Bitcoin has always been like a mistress in my investment portfolio – it is never treated as a serious investment and not a lot of resources are devoted to it. I shared many years back whereby I bought bitcoins around US$400 and sold off at US$10,000 during the craze in 2017. Looking back I find myself foolish. Now that it went to US$20,000 after I sold the bitcoins but I bought bitcoins again in 2020 at US$12,000. In between I ‘lost’ that US$2,000 profits by going in and out. I should have just held it.
To be fair, the level of conviction was different. Bitcoins have become a lot more accepted and becoming a legitimate store of value. My conviction has increased in tandem. I see that bitcoins to millennials are like gold to boomers. There would be a new generation of adopters who would create the demand for it.
So I decided to really hold bitcoins for the long term this time round. Hence I didn’t even thought of exiting when the price hit US$40,000. And I didn’t panic when it crashed to around US$30,000. HODL.
Why store cryptocurrencies in a hardware wallet?
Because of this long term view, I decided the safest way is to store my bitcoins and ethers (yes, I bought ethers because of its utility and being the mother of all altcoins) in a hardware wallet and not leave it to chance for others to hack.
You would have heard of many scary stories whereby accounts were being hacked and millions of dollars were lost. Here are some cases:
- 2014: Mt.Gox – 85,000 bitcoins worth US$45 million
- 2015: Bitstamp – 19,000 bitcoins worth US$5.1 million
- 2016: Bitfinex – 120,000 bitcoins worth US$60 million
- 2017: Bithumb – US$7 million of bitcoins and ethers
- 2019: Binance – 7,000 bitcoins worth US$40 million
It is really not safe to keep your crypto in any online wallet service because you never know when a hack might happen to you. I don’t want to take the chance.
There’s another advantage of storing the coins in the hardware wallet – I don’t get to see how much they are worth and hence I would not get emotionally affected and have the urge to sell. This is something that I have learned – human behaviour moves in the path of least resistance. So if I don’t want to sell my coins, I should increase the resistance in that path of selling. I stored the coins in the hardware wallet and in turn I locked the wallet in a safe. It takes more effort to want to sell the coins now and it makes me tired thinking of going through the hassle.
Which is the best hardware wallet?
There are a couple of brands but I use Trezor One as my hardware wallet because our crypto trainer recommended it. It costs less than S$100 and it is a small fee to pay to secure your cryptocurrencies.
It can store over 1,000 types of coins and you don’t need to worry if you have plenty of altcoins.
There are other popular brands such as Nano and KeepKey. I think any of the major brands should work well.
I believe it is important to buy hardware wallets directly from the sources instead of going through an intermediary. This is because you never know what they could have done to the wallets before selling them to you. For all you know they may be able to get your private keys and steal all your coins after you have transferred them into the wallets.
How do hardware wallets work?
Although we keep saying storing coins in the wallets, the fact is that the wallets are actually empty. The coins are always on the blockchain network so you cannot technically store them elsewhere. The more accurate description is that these wallets are keys to access the coins.
In crypto transactions, there are public keys and private keys. The public keys are like addresses where anyone can mail something to you. Similarly, your wallet public addresses can be given to others to receive cryptocurrencies.
The private keys are the crucial ones that you should not let anyone know. They are like the keys to your house. You don’t pass them to anyone. Otherwise they can go into your house and take whatever valuables they want. The private keys should not even be stored online or on any computer because they can be hacked. That’s where a hardware wallet comes into play – the hardware wallet stores this private key outside of the internet.
The hardware wallet has its own password or PIN as an additional security layer. You can plug it into any computer and authorise a transaction. But at no time the private keys are exposed to the internet.
Lastly, the hardware wallet will generate a recovery seed phrase should you lose or damage the wallet. This is to help you recover your access to the coins even though the wallet is gone. Remember to keep them in a safe place, preferably not in the same place as the wallet (in case a fire destroy both the wallet and seed phrase). Also, don’t save the seed phrase on the internet.
Get a hardware wallet if you haven’t
I hope I have convinced you the importance of having a hardware wallet to store your cryptocurrencies. Hacking incidents have not reduced over the years and the meteoric rise in the prices of cryptocurrencies has motivated the hackers even more. It is more worthwhile to invest resources to hack your online wallets today.
The only safe place is your hardware wallet which you can get for less than S$100.
Do it now!