How to buy and store Bitcoin
May 16, 2022
The safest way to buy and store Bitcoin
Bitcoin is different and innovative from than financial services you know and uses every day. Before you start buying and using Bitcoin, there are a few things that you need to know in order to use it securely and avoid common risks.
Bitcoin wallet is a software basically functions as a personal bank account for your bitcoin where you can store, send, and receive bitcoins. A bitcoin wallet helps you with the management of your private and public keys. Private keys are used to sign transactions to send any bitcoin that you own while public keys are derived from the private keys to generate bitcoin addresses.
Using your email inbox as an analogy, you can think of your Bitcoin private key as the password to your email account and the bitcoin address as the email address to which people can send things.
Your private key is something that you must guard closely because this gives access to your entire Bitcoin wallet. Anyone with access to your Bitcoin private key can take your entire bitcoin balance just like how anyone with access to your email password can read all your emails and impersonate you.
A Bitcoin public and private key will look something like this:
Bitcoin wallets can generally be classified into two broad categories: Hot and Cold wallets.
Hot wallets are cryptocurrency wallets that are connected to the internet, therefore funds stored in such wallets are much more accessible. However, it is less secure compared to cold wallets.
Cold wallets (hardware wallets) are cryptocurrency wallets that are useful for storing large amounts of Bitcoin. Because they are not connected to the internet, they are more secure and are harder for hackers to attack.
Wallets are either custodial or non-custodial. Custodial wallets are wallets in which you do not control the private keys. Non-custodial wallets are wallets where you control the private keys.
Use a non-custodial wallet that allows you to withdraw your Bitcoin and hold it in cold wallet.
The most important principle to remember when buying Bitcoin:
If you do not hold your own private keys, the Bitcoin is not really yours.
If someone else holds your private keys (like PayPal, Robinhood, or any cryptocurrency exchanges), you don't control your own Bitcoin. It can be lost, hacked, seized, or otherwise confiscated. (Similar banks can freeze or seize your funds at any time).
Not your keys, not your coins.
The better option is holding your Bitcoin on a cold (hardware) wallet like a Trezor, it means that you are holding your own private keys.
Use cryptocurrency exchanges like Cash App, Coinbase Pro, Kraken, or Gemini to buy Bitcoin. After buying it, you should immediately withdraw the Bitcoin and hold it in a cold wallet like the Trezor.
To get started, you just sign up for a new account on Coinbase Pro or Cash App.
Once your Coinbase account is open, you can move US dollars into it from your regular bank account.
Wait until your Cash settles at Coinbase before placing a trade. Coinbase will allow you to buy Bitcoin immediately after you move money in, but you will not be able to withdraw that Bitcoin until your ACH or wire settles.
Make sure that you don't buy garbage coins like BCH (Bitcoin Cash) or BSV (Bitcoin Satoshi's Vision). The correct ticker will have BTC in it. If you are buying Bitcoin (BTC) using US dollars in Coinbase Pro, the ticker is BTC-USD.
Using Cold wallets to store Bitcoin. The good option is Trezor Model T. It's not cheap at $170, but it might make sense if you are holding any significant amount of Bitcoin. Never store your Bitcoin on a used hardware wallet, or buy a Trezor from a third-party source for the sellers may have loaded some malware onto the Trezor that will allow them to steal your Bitcoin remotely. The fewer intermediaries, the better for security.
Use the high privacy browser and go to this page before you plug in your Trezor: https://trezor.io/start/
Before you move any Bitcoin onto your Trezor, it is very important to generate a recovery seed. It is a representation of the private keys that are associated with your Trezor wallet. The recovery seed will be shown, one word at a time, on your Trezor screen, and you should use a pen and paper to write down these words in the order that they are given. Your recovery seed will look something like this:
If your Trezor is ever lost or damaged, you can buy a new Trezor hardware wallet and enter your recovery seed into the new wallet.
Possession of your recovery seed = ownership of your Bitcoin
For this reason, it is very important to hide your recovery seed in a safe place and make multiple backups of it. Never share your recovery seed with anyone that you don’t trust. Here are some important rules to follow when it comes to your recovery seed:
- Never put your recovery seed into an email, or enter it into any online form in your browser. It should only be entered directly onto your Trezor device.
- Never take a picture of your recovery seed, or upload it to the cloud.
- Never keep your recovery seed on your laptop or desktop computer.
- Never store your recovery seed anywhere online, including Evernote or Google Drive.
- Put a piece of dark tape over your computer camera when you are writing down your recovery seed.
- Do not whisper the words in your recovery seed when you are writing them down.
- Generate and write down your recovery seed in a completely private room, without your smartphone present.
If you hold very small amounts of Bitcoin, it's probably fine to keep your Bitcoin on an exchange like Cash App or Coinbase Pro. Don’t let the complexity of storing Bitcoin prevent you from getting started.
If your holding of Bitcoin grows, learn how to move your Bitcoin off of Cash App and onto cold hardware like the Trezor. Send small test amounts at first, so that if you make a mistake, you won't be out too much money.
As your holdings of Bitcoin grow, even more, consider moving to a multi-sig (“multi-signature”) storage solution. This is a safer way of storing your Bitcoin that requires multiple signatures from different hardware wallets to move your Bitcoin. It removes the single point of failure problem that is present with single hardware wallets.