Why Storing Bitcoin in a Single Wallet Is a Bad Idea

What Are the Risks of Using One Wallet?

Using one wallet to store cryptocurrency private keys is risky because it concentrates all of your private keys in one storage medium. If that medium is lost, the password is forgotten, or it is stolen, all of your Bitcoin will be gone. Additionally, wallets with large holdings attract unwanted attention from many different entities.

Key Takeaways

• Wallets with large amounts of Bitcoin attract attention from the public, analysts, hackers, and law enforcement.
• Wallet passwords can be lost, forgotten, or hacked.
• Wallets can be accidentally or intentionally discarded.
• Cryptocurrency movements from large wallets can create market panic.
• Using a single wallet opens an investor to total losses if something happens.

Single Wallets Draw Attention

On Nov. 2, 2024, Bitcoin wallet address bc1q…4rzr had more than 79,000 bitcoins, making it one of the wealthiest Bitcoin addresses on the planet. Many of the top 100 richest Bitcoin address owners have been identified (and belong to exchanges or recovered funds), but there are just as many that have not. Hackers and thieves are very interested in addresses like these because of their value.

Because wallets are publicly viewable, if the owner of this wallet wanted to move any quantity of bitcoin, large or small, they could not do so in private. They will not be able to conduct transactions without drawing scrutiny from investors, hackers, and more. Law enforcement and regulators are very interested in these large wallets because they might belong to people engaged in illicit or illegal activities.

Scrutiny in and of itself is not necessarily a bad thing, but in the digital currency world, where privacy and anonymity reign supreme, it is seldom something that investors are looking for. With crypto hacks still a major problem for digital currency exchanges and individual investors alike, all it would take would be a single successful wallet hack for the owner to lose a massive fortune instantly.

Forgotten Passwords

Wallets are used to store cryptocurrency private keys. Many of the wallets used are software designed to interface with blockchains and tally ownership. Even hardware devices (hardware wallets) use software that requires passwords.

If you forget or lose your passwords, you lose access to your wallet. In some cases, they can be recovered, but if you don’t have backups or passwords stored somewhere safe, you can lose wallet access and, thus, your cryptocurrency.

There are a few instances of someone recovering wallet passwords through careful analysis and random generation, but the odds of this happening very often are astronomical.

Discarded Wallets

There are many cases of people throwing away their wallets, either unintentionally or intentionally. In 2013, a man’s ex-partner accidentally threw away a hard drive containing a wallet with the keys to about 8,000 bitcoins. Using Nov. 2, 2024, Bitcoin prices, that hard drive is worth more than $555 million.

He has been attempting to retrieve the hard drive ever since. In October 2024, he sued the town he lives in for preventing him from searching the community’s dump after a decade of appealing to the town council for access.

Accidents happen, and placing all of your eggs in one basket can be very costly.

It Can Induce Market Panic

There is one final issue with storing a massive quantity of coins in a single wallet. Because of the transparency of blockchain, investors can see when a large quantity of coins is moved.

Moving a large number of crypto to an exchange account is significant because it means the owner is planning to do something. This kind can be enough to spark panic among investors who suddenly fear a major dumping of coins, leading to a drastic devaluation. In this sense, a single investor’s actions can dramatically impact the entire cryptocurrency market.

Minimizing Wallet Risks

For these reasons, it makes sense to split up a sizable quantity of crypto tokens into multiple wallets. This can aid in risk management (if you lose the password to one wallet, you still have access to all of your other wallets) and enhance privacy. Smaller transactions are less likely to draw attention than their larger counterparts.

Securing passwords and private keys is part of cryptocurrency investing. Like any accounts with PINs or passwords, they should always be backed up and placed in a secure and environmentally friendly place like a safe. Without enough backups and more than one wallet, you can easily lose your entire cryptocurrency portfolio.

Is It Safe to Keep Crypto In One Wallet?

Smaller amounts of crypto can be kept in one wallet, but the more you keep it, the more of a target it becomes. It is also easier to lose an entire cryptocurrency portfolio if you use one wallet, so it’s best to have multiple wallets.

Can I Put All of My Crypto in One Wallet?

Yes, you can put all your crypto in one wallet. If you have more than you need to use at any given time in one wallet, it’s best to keep your crypto private keys in multiple wallets for security purposes.

Can You Only Have 1 Bitcoin Address Per Wallet?

Bitcoin wallets store private keys, and addresses are derived from users’ public keys. You can send and receive any amount of Bitcoin from and to an address, so you can have as many Bitcoins per address as you wish.

The Bottom Line

A single wallet might be good for a cryptocurrency investor just starting out, but as more coins are collected, it is best to use multiple wallets. The more wallets you have, the safer your investments are from loss, theft, and scrutiny.