Different Methods Of Securing Funds
Everyone has different ways of doing things. It always amazes me how something can seem so logical to me that there’d never be another way of doing it only to find out someone else thinks my method is a precise example of idiocy. The same thing goes for the Bitcoin ecosystem, particularly when it comes to the discussion of how one should go about creating secure long term storage. Everyone seems to have their way and a set opinion on why their way is the best. Fortunately for you I’m not like that. Rather, I feel that various kinds of storage are best. In fact, use them all. Don’t put all your eggs in one basket.
I’m going to go over several general descriptions of various long term storage methods. Many of these will get their own post to explain them in detail. For now I’d just like to cover them briefly to introduce them to you. If you read a description you like look in the Review section for a more in depth description post or in the Tutorial section for a more in depth how-to post. They may not be there yet, as I’m still writing these posts, but they’ll be there as soon as I can get them down. Several of them will have to wait, though, as I don’t have the funds to buy some of the hardware wallets.
First up on the list is by far the cheapest, but if you do it properly they’re also the most secure: paper wallets. Yes, I recognize the irony that a digital currency relies on analog backups. Seriously, though, paper wallets are a very accessible way of storing your Bitcoin because you can create them for next to nothing without your private keys ever touching anything connected to the Internet and, once they are erased from the memory of the device that created them, nothing can pull that information once it’s gone.
There are several methods of creating paper wallets. One is to boot a computer with no network connection from a flash drive containing a bootable OS, then open a zip file containing a copy of the website located at bitaddress.org, create some paper wallets and print them to a printer with no internal memory, then reboot the lot. You can then use your Bitcoin wallet on your phone or computer to send Bitcoin to these wallets. I recommend you then store them in a water and fireproof safe or deposit box of some kind. Again with the irony, yes I said a deposit box like in a bank. This fairly universally recognized to be the safest and most secure way to store Bitcoin if done correctly.
You can also find different gadgets for creating paper wallets to make the above process much easier. The Mycelium Entropy is a flash drive with specific specialized software on it. You can put this drive into the USB port of printer that allows you to print from a flash drive. It will create a paper wallet which can be printed and then, once the flash drive is removed, that data is erased from memory. This is pretty handy if you have a printer that doesn’t have internal memory and is not connected to the Internet. It’s also arguably just as secure.
The second gadget is the Piper. It’s based on the credit card sized computer, the Raspberry Pi. It also runs specialized software and has a printer built in. But, instead of going through all the hassle in my first example, you just press a button on the top and it prints out a paper wallet that looks much like a receipt you’d receive from a store. Or, if you hook up a keyboard and mouse and run it like a computer there are many more options available including the bitaddress.org method I described first. Since this computer never connects to the Internet, it’s also arguably just as secure.
You can also create paper wallets by using other software. There is an Android app called Deck Bitcoin Wallet. You shuffle a deck of cards, select the number of cards you want to use, enter the cards you draw into the app, add an optional password, touch “Go!” and it creates up to 52 Bitcoin addresses for you to use. You can then have the software recreate the list of wallets at any time by punching the cards in the same order into the app at a later date. Because someone may use your deck of cards to play Pinochle, I recommend you keep several decks in several places. And since a deck of cards can’t connect to the Internet, it’s also arguably just as secure.
There is a paper wallet generator for Android called Bitcoin Paper Wallet. If you have an old Android phone laying around you can use it for paper wallet generation by installing the software, turning on Airplane Mode, and then using this software to create paper wallets. As long as you don’t turn Airplane Mode off, you should be secure. Granted, this makes it hard to print them, so you may be stuck writing them down.
Of course you don’t need to write them down by hand if you use spreadsheets and encryption. I’ve read that the Winkelvoss twins, yes of Facebook fame, use multiple copies of encrypted spreadsheets stored in bank boxes to secure their Bitcoin fortunes. And when I say fortune, I don’t use the word lightly. If it’s good enough for them, it’s good enough for anyone. The way to do this is to use any of the address generating software above, but be sure to put a password in the optional password box. This will change the private key that it spits out to an encrypted private key that you can only use if you punch in the password. You can then put the public address and encrypted private key into a spreadsheet and store it anywhere. Just don’t forget your passwords.
You could also, using the bitaddress.org method, the Mycelium Entropy method, or the Piper printer as a computer method, create what are known as multisig paper wallets. These are wallets with one public address but multiple private keys. When the wallet is created it is programmed in that a certain number of keys are required to send the funds. So you can say that 3 keys are created and any 2 can send funds, or 9 keys are created and any 5 can send funds. This allows you to do things like store your backups in multiple places and if one burns down you can still get to your funds. Or you can have one fund shared between several people. As long as you keep the majority of your private keys secure you’re safe.
You can also do multisig wallets using software. Copay and Bither are two apps that feature this. I’ve discussed Copay before. Bither is like a slimmed down version of Copay featuring the multisig function. Again, if you have an old Android phone laying around you can install this software and then put the phone in Airplane Mode. You can then start Bither and put it into Cold Storage mode. You can create lots of bitcoin addresses on this phone and then use Bither on another Android phone in Hot Wallet mode to monitor them. By linking both phones and the Bither servers you get a 2 of 3 multisig wallet, which means you need to use both phones to sign transactions or use one phone and the Bither servers to restore a backup to a new phone. Someone would have to have control of both of your devices in order to steal your Bitcoin, so it’s safe as well.
If you don’t have an old Android phone laying around there are several devices called Hardware Wallets that use specialized software running on specialized hardware and use encryption in order to store Bitcoin. These devices range in price and they all have a strong following. Some aren’t even out yet. But the truth is that every generation of Hardware Wallet continues to innovate and impress. Each of these devices is used to generate and store private keys. But they are also used to sign transactions, just like multiple paper wallets would be used to sign transactions. But instead of having 2 out of 3 or 5 out of 9 paper wallets, you just have your wallet and this device, just like the two phone solution above.
First up in the list of Hardware Wallets is the Ledger line of products. They offer the Nano, an encrypted flash drive; the HW.1, a cheaper version of the Nano; and the Unplugged, an NFC card. Each of these are a strong offering. What I find most impressive is that you can use your backup on one device to restore your backup on another device, even a different model. Second up is the Trezor. It is a device with a screen that runs as an isolated environment. Again, you can restore your backup to a different Trezor. Third is the Keepkey. It’s very similar to the Trezor in many respects, but the screen is larger. The next device is in testing and isn’t available to the public yet, but it looks very promising. Fourth is the Ledger Blue. It’s much like the Trezor or Keepkey, but it uses Bluetooth instead of a USB cable and it has a larger screen which is more interactive because it’s a touchscreen.
Whichever method or methods above that you choose, you can’t go wrong. In my opinion it all just depends on what is available to you, how much you want to spend, and how much “cool” factor you want to show off. There’s certainly nothing wrong with going ultra cheap and using paper wallets, but there’s certainly something cool about touching your NFC enabled card to the back of your phone, putting in a PIN, and watching money move. But I highly recommend that you at least choose one method above and employ it as soon as you start to amass enough Bitcoin that the idea of losing it makes you nervous. I can’t stress it enough that you need a good long term storage solution and backups.