initiates your security by creating a private key that, in turn, produces public keys.
Receiving Addresses: These public keys are hashed to create addresses that can receive Bitcoin.
Proof of Ownership: The private key serves as your proof of ownership, enabling you to spend or transfer your Bitcoin.
The Risks of Not Holding Your Own Bitcoin Keys
Outsourcing Security: Not controlling your private keys means essentially not owning your Bitcoin. Relying on third-party services like exchanges or banks can expose you to risks of loss or theft.
Deciding to Hold Your Own Bitcoin Keys
Risk Assessment: Assess the risks involved in managing your keys versus the potential risks of custodian loss or theft.
Empowerment Through Ownership: Holding your own keys empowers you to safeguard your Bitcoin against unauthorized access, seizure, or theft.
Securing Your Bitcoin with Swan
Custodial Security: Until you decide to manage your own keys, your Bitcoin is securely held in a Swan wallet by our U.S. custodial legal trust banking partners under robust security practices.
Beneficial Ownership: You remain the beneficial owner of the funds, fully protected under advanced security measures. Learn more about our security practices at Swan Bitcoin Security.
Exploring Your Options for Bitcoin Key Management
Financial Independence: Taking control of your Bitcoin keys is a significant step towards achieving financial independence and security in the digital age.
Educational Support: We provide the knowledge and tools necessary for you to manage and secure your Bitcoin confidently.
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Now, let’s look at your options for taking control of your own Bitcoin keys.
Bitcoin Custody Tradeoff: Security vs Convenience
The main tradeoff to consider when storing your Bitcoin is between security and convenience.
Obviously, both security and convenience are desirable traits when storing your Bitcoin; however, they are directly opposed to each other.
Where do you sit on the security vs. convenience spectrum?
Ask yourself these questions to gain a better feel for what storage method makes the most sense for you:
Total Value — Are you storing on the order of 0.1%, 1%, or +10% of your net worth in Bitcoin?
The answer would necessitate very different methods of storing your Bitcoin. Obviously, you would be willing to suffer more inconvenience if it meant protecting 50% of your net worth.
Timeframe/Accessibility— When and how often do you need to spend your Bitcoin?
Is this more of a checking account, a medium-term savings account, or is your Bitcoin more similar to a long-term retirement account?
Pro Tip: Don’t make your custody setup so complicated that even you forget how to access the funds. Bitcoiners tell cautionary tales of people losing Bitcoin due to overcomplicated custody setups resulting in the owner forgetting how to access their coins.
Wallet Overview: Exploring Mobile, Desktop, Hardware, Paper and Multi-sig Bitcoin Wallets
Now that you’ve decided to acquire some Bitcoin (smart move), it’s time to choose where to store your Bitcoin. This can feel overwhelming when you’re getting started.
Mobile Bitcoin Wallets
What: Users store private keys on a mobile device.
Pros: Simple to use, suitable for beginners, works for small amounts, convenient for spending even though most people rarely spend their Bitcoin right now (too much upside to holding for the long term!)
Cons: Least secure option as private keys are on a device connected to the internet. If an attacker gains physical access to your phone, funds can be sent to their own wallets. Not suitable for long-term storage.
What: Users store private keys on a purpose-built piece of hardware called a signing device. These devices can connect with Bitcoin software running on desktop and mobile devices.
Pros: Private keys never touch the internet, which reduces the risk of online attacks. Suitable for long-term storage. Since most signing devices require a PIN to access, if you lose your signing device, you can use the recovery phrase to regain access to your Bitcoin.
Cons: Users must secure a recovery phrase which serves as a backup to their hardware, and requires a thoughtful strategy to protect.
If your hardware wallet is stolen, your funds are at risk of being hacked.
Protecting recovery phrase backups is standard practice for self custody of Bitcoin.
What: A paper Bitcoin wallet is a way to store Bitcoin private keys offline. It typically involves printing out your Bitcoin public and private keys on paper oftentimes encoded as a QR code.
Pros: If properly generated are immune to online hacking risks.
Cons: Vulnerable to physical damage and degradation, inconvenient for frequent use, and pose a high risk of irreversible loss if lost or stolen. Carry a risk of key interception during printing if the printer is not secure.
Multi-sig Bitcoin Wallets
What: User stores private keys in a unique wallet that requires multiple private keys to sign before your funds can be moved. A “2‑of‑3” multi-sig wallet, a user needs two out of three private keys to move funds.
Pros: One of the most secure ways to store your Bitcoin, reduces the effectiveness of physical attacks and is suitable for long-term storage.
Cons: Hard to set up on and manage on your own, but several services exist to make it easier. Not convenient for spending, but that’s the point.
