Where to store your Bitcoins

Once you know what you are doing, if you want to buy significant sums of Bitcoin, the place to do that is on an exchange. There are all sorts of identity checks you have to go through to open an account with an exchange. The process can be rather frustrating. If you’re struggling, one point I’d make is that in many cases I found it easier doing this on my phone than on my computer. Even more frustrating is trying to send large sums. Banks sometimes limit the amount you can send. Some exchanges require extra verification, which can take considerable time to process.

Bitcoins might be a digital asset (so you can’t touch them). But they’re also a bearer asset (if you hold them, you own them). So you need to keep them somewhere safe.

Where to store your Bitcoin

You can keep your bitcoins at an exchange – some offer cold storage, which is similar to the way that bullion dealers often offer gold storage. And if you feel you don’t have the time or the ability to learn and apply your own sovereign cold storage systems, then storing your Bitcoins in cold storage, with one of the more reputable exchanges, in one of the more reputable jurisdictions is a solution.

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Exchange security is infinitely superior to what it once was. However, just understand that if the exchange goes bust, is hacked or has its assets frozen, you could well have a problem on your hands. The same government protections that exist in traditional finance do not exist in Bitcoin. It is a form of digital cash. Replacement certificates cannot be issued, nor the stolen certificates be cancelled. Once it is gone, it is gone. (And unlike your gold, it is unlikely to be insured). The purists and the old hands all recommend taking custody, and so do I. Be your own sovereign bank, as the saying goes.

The most user-friendly means to store your own Bitcoins I found to be is Casa. Other long-term storage options include Trezor, Ledger, Electrum plus a multisig (multi-signature) hardware wallet. These will all start making sense once you start playing around with the technology.

Cautionary tales

Back in 2014, I had my email hacked. The hacker found an archived wallet in my Gmail account, which he used to steal my Bitcoin. It was a common hack at the time and many of us lost our coins. Today what was stolen amounts to a seven-figure sum. 

So angry/stupid was I afterwards that I did not buy back what was stolen and went on to miss out on huge gains. There are many people like me who suffered a similar, or in some cases much worse fate. Imagine if you were one of the early investors who had his coins at MtGox. Until 2014, MtGox was the world’s biggest crypto exchange, handling over 70% of Bitcoin transactions. Many early investors never took delivery of their coins and instead left them on the exchange.

MtGox got hacked. More than 850,000 coins were stolen. Today that amounts to over $34bn. It’s an extraordinary amount of money – it must be the greatest heist in history. How many early Bitcoin investors missed out on becoming multi-millionaires or even billionaires as a result?

The incident has left many in a state of near-permanent depression. Never again will an opportunity like that to make so much money come along. I know of at least two suicides as a result. All because we were not as savvy as we should have been with the tech, and did not protect our accounts well enough.

Security standards have improved dramatically since then. But the moral of the story is: take the time to familiarise yourself with the tech. Several days, if needs be. Even crypto whizzes are still learning new tricks. It is worth the effort.

Whatever route you go down to buy and store Bitcoin, I would recommend using a password manager. Once you get it set up, you will find it to be a labour-saving device, not just for Bitcoin but across the net. Most importantly, it stops you from using the same generic password across multiple websites, which puts you at risk of hacking, identity theft and all the other types of online nefariousness which go on. Another benefit is that you won’t have to remember some complicated combination of letters, symbols and numbers. The password manager will do it for you. 

The best password managers are NordPass, RoboForm, 1Password, Dashlane and LastPass.

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