In 2018 alone, cryptocurrency fraud has already passed £1 billion. 39% of that relates to thefts and hacks.
You might be aware that moving your tokens of an exchange as soon as possible is the first prudent step in securing your digital coins. Although cryptocurrency networks are decentralized, crypto exchanges are still centralized platforms and pose a huge threat through a single point of failure.
And we’ve seen how devastating the consequences can be for investors if this weakness is exploited.
So where should you move your tokens? What’s the safest way to store your Bitcoins?
Popular Bitcoin wallets
The first thing to know is that there are four broad categories of cryptocurrency wallets, including online, desktop, paper and hardware.
We will look at these below, starting with the category that is perceived to be the least secure, i.e. online wallets, to the most secure, that is hardware wallets, and also list some popular options for each.
Also referred to as cloud-based or web-based wallets, these types of wallets are the most convenient because they can be accessed from any device through your browser.
GreenAddress is an open source Bitcoin wallet with mobile and desktop integration. It also has robust security measures including four different two-factor authentication options and a unique watch-only mode.
BTC Wallet (BTC.com) supports Bitcoin as well as Bitcoin Cash and is developed by Bitmain, a reputable company within Bitcoin circles that sells mining equipment. The wallet supports multi-sig transactions for added security and has an innovative sync-with-contacts payment feature without the need to know the recipient’s Bitcoin address.
SpectroCoin is a London based Bitcoin wallet platform that offers additional products such as a pre-paid Bitcoin debit card, a crypto exchange and merchant services to accept Bitcoin in online shopping.
The downside to online wallets is decreased security. As your privacy keys will generally be stored in the cloud, you are not only at the mercy of the security protocols of the provider but you also have to trust them not to disappear with your funds.
This is a very popular category as it provides increased security from pure web-based wallets while still remaining very user-friendly in most cases. The wallet software is downloaded directly to your desktop (or mobile) which means you are in control of your privacy keys.
Exodus has a very attractive user-interface which was created with the wallet-novice in mind. It is also one of the first desktop wallets to include ShapeShift built in (an instant cryptocurrency exchange).
Copay was developed by BitPay, a Bitcoin payment provider. The wallet, therefore, enjoys a good reputation security wise and is also one of the first to support the Bitcoin Payment Protocol.
Jaxx is relatively new to the wallet space. Apart from Bitcoin, it supports one of the widest ranges of cryptocurrency assets compared to other wallets and as such has become a very popular choice among crypto beginners.
Desktop wallets do provide increased security but will normally only be accessible from a single device (onto which the software was downloaded) and are still vulnerable to computer hacks and viruses.
A Bitcoin paper wallet is one of two cold storage options (i.e. it’s an offline solution without the need for a constant connection to the internet). “Paper” refers to the material onto which the private and public keys of a Bitcoin address is printed and then physically stored by the user.
Bitcoin Paper Wallet allows you to print your Bitcoin wallet (including the Bitcoin address, public and private keys) on unique paper designed with a tri-fold template (to hide sensitive data) which is tamper resistant and immune to candling (where fraudsters shine a light through the paper to reveal sensitive information).
Wallet Generator enables users to download the generator separately from GitHub and opening it directly from a computer for added security. A Bitcoin address can then be generated, printed and folded in the specified way.
The drawbacks to paper wallets are that it can be cumbersome to access funds and is therefore not ideal if you are making frequent trades. Physical damage is also a big threat as a piece of paper can be very vulnerable to even minor spillages.
If you are serious about keeping your Bitcoins safe, you should buy a hardware wallet. The second cold storage option, cryptocurrency addresses, public and private keys are stored on a tamperproof device and you only need to connect to the internet if you wish to process a transaction.
Ledger Nano S can be connected to any computer with a USB port and transactions can be double-checked and confirmed through a useful OLED display. The wallet also supports more alt coins than any of the other top hardware wallets.
Trezor has been around for a while and has been dubbed “The Bitcoin Vault” in the past because of its robust security reputation. Newer models contain an LCD touch screen for easy navigation and require 2-step verification for every transaction.
KeepKey is less known but just as effective. The company was bought by ShapeShift which has enabled users to exchange cryptocurrencies without exposing private information online.
There is very little downside to hardware wallets other than the fact that they might be a bit pricier than the other options. And although not as vulnerable as paper wallets, it can still be damaged and care should be taken to keep it safe, just as you would with any of your other physical possessions.
Does holding Bitcoin have any tax implications in the UK?
Simply holding Bitcoins in your wallet does not have any tax implications. If you’ve not sold any cryptocurrency then you don’t have to report your holding position to HMRC.
Disposing of an asset includes:
- selling it
- giving it away as a gift, or transferring it to someone else
- swapping it for something else
- getting compensation for it – like an insurance payout if it’s been lost or destroyed.”
This post explains more on the tax implications for crypto trades and will help you to understand how to calculate and report the capital gains tax that might be due.
For effective navigation around complex tax rules, it’s always advisable to get in touch with tax professionals when calculating taxable trade gains.
CryptoTaxHelper can help users to accurately calculate their tax due through a straightforward process and produce a cohesive report for frictionless tax reporting to HMRC.