Yes, decentralized Bitcoin wallets are among the safest options to store your BTC. Not only that but they also give the most control to the holders of the wallet. In its essence, Bitcoin was meant to be held by individuals and not by banks because Bitcoin solves the problem that banks have created. Which is the risk that comes from fractional reserve banking.
With Bitcoin, you do not have to rely on a third party to safeguard your funds. A third party could either miss manage or take risks with your money. However, there is nothing wrong with that. If you mean to invest your money or earn interest on your money put aside. Most do not want that risk on their savings or current accounts. But as the world becomes more and more digital, our payments are as well. We can not really do much else than hold all our money with the bank that invests it in various instruments.
Bitcoin solves this problem as it lets you self custody a decentralized form of money on your own decentralized wallet. So you do not have to rely on that bank account alone.
Self custody
To hold your Sats in a self-custody and decentralized way, you will need a Bitcoin wallet. Having your own Bitcoin wallet is the portal to self-custody and independent financial existence. But with great power comes great responsibility. Which in the case of Bitcoin means that you will be responsible for your assets and safe they are.
Because the Bitcoin blockchain and all addresses on it are protected by SHA-256 encryption, cracking the private key to a wallet address is virtually impossible. But like with an unhackable password, if you leave it in places where others can see it. It won't need to be cracked. So making sure that your private key is as far from anyone's eyes as possible is of key importance.
You can do this with simple security practices for your online devices. Think about good passwords on your devices that hold your Bitcoin wallet. The use of a virus scanner on your device, and not simply visiting/clicking on any random website. A good VPN can also help out in this situation as it confuses unwanted parties to find your location.
Besides all of this, you need to create a strong backup for your wallet. Because you would not be the first to lose their original wallet and thus their BTC forever. Creating a backup can be as simple as writing down your private key. But often you can simply use a 12-word backup phrase, which is easier to decipher. Write one of the 2 down and make sure to hide it in a safe place where only you can find it, whenever you need it. Or if you trust yourself enough you could memorize the backup and thus create a so-called, Brain wallet.
Types of decentralized wallets
Although there are many different types of wallets, we can simply divide all types of decentralized crypto wallets into 3 types of wallets. These are Hardware, software, and Paper/brain wallets.
Hardware wallets:
Hardware wallets are a type of wallet that exists as a physical device. The device usually holds the private key and gives a physical aspect to storing a digital currency. Hardware wallets are usually considered the safest way to store your BTC. And you can hide/store it wherever you want.
Software wallets:
Software wallets are the most common wallets types. Think about the wallet apps that you might have on your phone or Desktop. People often use this type of wallet for the day to day transactions. Because of their easy access and internet connectivity. This however also comes with the fact that they are less secure as the devices that hold the wallet/private key can connect to the internet.
Paper/Brain wallets:
A paper or Brain wallet would not be a type of wallet that anyone would use for regular transactions. But rather for safe and unhackable protection. You see a paper wallet is simply a private key, written down on a piece of paper, and a brain wallet is a private key that is memorized by you. Neither are accessible by the internet and can keep your coins as safe as you keep the piece of paper or your thoughts.
What is a decentralized wallet and what isn't?
Having a centralized or decentralized wallet can make a world of differences. And both have their own purposes and use cases. So always pay attention to the description of a wallet to see whether or not it is centralized.
Most wallets that ask you to create a backup code are decentralized. This is because you need that backup code to access the wallet when you lose your device. Because a decentralized wallet is not centralized, the creators can not access or return your funds.
Decentralized wallets put you in charge of the funds that you keep on them. Whereas centralized wallets hold the keys and thus control of the coins on them. Both can have their own use case. But you should always know if you are using a centralized or decentralized wallet. One thing you should keep in mind is that a wallet on your crypto exchange account, like Binance or Coinbase, is not a decentralized wallet.
Decentralized wallet VS crypto exchange
Like I said before with a decentralized wallet you have full control over your funds. It might take a bit more time to understand how to use a non-custodial wallet. But over time it is worth it as you do not have to pay any third-party fees or have to give up control of your money.
If you already have an account on a crypto exchange you might have seen that you have a wallet on there too. This wallet is a centralized custodial wallet. This means that the funds on there are owned by the crypto exchange and are in their full control.
Holding your funds on a crypto exchange might give some ease of use. But does not give you the safety and security it could when you hold these funds yourself. Because a crypto exchange can experience a failure or any other catastrophic event that would result in a loss of your funds. Which were not in your control. For that reason, you can better take control of your own funds and not rely fully on 3rd parties.
You could hold some funds on a crypto exchange. But only when you need to access the features or liquidity of a large crypto exchange. If not, you can better take full ownership and protect your own funds, so no malicious actor can access your funds or tell you what to do with them.
Safekeeping your Bitcoin
Just like how Bitcoin keeps you safe (from inflation), you need to keep your BTC safe when you hold it in a non-custodial wallet. To do so you need to avoid all scam wallets, computer viruses, and sharing your passwords. As long as no one else sees your private key, your coins will be safe. So simply the best things to do. So you won't be robbed, is to install a good virus scanner, create a strong password, use a VPN and double-check anything your download on your device.
You must have heard all of these things before. Especially because they are the simple key point to look at when we talk about cyber security. The better you secure your online devices and your online activity the better you will keep your crypto safe.
Backing up your Bitcoin funds
Now the last part of this blog about the safety of Decentralized Bitcoin wallets, will look at creating a backup. Creating a good backup is of key importance. You won't be the first person to lose their original wallet and all the Bitcoin on it.
Even I myself have had this problem where I put 10$ worth of BTC on a new wallet to test it out. In the end, I lost the phone that held the wallet and the coins. Because I thought that a 10$ wallet did not need a backup, I like many didn't make one. But at the moment of writing that 10$ worth of Sats tuned in a good 250$ worth. So these days I think twice and create a backup right away.
The simplest way to create a backup is by writing down your 12-word mnemonic phrase. And this is also the form I would recommend as a piece of paper can not get hacked. However, just out of caution, I would recommend you split the 12 words up into 2, 6 words pieces of paper that you put in a different places. Just in case someone accidentally finds the piece of paper.
Final
I hope this article helped you understand if a decentralized BTC wallet is safe. And also thought you something more about Bitcoin and crypto wallets. If you have any other questions that you would like us to answer in a blog please let us know and reach out to us on social media.
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