Guy Swann hosts "Zero to Multi-Sig" with BTC Sessions, Seth for Privacy, Trey Sellers. We discuss the best way to learn about self-custody, multi-sig benefits, and how to safely store your Bitcoin.
Hot vs Cold Bitcoin Wallets: What’s the Difference?
Understanding the differences between hot and cold Bitcoin wallets is crucial for managing your cryptocurrency securely.
Hot Wallets
Internet Connection: Hot wallets are connected to the internet, making them easy to access for daily transactions.
Security Risks: Their constant internet connection makes them more vulnerable to hackers. It’s recommended that they store only small amounts of Bitcoin in hot wallets.
Use Case: Ideal for frequent transactions, similar to carrying a physical wallet for daily spending.
Cold Wallets
Offline Storage: Cold wallets are not connected to the internet, greatly enhancing their security against online threats.
Accessibility: Less convenient for frequent use due to their offline nature, but significantly safer.
Recommended Use: Best for long-term storage of Bitcoin, acting like a safe for your digital assets.
Bitcoin Wallet Backup Seeds
Backup Necessity: Most wallets prompt users to write down a backup seed phrase, which is a crucial recovery tool if they lose access to their wallet.
Security Importance: These backup seeds must be guarded as meticulously as valuable physical assets since they contain all the necessary information to access your Bitcoin.
Seedless Bitcoin Wallets
Multi-signature Support: Seedless wallets are typically used in multi-signature setups where no single backup seed is generated.
Backup Handling: Instead of user-managed seeds, these wallets often rely on a service to handle backups securely.
Bitcoin Multi-sig: How it Works
Multi-key Security: Multi-sig wallets enhance security by requiring multiple signatures for transactions. For example, in a 2-of-3 setup:
Key Distribution: You would have three private keys but need at least two to authorize a transaction.
Risk Minimization: Keys are often kept in physically separate locations to mitigate the risk of theft or loss.
***Just don’t get too creative, or you might fool yourself and lose your funds (it’s happened many times).
As mentioned above, here are a few examples of multi-signature wallets:
Multi-signature (multi-sig) technology adds an extra layer of security and flexibility to the management of your Bitcoin. Here are the key advantages:
Error Tolerance: Multi-sig configurations, such as a 2-of-3 setup, allow room for error. If you lose one private key, you can still access your funds with the remaining keys. This significantly reduces the risk of total loss compared to a single-key setup.
Mitigation of Physical Attacks: Multi-sig can protect against physical threats to your Bitcoin. In a scenario where you might be coerced into transferring your Bitcoin, having a multi-sig setup complicates this process.
Geographic Separation of Keys: By distributing your keys across different locations (e.g., your home, office, and a safety deposit box), you decrease the likelihood of a successful physical attack. This geographic spread of keys deters attackers by making accessing all keys needed to transfer the Bitcoin significantly more challenging.
Enhanced Security: The need for multiple keys to authorize a transaction adds a layer of security that is absent in standard single-key wallets. This setup ensures that no single person or compromised location can control the entire wallet.
Why Does My Bitcoin Wallet Address Keep Changing?
Why Does My Bitcoin Wallet Address Keep Changing?
Understanding why your Bitcoin wallet address changes frequently can be complex, but it’s an essential feature designed to enhance your security and privacy. Here’s a simple breakdown:
Multiple Public Addresses: Each set of private keys in your wallet can generate billions of public keys. These public keys are transformed through a process called hashing to create public addresses.
Receiving Bitcoin: You can receive Bitcoin at any of these public addresses. The capability to create numerous addresses from a single set of private keys ensures that you have many addresses under your control.
Spending Bitcoin: While anyone can send Bitcoin to these addresses, only the person holding the corresponding private keys can spend the Bitcoin from them.
Think 'Email': Think of Bitcoin wallet keys like email services. Your private keys are akin to your email password, public addresses to your email address, and the wallet itself is similar to your email client (e.g., Gmail, ProtonMail). However, unlike email, each private key can access billions of potential public addresses.
Privacy Protection: Generating new addresses for transactions helps protect your privacy. This feature prevents others from tracking your financial activities on the public Bitcoin blockchain.
Security of Funds: As long as you control the private keys, you maintain access to Bitcoin sent to any address generated by your wallet.
Safety Tips: It’s crucial to keep your private keys secure and private to protect your Bitcoin.
Our Recommendation: Let % of Net Worth Guide Your Bitcoin Wallet Choice
The easiest way to approach Bitcoin custody is to focus on “How much money is at stake?”
In other words, what percentage of your net worth is being secured. We understand each person’s situation is unique. Below are our recommendations.
