In this section we give you some practical advice about using Bitcoin. First and foremost you should know how to keep your Bitcoins (or other cryptocoins) safe. It is very important to store your coins on your own device, never on an exchange or any other third party platform.The best way to do that is to use a so-called Hardware Wallet.
Hardware Wallets
A hardware wallet is a small gadget on which you can store your private keys. It is also used to sign transactions. It plugs into your computer’s USB port and works in combination with either its own app or web wallet, or with many other software wallets.
If you want to transfer Bitcoins, you need to confirm this by either pressing a physical button or by clicking a virtual button on a screen, depending on the type of hardware wallet. It then sends the signed transaction to the software wallet, which broadcasts it to the Bitcoin network.
The private keys never get into your computer, but remain in a protected area in the hardware wallet. Even if your computer is infected by a virus and controlled by malicious hackers, your private keys stay safe. Of course, you have to trust the manufacturer to actually build the devices as secure as they claim. There have been cases of hacked hardware wallets, but the hacker needs access to your device.
However, hardware wallets are currently the best way to store Bitcoins and use them in everyday life. The best-known manufacturers of hardware wallets are Trezor, Ledger and Digital BitBox. They do not differ significantly in functionality. I personally have been using the Trezor by Satoshi Labs from Prague for many years. It has always been working reliably for me and it is quite easy to use, so I can highly recommend it.
Hardware wallets are not cheap. The simple Trezor One costs 69 euros. It supports more than 1000 cryptocoins. The fancier Trezor Model T comes with a colour touch screen, supports more than 1200 cryptocoins and lets you also manage your passwords. Its price is 219 euros, which is probably not what you want to spend to just try out Bitcoin. But as soon as you own larger amounts, it is very reasonable to invest in security and buy a hardware wallet.
If you like this blog and want to support it, you may buy your Trezor through us and we will get a provision. We would be grateful for this, it helps us to continue doing our work.
The Seed Phrase
All modern wallets are so-called Hierarchical Deterministic Wallets or, in short, HD Wallets. This means that all keys generated by it are based on a single cryptographic seed key. You only need to know this seed key, then all private and public keys can be derived from it. The cryptographic procedure for this is complicated, but it makes securing a wallet much easier. When you set up the wallet for the first time, you write down a so-called seed phrase consisting of 12, 16 or 24 English words. The term “phrase” is a bit misleading, because it is simply a random string of words. Their order is important, but they don’t make much sense.
A seed phrase could look like this:
The original seed key can be derived from these words. Don’t ask me how to do that. I’m not a cryptographer and fortunately you don’t have to be one either to handle Bitcoin. All you need to do is to write down these words on a piece of paper and hide them in a safe place. Write them down by hand, or with Grandpa’s typewriter. Never use a computer or a mobile phone, as both could be hacked!
You should guard your seed phrase like Scrooge McDuck guards his money vault. It is the backup copy of your money. No one other than you or people you absolutely trust should get their hands on it. It is advisable to hide copies in several places so that at least one copy is left in case of a flooding or fire. Some people even use a hammer and letter stencils to engrave their seed phrase in steel or titanium, to make sure it survives water and fire damage.
Analogue is Safer
It almost sounds absurd that digital cash should be stored in such an analogue form, but that is indeed the safest way. If your computer crashes, your mobile phone gets stolen or your dog eats your hardware wallet – stay calm, your Bitcoins are not lost. You can download a new software wallet or buy a new hardware wallet, then select the Restore Wallet option. If you now enter the words of your seed phrase in the correct order, the lost coins will magically reappear in your wallet.
In fact, the Bitcoins were never gone. Unlike coins and banknotes, Bitcoins cannot be lost because they are not stored in your wallet, but in the Blockchain. However, only the holder of the private keys can access the coins, so you better take good care of your keys. You need to make a backup copy of them to get back to your coins.
HD wallets, seed keys and seed phrases are probably some of the most useful inventions of the Bitcoin world. Although Bitcoins behave like cash in many ways, they can be copied and backed up. Try this with euro or dollar notes!