One of the headaches of owning Bitcoin and ‘hodling’ it is knowing how to store your crypto securely.
The nature of digital currency means that you can withdraw it from the exchange or platform you bought it and move it your own wallet at any time.
This might seem like a good thing to do because it puts your coins out of the reach of hackers.
But are you comfortable enough with the technology to do this? And what if you lose the private keys to your wallet?
The surging popularity of crypto in recent years means there’s now a huge choice of wallets and storage methods on the market.
The options for storing your crypto include:
- Leaving it on the exchange where you bought it.
- Moving it to a hardware wallet, such as Trezor.
- Keeping it on a software wallet or app.
- Storing your crypto on a paper or metal wallet.
There are pros and cons with all the solutions above, including cost, security and complexity.
However, a new solution has been launched which may solve the problem for the majority of people.
Related link: Trezor One hardware wallet review
A simple solution to storing your Bitcoin securely
If you’re new to the world or crypto, or just want to a simple, no fuss solution to keep your crypto portfolio secure the choices can be baffling.
Coinbase, one of the world’s largest cryptocurrency trading platforms and exchanges, is hoping to solve the problem with a new solution that may render many existing wallet options obsolete.
The company is trialing The Coinbase Account Guarantee for its customers in the UK which effectively offers to protect your portfolio if a hacker were to gain access to your account and steal your funds.
This is great news if you don’t want the hassle or cost of transferring your coins to another storage solution.
You’ll save money on fees which are levied every time you want to move your coins and you won’t have the headache of evaluating the hundreds of wallet options on the market.
The new service has parallels with the Financial Services Compensation Scheme (FSCS) which protects the savings of people in the UK up to £85,000 per individual, per financial institution.
Coinbase is keen to point out that its scheme is not part of the FSCS nor is it a regulatory requirement.
In fact, the scheme makes Coinbase the only exchange operating in the UK to protect your funds in this way.
Earlier this year, some 6,000 Coinbase customers had their accounts drained after nefarious actors were able to bypass the company’s 2FA authentication security.
Coinbase reimbursed all those affected and fixed the vulnerability.
How much of my crypto will be guaranteed by Coinbase?
At present, up to £150,000 will be protected if a malicious actor gains unauthorised access to your account and steals your funds.
You’ll need to supply a police report with your claim, and you’re only eligible to make one claim.
Some of the ways a thief could gain access to your account are:
- Sim swap
Related link: 15 common Bitcoin scams and how to avoid them
Coinbase points out that you’re not covered if you make a mistake when moving your Bitcoin around or sending it to another wallet, or you change your mind after buying coins.
You won’t be able to claim for any losses you incur through cryptocurrency conversions or if you buy crypto and the value drops due to market conditions.
Coinbase doesn’t give a time frame for paying out claims but they state that all cases will be subject to a thorough investigation.
Does my Coinbase cryptocurrency account pay interest?
The one drawback with keeping your money on the Coinbase platform is that it doesn’t earn any interest.
You can stake coins through the Coinbase Wallet platform, which means you can earn a return by buying eligible coins or converting your existing crypto to those that are.
However, this is not for beginners and carries a degree of risk with it because the underlying price of the stakeable assets can fluctuate in a similar fashion to all crypto.
A lack of interest earning potential is also a problem with other storage solutions, such as hardware wallets and the like, but there are a growing number of DeFi platforms which offer temptingly high returns on your crypto.
The rate of return can be eyewatering – some accounts offer up to 10% on stablecoins (more if you choose to have your earnings paid in their native crypto), and 5% on Bitcoin.
They do this by lending out your crypto to third parties and using part of the return on the loan to pay you.
In a time when bank interest rates are historically low – you’ll be lucky to scrape 0.5% which means your money is losing value in real terms – it’s easy to see why these accounts are booming.
But there are risks here too. As I’ve already mentioned, platforms can still be hacked, and phishing attacks happen all too frequently in the largely unregulated crypto space.
Added to this is the potential for a regulatory crackdown which will put an end to interest bearing crypto accounts.
BlockFi itself is currently being probed by the New Jersey Bureau of Securities which is examining the legality of its products.
BlockFi has written at length about the dispute on its website.
Coinbase itself recently locked heads with the Securities and Exchange Commission in the US over its proposed ‘Coinbase Lend’ platform which would have allowed users to earn interest on their crypto.
The row centres around whether the platform would effectively be offering securities which would bring them under the wing of the SEC.
Coinbase has refuted claims that the Lend product is as security but has shelved the plans for the time being.
Related link: The top 5 crypto savings and investment accounts
While this isn’t a review of the actual workings of the Coinbase Account Guarantee scheme, it’s fair to say that the scheme certainly looks like solid solution to safely storing crypto, and it’s unique in the marketplace right now.
However, I don’t like the fact that you’re only allowed to make one claim.
While I understand that this clause is in place to stop abuse, fraudulent activity or carelessness, it means that if you ever need to make a claim, you’ll be back to square one in terms of needing a storage solution afterwards.
That said, most people will never need to make even one claim in the first place and a such they’ll feel more comfortable leaving their crypto on the exchange, whereas previously the advice would be to move it.
Exchanges across the global have become much safer in recent years as crypto adoption has grown, but they’re still not impenetrable.
The Coinbase move makes a lot of sense, especially as it’s the go-to exchange for those just getting into crypto because of its ease of use, even though you pay higher fees than other platforms.
Related link: Coinbase exchange review
It also brings the Coinbase account more in line with a traditional bank account, despite the lack of interest payments.
Other exchanges are sure to follow Coinbase’s lead and possibly launch even more generous protection schemes.
Adam is the founder of The Crypto Adviser which offers experts guides and reviews on all things related to Bitcoin and cryptocurrency.
Adam is Diploma for Financial Advisers (DipFA) Level 4 qualified, a Member of the London Institute of Banking and Finance (MLIBF), and has worked for many years as a journalist and PR consultant, having studied with the National Council for the Training of Journalists (NCTJ).