** Use this as a guideline rather than absolute truth.
Small Amounts (~0.1% Net Worth) — Use a Mobile Bitcoin Wallet
Muun — It’s probably the easiest Bitcoin wallet for iPhone and Android. Muun is a hybrid Bitcoin and Lightning Network wallet known for its simplicity, security, and seamless handling of both on-chain and off-chain transactions.
It features an intuitive design and robust security measures, including an encrypted "Emergency Kit" for fund recovery. It uses "Submarine Swaps" for easy transfers between networks.
Muun simplifies the user experience by eliminating the need for manual channel management and is partially open-source for increased transparency. It’s designed for users at all levels.
Phoenix — A user-friendly Bitcoin wallet focusing on the Lightning Network for quick, low-cost transactions. It’s non-custodial, offering full control over funds, automates technical tasks for ease of use, and features robust security measures.
It automates complex processes like channel management, making it accessible to newcomers while ensuring users retain full control over their funds through private keys.
Phoenix also features security measures like PIN and biometric authentication, supports easy backup and restoration, and is open source for transparency and community review.
Medium Amounts (~1% Net Worth) — Use a Hardware Bitcoin Wallet
Blockstream Jade — A secure and affordable hardware wallet designed for Bitcoin and Liquid Network assets.
The wallet supports USB and Bluetooth connectivity, is compatible with the Blockstream Green software wallet, and features open-source firmware for enhanced security through community review.
Jade is user-friendly, with a clear display and physical confirmation button, and supports multi-sig transactions for added security.
Passport — A hardware wallet focused on high security, ease of use, and durability.
It stores private keys offline, utilizes open-source firmware for community-driven security enhancements, and supports air-gapped operations via QR codes, eliminating the need for physical connections.
Passport features a user-friendly interface designed to resemble a passport for ease of carrying and durability.
It supports multi-signature transactions for added security layers and is compatible with various Bitcoin wallet software.
SeedSigner — A DIY, open-source Bitcoin hardware wallet that allows users to assemble their device from widely available components, such as a Raspberry Pi Zero.
It prioritizes security by enabling offline storage and signing of transactions, enhancing user privacy and sovereignty over their funds.
The wallet is designed for affordability, making it a cost-effective alternative to traditional hardware wallets.
Its compatibility with various Bitcoin wallet software that accommodates PSBTs, offering flexibility to users.
However, it requires more user involvement in setup and operation. Its not an ideal choice for beginner’s.
Coldcard — A Bitcoin-only hardware wallet known for its robust security features and support for air-gapped operation. Coldcard is an advanced wallet we only recommend for advanced Bitcoiner’s.
Key features include a secure element for private key protection, open-source firmware and hardware, PIN code protection with a duress PIN option, and physical security measures like tamper-evident packaging.
It offers a simple user interface, microSD card support for transaction signing, and compatibility with popular Bitcoin wallet software.
Advanced features include multi-sig support and Partially Signed Bitcoin Transactions (PSBT) for enhanced security.
Large Amounts (+10% Net Worth) — Use a Multi-sig Bitcoin Wallet
Swan Vault — A comprehensive Bitcoin custody platform that offers secure self-custody with a very user-friendly experience.
Features collaborative multi-signature security, requiring two of three keys to move Bitcoin, with two held by the user and one by Swan for recovery purposes.
Designed for Blockstream Jade hardware wallets, it offers easy onboarding, expert security backed by regular audits, and integration with the Swan ecosystem.
Advanced users can enjoy full sovereignty with multi-sig wallet recovery into Bitcoin Core via Specter Wallet.
Provides inheritance planning for Swan Private clients.
Learn more about Bitcoin basics for beginners here.
Let’s Wrap Up
That’s our summary of the 2024 Bitcoin self-custody landscape to date. The old adage rings true: “Not your keys, not your coins.”
We understand self-custody can seem intimidating at first. Swan Vault aims to make it more convenient and accessible for everyone. Vault combines 2-of-3 multi-sig security with an intuitive interface.
This removes the technical hurdles that often discourages beginners. Users also receive dedicated guidance from Swan team of experts. Together, the simplified platform and helpful support empower users who still retain sole authority over their funds.
Buy automatically every day, week, or month, starting with as little as $10.
Brandon Quittem
Brandon is an entrepreneur, writer, speaker, and passionate Bitcoiner. His articles have been read by more than 2 million people online. Most well known for exploring the parallels between bitcoin and mycelium.
Drew
Drew, a class of 2013 Bitcoiner, is a Research Analyst for Swan Bitcoin.
He has worked in institutional VC/PE, FinTech, and DLT consulting for over six years. He also brings over twelve years of experience working with national nonprofits and start-ups in education and software development in several leadership roles.
Discover how Swan Vault puts you in full control of your Bitcoin with a simple, secure setup. See just how easy it is to safeguard your wealth and unlock your monetary autonomy.
