Oct 14, 2018 01:00 UTC
Oct 16, 2018 at 16:49 UTC
Offline or Online? How Should You Store Your Bitcoins?
Every investor wants to make sure their holdings are absolutely secure, and crypto investors are no different. Naturally they want to store their bitcoin or altcoin holdings in a secure way. There are a multitude of storage options available for cryptocurrencies and they can be broadly categorised into online and offline wallets. Which one should you go for?
While experts suggest choosing offline wallets as they theoretically win over online ones hands down when it comes to security, the choice is not so easy. A bitcoin owner’s choice must be guided by a multiplicity of factors. Before delving into the determinants of such a choice, let’s have a brief look at what online and offline wallets are and what they entail.
Online wallets are essentially web-based services that provide storage to the private keys to your bitcoin or other cryptocurrency holdings in a securely encrypted server. These wallets can be accessed from anywhere at any time and offer a host of benefits inherent in the functions of the internet.
Having said that, they are also susceptible to security flaws, cyber attacks and can be hacked to compromise the security of the users’ holdings. Ideally, if one is using an online wallet, it is advisable to conduct a thorough due diligence to ensure the server one is choosing is a reputed and reliable one. In addition, it is essential to use additional security features such as the 2-Factor Authentication Process which generates a second password specifically on a device owned and managed by the user, to make sure additional layers of security can be added. It is also recommended to check security certification (SSL certificate and HTTPS before the website URL) carefully before finalizing a transaction.
In case of offline wallets, one’s private keys to crypto holdings are generated to be stored away from any internet connection, to prevent possible hacking attacks. They are stored in a physical location, either written or printed on a piece of paper, stored in electronic devices called hardware bitcoin wallets, or saved onto a USB drive or desktop PC with no internet connection. However, despite the obvious security because hackers cannot pry their way through using an internet connection, physical damage or theft of the paper wallet, USB device or PC can compromise the security of the keys. Although hardware wallets are more secure, they come at a significant price and can still be damaged by fire or water or lost with no hope of recovery. However, they do have backup seed keys to restore access in case of damage or loss. Notable examples of hardware wallets include the Ledger Nano S and Trezor.
Having summarised the general characteristics of online or offline wallets, the question remains:
Which one should you choose?
If the user in question is someone who needs to access their crypto keys from anywhere at any time, it would obviously be more convenient to choose an online wallet. For example, if a person is traveling, it might be possible to carry a hardware wallet or paper wallet along but there always remains the risk of misplacing it. For a person who’s a frequent traveler as well as a frequent user of cryptocurrencies, online maybe the best bet. Having said that, it would still pay to diversify funds and store one’s cryptocurrencies in separate wallets.
If a user is sure of ensuring an offline wallet’s physical security, and uses it less frequently and from a single location, offline wallets would be the best option to go for, as they maximise security and till now, have no record of having been subject to a third party breach. For this kind of wallets too, having more than one wallet to spread out the funds is a must as that makes one’s holdings considerably more secure.