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Bitcoin is a digital currency that exists purely online, with no physical form like paper bills or metal coins. As such, bitcoin must be stored digitally.

There are several options for where and how people can store their bitcoin holdings. The most basic option is to keep bitcoin in a digital wallet on one of the cryptocurrency exchanges where it was purchased, such as Coinbase or Binance.

While convenient, storing bitcoin on an exchange carries some risk, as exchanges can be hacked. For more secure storage, many choose to use a “hot wallet,” which is bitcoin wallet software installed on a computer or mobile device.

Hot wallets allow users to easily access their bitcoin and make transactions while keeping it in their possession. However, hot wallets are still connected to the internet, so they can potentially be hacked.

The most secure option is a “cold wallet,” where bitcoin private keys are stored offline on a piece of hardware like a USB drive or specialized device. Cold wallets offer protection from online threats, but can be inconvenient when one wants to access or trade their bitcoin.

Many bitcoin investors use a combination of hot and cold storage, keeping some bitcoin handy in a hot wallet while the bulk of their holdings reside safely offline in cold storage. Proper storage is critical as bitcoin accounts cannot be recovered if keys are lost the way a forgotten password can be reset. Whether using a simple exchange account, software wallet, or a specialized device, bitcoin storage crucially enables individuals to possess this digital asset.

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