If you hold Bitcoin on an exchange (FastBitcoins included), all you own is an IOU and if something bad happens to that exchange, then they may not have any Bitcoin to actually give you.
The beauty of Bitcoin is that you do not need trusted third parties, you can be self sovereign and take custody of it yourself by withdrawing it from the exchange. If your exchange does not let you withdraw it, you need to find a new exchange!
It can be daunting at first trying to figure out how to store or take custody of your Bitcoin but the fact that you’ve realised the importance of taking your Bitcoin off an exchange and holding it yourself is an important step.
But, where do you start?
Assuming you hold a small amount of Bitcoin on an exchange (this varies from person to person but we’ll use <$1,000), the first thing is to not panic and just take your time. If you hold what you consider to be a large amount on an exchange you might want to invest your time more quickly in learning how to self custody.
In this example we would begin with using a Bitcoin wallet on a mobile phone. The mobile could even be an old one that you don’t use day-to-day so long as you are able to get a wifi connection. Visit your app store and download any of these recommended wallets: Samourai Wallet, Muun, BlueWallet or Green: Bitcoin Wallet whilst taking special care to follow their set-up instructions, specifically the writing down of your back-up seed recovery words that you are given when you first use a wallet. You need to store these securely to ensure if anything bad happens to your mobile device, you can simply use these back-up words to fully recover your wallet on a new device.
In your wallet you will find an option called ‘Receive’ which will generate a Bitcoin address, this is the address you enter into your exchanges withdrawal request by copying and pasting it, whilst checking that the address is the same on your mobile wallet as the one you have just copy and pasted into the exchange.
It’s wise to first send only 10% of your Bitcoin from the exchange to your mobile wallet to familiarise yourself with the process. Once you have initiated the withdrawal you should see the transaction appear in your mobile wallet and within an hour it should change to ‘confirmed’.
Now you select ‘Receive’ again to generate a new Bitcoin address, which you will do for every transaction, as best practice is to not re-use addresses. Follow the above procedure again to withdraw the remaining 90% of your bitcoin to this new address and welcome to self sovereignty, it wasn’t that hard!
What do I do to secure an even more valuable amount of Bitcoin?
Maybe the amount on your mobile wallet has increased in value or you’ve carried on saving in Bitcoin and now have more to secure and want to take the next step to increase your security.
This is where a piece of small dedicated hardware is recommended to secure your stash. Unlike a mobile phone, they only have one job to do, so they specialise and offer you more security options alongside fewer potential security gaps. These are called Hardware Wallets, also referred to as ‘cold storage’ versus mobile wallets that are also called ‘hot wallets’.
We recommend ColdCard, Trezor, Foundation and Jade hardware wallets but you should do your own research to find which one fits your needs and budget, only ever purchasing them directly from the supplier. You can read our review of Coldcard to get an idea of how a hardware wallet works. These wallets do require a bit more set-up and time to understand their functions and will cost anywhere from $45 to $200.
As you are now familiar with mobile wallets, you will find the functionality of backing it up and withdrawing your Bitcoin from an exchange to your new hardware wallet very similar but follow the same small test transaction first as you did with your mobile wallet before proceeding with larger amounts.
Don’t forget that you can keep your mobile wallet with a small amount of your Bitcoin on as well and use that for quick access to your money, like cash in your pocket and leave your hardware wallet in your safe place.
Can I do even more than this?
Simple answer is yes, one option is ‘multisig’ but at this stage it is not recommended to do so until you consider yourself to be an advanced Bitcoin user as errors could lead to you losing access to your Bitcoin and you would only really need it for very large values of Bitcoin or for relatively complex security set-ups.
Multisig would allow you to, for example, buy three hardware wallets and create a set-up that only allows Bitcoin to be sent from your wallet if two of the three devices confirm the transaction, allowing you to geographically separate your immediate personal access to your Bitcoin, primarily for personal security reasons.
What’s the biggest mistake I can make?
Not realising the importance of the back-up seed recovery words you are given when you first use a Bitcoin wallet. It’s so important to understand that those 12 or 24 words are your insurance for losing access to your Bitcoin wallet for whatever reason, allowing you to recover access. You should never store them on an internet connected device such as your home PC or mobile phone and especially not on cloud storage services.
At a basic level, record them by writing them down on paper, hiding them somewhere secure and ideally do not keep all the words together, you could split them in two and store them in different locations because if someone else finds them, they can take your Bitcoin.
There are many more innovative and secure ways to store these words including protection from fire and water on steel or storing them digitally encrypted which we will cover in a future blog.
What about Lightning?
At FastBitcoins we support the Bitcoin Lightning Network so you can withdraw your Bitcoin to a Lightning wallet with no fees, a great way to use Bitcoin and an alternative to your Bitcoin mobile wallet that you keep with spending money in. Check out our blog on the Lightning Network to learn more.