You don't need your own crypto wallet for Bitcoin, but it could make sense in some circ*mstances.
There are plenty of places to buy Bitcoin, but how should you store it? You can leave it in the same place you buy it -- for example, if you buy your Bitcoin through Cash App, you can hold it in your Cash App account as long as you want. On the other hand, you could hold your Bitcoin and other cryptocurrencies in your own wallet. In this article, we'll take a look at the security risks of both options, and whether a separate cryptocurrency wallet is necessary.
Option 1: Leave your Bitcoin where you bought it
Leaving your Bitcoin at the exchange or brokerage you bought it from is generally a very secure option. While security protocols vary by exchange, there are three types of security that most top cryptocurrency exchanges use to ensure customer accounts are safe:
- With most exchanges, the vast majority of Bitcoin in customer accounts is kept in cold storage, meaning it is held in wallets not connected to the internet. This Bitcoin is not vulnerable to hackers.
- Exchanges typically keep some Bitcoin in hot wallets (internet-connected) to ensure customers who want to buy, sell, and transfer their digital currencies have proper liquidity to do so. The exchange usually has an insurance policy to protect customers in the unlikely event that this Bitcoin is stolen.
- Finally, most exchanges hold client funds in custodial accounts at FDIC-insured banks, so the cash balance in your account is safe as well.
However, none of these security measures can protect you if your account is hacked and someone transfers your Bitcoin without authorization. So, while keeping your Bitcoin at an exchange is fairly safe from hacking incidents, it's very important to protect your passwords and other authentication measures. After all, once someone transfers your Bitcoin out of your account, it's gone.
Option 2: Get your own Bitcoin wallet
Technically, even if you leave your Bitcoin with an exchange, you're using a Bitcoin wallet. However, it's known as a custodial wallet, since a third party has custody of your funds.
The other option is to get your own Bitcoin wallet, which gives you full control of your Bitcoin and its security keys (private codes that prove you own the Bitcoin). And there are a few different subcategories.
- Software wallet: A Bitcoin wallet on your computer. You own your Bitcoin, but you are still vulnerable to hacking if your computer has an internet connection.
- Hardware wallet: If you store your Bitcoin on a physical piece of hardware (say, a portable hard drive), it virtually eliminates your risk of being hacked.
- Paper wallet: You can store your Bitcoin keys solely in paper form, but these are easy to lose.
Do you need a crypto wallet?
There's no one-size-fits-all answer. But for most people, leaving Bitcoin in the custody of an exchange is perfectly safe, assuming you take proper steps to safeguard passwords and other authentication methods. However, if you have a large quantity of Bitcoin or you simply want your digital currency to be as secure as possible, a Bitcoin wallet can be a good idea.
RELATED: Check out The Ascent's guide to the best NFT wallets.
FAQs
Like other cryptocurrencies, bitcoin requires a crypto wallet for storage, and most of the leading crypto wallets—hot or cold—support BTC. There are a few specialized wallets that do not support bitcoin. MetaMask, for instance, does not directly support bitcoin, as it is designed only for Ethereum-based crypto tokens.
Can you hold Bitcoin without a wallet? ›
It's not possible to own cryptocurrency without a wallet. A wallet is essential for storing, sending, and receiving cryptocurrencies securely. There are different types of wallets like hardware wallets, software wallets, and online wallets, each with its own features and security levels.
How do you store your Bitcoin? ›
To prioritize security, storing the majority of funds in cold storage on a hardware wallet would be the best option. A small balance could still be held in a hot wallet for making transactions quickly and easily. Managing multiple wallets for different purposes is a popular choice for seasoned crypto users and whale.
What is the safest wallet to store Bitcoin? ›
Best Bitcoin Wallets
- Exodus: Best Overall.
- BitBox02: Best for Bitcoin-Only Storage.
- Electrum: Best for Desktop.
- BlueWallet: Best for Mobile.
- Crypto.com Wallet: Best DeFi Wallet.
