Ways to store Bitcoins
The following is a list of different ways to store Bitcoins.
On your computer with the Bitcoin software
- Pro: Simple to understand, and the coins are easy to spend.
- Con: The Bitcoin software is not user friendly, takes a long time (hours to days) to download the block chain, and occasionally has issues that are difficult for non-advanced users to recover from.
- Con: Maximum vulnerability to malware and hackers. Your coins can be stolen if your computer is compromised.
If you store Bitcoins on a computer, make sure you take regular backups of the wallet.dat file. This is the file that contains your private keys. Loss of this file will result in the permanent loss of your balance.
On a third party website
Bitcoins can be stored on exchanges and other websites that allow deposits and withdrawals of balances. Even if not designed for this, websites that allow withdrawals to any Bitcoin address can be used to make payments, because you can always do a withdrawal to somebody else's address, which is functionally identical to making a payment to that address yourself.
- Pro: Simple to understand and use.
- Pro: No software needed, no blockchain to download.
- Pro: Bitcoins can be accessed from mobile devices.
- Con: Coins can be stolen by the website operator with little effective recourse.
- Con: Coins can be stolen or irreversibly destroyed if the website operator gets hacked or fails to take appropriate precautions (such as regular backups)
- Con: Coins can be stolen if your account password is compromised (such as via keyloggers or "phishing" attacks).
In summary, third party websites are generally good for storing small amounts of bitcoins that you want to access quickly. But because of the multiple ways they can be stolen, they are not a good way to store significant balances you cannot afford to lose.