How to store or custody Bitcoin

When you buy Bitcoin -native or wrapped, not an ETF- and depending on where you buy it, you need to decide what to do next. If you bought it on a CEX, you can leave it on the platform or withdraw it to your own wallet, with the risks and advantages of each option.

If you bought an ETF for price exposure, you would normally keep it with the broker until you decide to sell. In any case, an ETF is not a way to custody your bitcoins, because you do not own BTC. I mention it here as an alternative so you understand all the options.

All three alternatives can let you benefit if Bitcoin rises, but ownership, risks and what you can do with the investment differ greatly.

Store Bitcoin on an exchange: delegated custody

When you buy BTC on a centralized exchange such as Binance and leave it there, the platform holds the keys that allow it to be moved. Your account shows a balance, and you can buy, sell or withdraw according to its terms.

The main advantage is convenience. You do not have to install a wallet, store a seed phrase or learn how to sign transactions. If your goal is to trade frequently, keeping an amount on the exchange makes buying and selling easier.

The drawback is that you depend on the company. It may block a withdrawal for a review, suffer an attack, run into solvency problems or shut down. Even if the balance appears in your name, you do not directly control the keys.

This does not mean every exchange is unsafe or that you should immediately withdraw any amount, but rather that you should be aware that there is a risk. The larger the amount and the longer the time horizon, the more important it is to assess whether you want to take that risk.

Not your keys, not your coin, as English speakers say.

Here are three tips:

Protect the account with a unique, long and secure password, two-factor authentication and alerts.
Before buying, check that the platform lets you withdraw real BTC, because some apps only offer price exposure.
Use only trusted platforms like the ones I mention here..

Although it is an easy way to get started, it is not the one I would recommend to almost anyone.

Store Bitcoin in your own wallet: self-custody

Self-custody means using a wallet with Bitcoin addresses whose keys you control..

The bitcoins remain recorded on the blockchain, while the wallet stores or manages the information needed to authorize transactions.

The advantage is that you do not depend on an exchange allowing you to withdraw. You can send the funds whenever you want and keep them even if the platform where you bought them disappears, because they “live” on the blockchain.

The cost is the added responsibility and difficulty. You have to:

Create a wallet (hot or cold).
Protect the seed phrase.
Check addresses.
Avoid fake software (scam).

If you lose the device but keep the seed phrase properly, you can recover the wallet. If you lose both, there is nobody who can recover access to your funds.

Wallets can be hot, when they run on an Internet-connected device (such as MetaMask or Rabby), or cold, when the keys are generated and kept on an offline device such as Ledger. The former are more convenient, the latter more secure. The specific article about Bitcoin wallets explains both options.

You do not have to choose a single solution for everything. You could -in theory- keep a small amount in a hot wallet for payments and another in a cold wallet for the long term, but I do not recommend paying with Bitcoin today, for the reasons I already explained in the article about its disadvantages..

In any case, the most important thing is to understand what risk you are taking in each place..

From my point of view, if you believe in BTC, self-custody is what you should be aiming for.

Get exposure to Bitcoin through an ETF

The first thing to understand is that you are NOT storing bitcoin, but a financial asset.

Once that is clear, the advantage is integration with the broker and convenience: you can manage the position alongside stocks or funds, receive documentation from the intermediary and avoid managing keys. For many people, it is an easier way to get financial exposure.

However, because you do not actually own bitcoins, you cannot send them to another person, pay with them or withdraw them to a wallet. You own a financial product whose value depends on Bitcoin.

There are also management fees, market hours and dependence on the issuer, custodian and broker.

Therefore, the choice depends on your objective. If you only want price exposure, a listed product may be enough. If you want to use the network or directly control the funds, you need to buy real BTC and choose between delegated custody and self-custody.

Next steps

Below are the next articles in the series. They are designed so that, if you do not know much about Bitcoin, you can read them in order, but each one stands on its own, so you can jump to whichever interests you most:

Frequently asked questions

How can I store Bitcoin?

You can leave it on an exchange or withdraw it to your own wallet. If you have an ETF, you are not actually custodying Bitcoin directly.

Is it safe to leave Bitcoin on an exchange?

It can be convenient, but you depend on the platform and do not directly control the keys to your BTC.

What does self-custodying Bitcoin mean?

It means using a wallet whose keys you control, without depending on an exchange to move your funds.

What happens if I lose my Bitcoin wallet?

If you keep the seed phrase properly, you can recover it. If you also lose the seed phrase, you may lose access to your funds.

What is the difference between a hot wallet and a cold wallet?

A hot wallet is connected to the Internet and is more convenient; a cold wallet keeps the keys offline and offers greater security.

Is it better to store Bitcoin in a wallet or on an exchange?

It depends on your objective, but your own wallet gives you more control in exchange for taking on more responsibility.

What does “Not your keys, not your coins” mean?

It means that if you do not control the private keys, you depend on a third party to access and move your bitcoin.

Can I keep some on an exchange and some in a wallet?

Yes. You do not have to use a single solution for all your BTC.

Can a Bitcoin ETF be used to store Bitcoin?

No. An ETF gives you exposure to Bitcoin's price, but you do not own BTC that you can withdraw or send.

What should I protect when custodying Bitcoin?

Above all, your keys and seed phrase; if you use an exchange, you should also protect the account with a secure password and 2FA.