- Coinbase Wallet: Best for Beginners.
If you're purchasing Bitcoin, you'll need a place to keep it. Bitcoin can be stored in two kinds of digital wallets: a hot wallet or a cold wallet.
Do I need a wallet for my Bitcoin? ›
Like other cryptocurrencies, bitcoin requires a crypto wallet for storage, and most of the leading crypto wallets—hot or cold—support BTC. There are a few specialized wallets that do not support bitcoin. MetaMask, for instance, does not directly support bitcoin, as it is designed only for Ethereum-based crypto tokens.
Can I transfer Bitcoin without a wallet? ›
You can't send crypto without a wallet, so technically, you still need a wallet address to facilitate a transaction. However, some platforms, such as the Ka. app, have started using quick response (QR) codes and mobile numbers to make sending assets to a wallet much easier for users.
Where is your Bitcoin actually stored? ›
Bitcoin is not actually stored in your wallet. It's actually stored on the blockchain. The wallet simply stores the private keys that grant the owner access to your accounts.
What is the best storage for Bitcoin? ›
You can store large amounts of cryptocurrencies by any storage method, but storing them in cold wallets is best. Cold wallets are the most secure option and can store any amount of cryptocurrencies for a long time.
How much does it cost to store Bitcoin? ›
So, how much does a Bitcoin wallet cost? If you're only storing Bitcoin in the wallet, then using a Bitcoin wallet costs nothing. If you're trying to complete a transaction, however, the owner of the exchange or device that houses your wallet will charge you different fees, depending on what you're trying to do.
Cash App acts as a bitcoin wallet, where you can view your BTC balance and buy or sell at any time. Cash App securely stores the private keys for your bitcoin, so you can instantly access it at any time.
How to convert crypto to cash? ›
To withdraw money from crypto to your bank account, first, sell your cryptocurrency on a crypto exchange that supports fiat currency withdrawals (like Mudrex). Link your bank account to the exchange, initiate a withdrawal request, and the converted funds should arrive in your bank account within a few business days.
Where is the best place to keep bitcoin? ›
The most secure option would be to use a metal card or a “paper wallet.” It's also preferable to store a private key rather than a seed phrase on the paper wallet.
Is it free to have a crypto wallet? ›
You can also download the standalone Coinbase Wallet app to take advantage of the benefits of a non-custodial wallet. Some of our customers have both, making it easy to buy crypto with traditional currency as well as participate in advanced crypto activities. Setting up either wallet is free.
Can I have a crypto wallet without a bank account? ›
While Coinbase generally requires you to link a bank account or debit card to your account in order to buy and sell cryptocurrencies, there are a few ways to use Coinbase without a bank account or debit card. One option is to link a PayPal account to Coinbase and use it to buy and sell cryptocurrencies.
Can you physically hold a Bitcoin? ›
Physical bitcoins — yes, they do exist — are not just great collector's items, they also let you store your digital currency on them.
How do I pay Bitcoin without wallet? ›
Yes, it is possible to send and receive Bitcoin without a wallet address. This process is known as "pay-to-script-hash" or "P2SH." With P2SH, a Bitcoin address is not needed to send or receive funds. Instead, a script is used to create a unique identifier for each transaction.
Can you mine Bitcoin without a wallet? ›
To begin home-mining, all one needs are a Bitcoin wallet, a mining rig, bitcoin software, a mining pool to depend on, and the willingness to learn. But adding those ingredients is not a sure-shot formula to earn Bitcoin. This article will discuss everything you need to mine Bitcoin on a private home network.
How do I buy and hold Bitcoins anonymously? ›
How to buy Bitcoin anonymously with VPN?
- Use cash or a prepaid debit card to purchase Bitcoin from an ATM. ...
- Consider using a peer-to-peer exchange like LocalBitcoins or Paxful. ...
- Use a decentralized exchange like Bisq. ...
- Mix and tumble your coins. ...
- Consider using the Tor browser or a reliable VPN like AstrillVPN.
