DISCLAIMER: THIS IS NOT LEGAL ADVICE. THIS POST IS FOR EDUCATIONAL PURPOSES ONLY. I DO NOT ENDORSE ANY OF THE PRODUCTS MENTIONED, SO BE SURE TO DO YOUR OWN DUE DILIGENCE BEFORE PURCHASING A HARDWARE WALLET.
This post is for the HODLer newbies out there who are planning to hold their bitcoin (or any other cryptocurrency) long term. You may have recently acquired some bitcoin on an exchange such as Coinbase and you’re wondering how to best store them for years to come for one reason or another. These are some quick tips to keep in mind as you make a plan to secure your bitcoin for the long haul. Much more can be said about this topic and if you have ideas, feel free to share in the comments.
Store your bitcoin on a hardware wallet
This really should go without saying, but just in case you didn’t know — you should never store your bitcoin on an exchange or “hot” wallet. As the Bitcoin legend Andreas Antonopolous has said a bajillion times - “Not your keys, not your bitcoin.” When your bitcoin is on an exchange (and many of the leading mobile “hot” wallets) you do control of your private keys, you’re just using the exchange’s wallet. So if the exchange is hacked (e.g. MTGOX), you’re bitcoin could go bye-bye. Not a good look.
Similarly, a ‘hot’ wallet (a wallet that is online or on a mobile device and is connected to the internet), e.g. on Blockchain.info, is not a secure long-term option. If your email account or online wallet account is compromised (e.g., via phishing attack), your crypto could be gone in an instant.
The best option for storing your crypto long term is on a hardware wallet. Hardware wallets allow you to control your keys while offering the added protection of offline store, pin numbers, and passphrases. There are a few good hardware wallets out there - Ledger, Trezor, and KeepKey to name a few.
Put your hardware wallet in very safe place
If you plan on keeping your hardware wallet at home, you should ideally keep it in a fireproof safe. Though hardware wallets are incredibly secure, a sophisticated attacker has a good chance of taking your bitcoin if they can obtain physical access to your wallet. Storing your bitcoin in a heavy safe in a secure location is really the minimum level of protection.
While you should be able to access your crypto if your hardware wallet is destroyed (see the next tip), it’s a good idea to get a fireproof safe so that you reduce the risk of losing the wallet in the case of a fire.
Another option for storing your hardware wallet would be in a bank safety deposit box (aside from the obvious irony). Depending on the amount of bitcoin you’re storing, this may make sense, as there will be much less convenient and cost more. However, your bitcoin will arguably be much more secure than at your home. Either way, think carefully about where your hardware wallet is stored and make sure it’s very safe.
Store your seed phrase in a separate location
When you open and set up your hardware wallet for the first time, you will be given a seed phrase, which will allow you to restore your wallet should anything happen to your original device. This is THE most important thing to store. Even more so than the device itself. You can completely lose or destroy the hardware itself and as long as you have your seed phrase you can access your bitcoin. But if you lose it and your wallet is lost or destroyed, you’re toast.
Because computers can be hacked and accounts can be compromised, you will want to write your seed phrase down on paper (or use Word to print it out, but do not save the doc). It’s a good idea to laminate the paper if you can and then store it in a fireproof and waterproof safe. Ideally, you are keeping the seed phrase separate from the hardware wallet itself in case the wallet is compromised, but I understand if you don’t want to buy two safes!
However, I would recommend having a back up copy of your seed phrase store securely in a separate location. This could be in a safety deposit box or at the house of a relative or trusted friend. Whatever the location, keeping it at least a few miles away from your primary location (ideally further) is a good idea.
While ink and paper work just fine, if you really want to get hardcore about storing your seed phrase, check out the Cryptosteel.
Update your firmware
Your device’s firmware (base level software) will be updated from time to time by the manufacturer of your hardware wallet. You’ll want to pull your hardware wallet out periodically to make sure you have the most recent version of the firmware for two reasons.
First, firmware updates are important for keeping your device secure from theft as they often address security vulnerabilities. Second, when it comes time to manage your bitcoin (send, receive, check balance) you’ll need to connect to the wallet’s interface on your computer. If your firmware is out of date, you won’t be able to manage your keys using this software.
Fortunately keeping your firmware up to date is a pretty quick process, but one that you should do periodically. It also ensures that your device is working properly, so you know if you need to replace for some reason. I would recommend opening up your device about every six months. You don’t want to fall too far behind or you may run into issues if major updates have been made.
Leave instructions for your family
If you’re planning to hold your bitcoin for a long time, you need to prepare for the unexpected. Hopefully, you’ll be around to pass along your bitcoin, but just in case it’s a good idea to leave instructions for your loved ones who might not be quite so savvy with crypto. For these instructions, it probably makes sense to keep them with either the hardware wallet itself or with the seed phrase.
However, as long as if you leave instructions that do not reveal the location of your hardware wallet or the actual seed phrase, there’s no harm in sending these instructions via email or storing them in the cloud on a shared drive.
Hope this has been helpful as you think about holding onto your bitcoin for long term. If you have other thoughts or questions, please leave a comment. If you’re looking for help managing/storing your bitcoin or with your decentralized application project feel free to reach out for a free initial consultation.