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Bitcoin Custody explained
Bitcoin Custody explained

How to store your Bitcoin

Updated over a week ago

Key management is key when it comes to Bitcoin custody. Whoever has the private key to your Bitcoin wallet, has ownership of the Bitcoin in this wallet. This is where the popular phrase “Not your keys, not your coins” stems from. Thus, keeping your Bitcoin private key safe should be a top priority. In this article we will discuss the pros and cons of the different custody methods and share why 21bitcoin is unique in this respect.

Custody

Custodians usually work as safeguards of money, be it cash, securities, gold or other assets. Custodians have existed since the 1960s and are a critical pillar for the traditional financial banking system. They have also become an important layer of today’s Bitcoin economy, because a large number of investors prioritize the convenience of a custodial wallet over self-sovereignty. In the last century, Bitcoin has evolved from being underground money to the fastest growing and most secure economic network in the world. The rapid growth of Bitcoin led also to the growth of Bitcoin custody providers, funded by some of the most renown names in the financial industry. Bitcoin custodians nowadays are fully regulated, following often stricter rules than those imposed on traditional banks. There are some differences and peculiarities related to digital asset storage. So, first things first in regard to Bitcoin custody. What is a Bitcoin wallet?

Wallet

A Bitcoin-wallet is something like an electronic money purse and serves as the standard user interface to the Bitcoin network. Digital wallets can basically be divided into custodial and non-custodial wallets according to who is ultimately in control of the wallet. With a custodial wallet, a third party stores the access to the funds, whereas with a non-custodial wallet, an individual keeps direct access to the wallet themselves. Complicated? Think of it like a bank vault and a money purse. With a money purse, you can directly dispose of the funds, i.e., the cash that is in your wallet, on your own, without a third party, whereas you cannot directly dispose of your bank account, but only with the help of your bank, which provides access to the account for you. The money purse in this example is a non-custodial wallet and the bank account is a custodial one. However, there is a slight difference in the digital asset world, because the term wallet is a bit confusing in this context. Unlike a money purse where you store physical cash, in a Bitcoin wallet you store a key, more specifically your private key to access your Bitcoin. So, when people talk about storing Bitcoin in their wallet, they don't actually mean the Bitcoin itself, but the Bitcoin private key. The Bitcoin are always stored in the Bitcoin blockchain, which can be disposed of using the associated private key. But what is a private key in the first place?

Private Key

A private key is basically a randomly chosen number, often converted in 12 or 24 words. Possession and control of the private key are the basis of the user’s control over all means associated with the corresponding Bitcoin address. Therefore, never share your private key with anyone! The private key is, so to speak, the proof that someone is the owner of the Bitcoin he has in his Bitcoin wallet. If you share the private key, somebody else can dispose over your Bitcoin. If the private key is lost, it is lost forever. You may have heard of the stories where individuals lost their Bitcoin. Technically they have not lost their Bitcoin, because they are still stored in the Bitcoin blockchain, as explained previously. They lost access to them, because without the private key they cannot prove to the participants in the bitcoin network that they are the owner of the bitcoin in their wallet anymore. As such, “key management is key” and this comes mainly down to security and the confidence that one has in the custody of the private key.

Security

The different types of wallets differ mainly in their level of security and responsibility. In essence, it can be said that non-custodial wallets are more secure than custodial ones, because with the former you exercise the ownership rights entirely yourself and do not have to rely on a third party that you have to trust. “Not your keys, not your coins” is a popular phrase in the Bitcoin community. The Bitcoin network itself is also structured in such a way that no one has to trust anyone, but everyone can verify everything themselves. Therefore, strictly speaking, the custody approach contradicts the basic principle of Bitcoin. Nevertheless, custody also offers a couple of main advantages. First and foremost, custodial wallets are very easy to manage with little responsibility and are usually much more convenient. Therefore, an easy start for newcomers. In order to make it easier for them to enter the beautiful Bitcoin world without having to deal with the management of private keys, a custodial wallet offers them a suitable and easy way to get started. Many do not want to take full responsibility for their private key on day one or do not have the possibility to secure the private key adequately. Secondly, if you lose your password to your custodial wallet, there is customer service you can reach out to reset your access. Last but not least, custodial wallets offer a range of features, including an exchange to directly buy and sell Bitcoin.

Our mission at 21bitcoin is to get Bitcoin, in the hands of as many people as possible, in the easiest and most comfortable way. For this reason, we came to the conclusion that the best way to offer Bitcoin to our clients is to combine the best of both worlds, namely a custodial wallet with top-notch security in combination with an easy and automated way to take self custody of your coins, whenever you are ready for it. With this approach, you don’t have to worry about storing your private key at the beginning and can dive straight into the Bitcoin world. With a custodial wallet comes a lot of responsibility for us as a wallet provider and the custodian, and this is the reason why the secure storage of your private keys has the highest priority in our company. For this reason, we work exclusively with licensed and insured custody providers who are market leaders in this field. Although we are certain that your keys are safe with our custodian, we would still strongly recommend you to get a hardware wallet to store your private key yourself, especially if you are planning to invest for the long run. So what is a hardware wallet and how do we @21bitcoin try to make it as easy as possible for you to transfer your Bitcoin to your own non-custodial wallet?

Hardware wallets are devices that run a secure standalone Bitcoin wallet on special hardware. They usually look like a small USB stick and are often controlled using a web browser on your computer. Since all Bitcoin-related operations are then handled on this special hardware, these wallets are considered to be particularly secure. One provider that we can unreservedly recommend is the Swiss based company Shift Crypto offering a Bitcoin only hardware wallet called Bitbox. We also partnered with them, so you can get the Bitbox 10% off when you purchase it with our code “21BTC”. We ourselves do not get any affiliate reward for this. However, it is important to us that your Bitcoin is as safe as possible.

Auto-Transfer 21bitcoin

Auto Wallet-Transfer

To make self-custody for our customers as easy as possible, we have implemented a pretty cool feature in our 21bitcoin app called “Auto Wallet-Transfer”, where you can automatically withdraw your Bitcoin to your own wallet when it reaches a certain limit that you pre-define. You just set a limit, add your Hardware-wallet address to your 21bitcoin wallet, and voilà. Combining the advantages from both worlds. An easy and user-friendly Bitcoin wallet with the ability to take self-custody of your purchased coins. Fully automated. Whenever you are ready.

We are a Bitcoin only company. Bitcoin is the only cryptocurrency investment that is both secure and future-proof. Our capital are our customers, and we deeply care for them. This is why we want to offer them Bitcoin, in a simple, safe and cost-effective way. We are a professional, fully regulated and secure service provider built directly on top of the future monetary good. We are 21bitcoin, and we are here to help you. Reach out, if you have any questions.

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