If you’ve already spent a small fortune in Amazon and iTunes gift cards (to the point that everyone on your list already knows what to expect when Christmas comes around) and exhausted every clever way to present someone with cold hard cash, fret not. Because of the internet, there is a whole frontier of money that you may not have yet explored. In other words, cryptocurrency is here to save you.
Cryptocurrency has branched out big time since Bitcoin first hit the scene in 2009, with over 1,600 different blockchain currencies and counting (as of late 2018). Nonetheless, Bitcoin is still the most popular by far, so that’s the one we’ll focus on here.
And there are multiple reasons that Bitcoin makes a great gift.
First of all, being still relatively new and unfamiliar to many people, there’s an element of novelty. For anyone accustomed to receiving cash, Bitcoin can be a fresh, thoughtful way to change things up.
And Bitcoin has grown a lot in the last several years, with more and more merchants accepting it as payment. Since it has real purchasing power, even if the person you’re giving it to turns out to have no interest in cryptocurrency whatsoever, they can buy real stuff with it. Or, failing that, they can always sell their Bitcoin and use the fiat (conventional) money to buy whatever they want.
How is Bitcoin Stored?
In order to really understand how to give Bitcoin as a gift, it’s helpful to understand the basics of how the currency is stored.
Bitcoin, like all cryptocurrencies, is created and stored using blockchain technology. Don’t worry — you don’t need to understand what this means or how it works. What you do need to understand is that because it’s a blockchain currency, you don’t actually “store” your Bitcoin anywhere.
Blockchain transactions remain forever recorded in a special database, distributed and backed up across a vast global network of computers. When you own Bitcoin, instead of actually storing the currency somewhere, you store a “private key” which gives you alone access to the money.
How to Buy Bitcoin
Most of the options for giving Bitcoin as a gift, therefore, involve purchasing the currency yourself, storing the private key somewhere, and then giving the person whatever it is that you’ve stored the key on.
Unless, that is, the person you’re giving it to already has a Bitcoin wallet, in which case you can ask them what their public address is (the Bitcoin equivalent, roughly, of an email address) and send the currency to their existing wallet or account.
Either way, step one is deciding how you’ll purchase the currency.
Coinbase was one of the first services designed specifically to make buying cryptocurrencies easy. Once you’ve opened a Coinbase account, you can buy as much Bitcoin as you want using either a direct bank transfer or a debit card.
When you open an account with Coinbase, they create a wallet for you which stores all your private and public keys. You log in to your account to see your balances and transact, not unlike using a bank account or a service like PayPal. In fact, you never see your private keys while your Bitcoin remains in your Coinbase account. This is a security measure to protect users from exposing or losing them. This custody service makes the process of buying and storing Bitcoin much more user friendly, but as a trade off you are trusting a third party to safeguard your keys.
Keep this in mind though: You will need to get your new Coinbase account approved before you’re allowed to send Bitcoin out of their wallets. This involves verifying your identity the same way you would if you opened a bank account. This is due to standard monitoring practices aimed at spotting money laundering. Getting a new account verified and approved can take days or weeks.
Cash App from Square
Square’s Cash App is a person-to-person money transfer mobile app, similar to Venmo or PayPal. The key difference is that Cash App allows you buy and sell Bitcoin as easily as you would transfer money to a friend via the app.
In fact, Cash App is probably the single easiest way to buy and sell Bitcoin. However, before you can transfer Bitcoin out of Cash App and into a wallet, you’ll have to enable withdrawals inside the app, which also requires a verification process that can take anywhere from a few days to a couple of weeks. Like Coinbase, Cash App is a custody service so you won’t need to worry about private keys while they store them. Also like Coinbase, you are trusting the company to protect your funds if they remain stored in their vaults.
Bitcoin Wallets – How To Store Private Keys
A wallet, like we alluded to earlier, is a secure place (some more secure than others) where you can store you Bitcoin private keys.
There are three basic types of wallets to choose from, each with its own pros and cons: paper, hardware, and software. Of these three choices, paper and hardware tend to make the best gifts, so we’ll focus on those.
A paper wallet is exactly what it sounds like: you print out a piece of paper with the Bitcoin key written on it and give that to your gift recipient. And then you tell them not to lose it. Pretty simple, right?
There are some things to keep in mind, however.
First, you really have to make sure and impress upon them that they can’t lose the paper wallet you just gave them. No, you don’t have a backup version of it, and you can’t just go online, “log in,” and print out another paper wallet. A paper wallet is exactly like cash in the sense that if you lose it, that money’s just gone.
Also, the first impulse that most people have when given a paper wallet is to store the key on their computer in case they lose the paper version. While this seems to make sense, it’s actually a terrible idea, and defeats the purpose of a paper wallet in the first place.
There is more cryptocurrency mining spyware and malware on the internet than you would probably believe, and it’s designed to recognize and steal cryptocurrency keys anywhere it sees them. So if at any point their computer becomes infected with cryptocurrency malware, that money’s going to be gone in a flash.
In other words, one of the biggest advantages of a paper wallet is that it’s not susceptible to hacking like other forms of storage, because it’s not accessible through the internet. So keep it that way.
How To Make A Paper Wallet
To start, you’ll make a new Bitcoin address (public and private keys) that you can send Bitcoin to. You can do this online but it is not recommended since internet connections can be susceptible to hacking.
It is a better idea to generate your public and private keys while offline, on a computer that you trust has no malware. To do this you’ll need to download the key-generating software, disconnect from the internet, and then run the software on your computer. You can download the software from Github and you should read this article which provides detailed instructions on a truly hack-proof system of creating paper wallets.
Once the keys are generated you’ll print them out or write them down on a piece of paper. This is your paper wallet. It’s a good idea to use a “dumb” printer — i.e., one that doesn’t have a hard drive. This prevents your printer from storing information about the keys you just printed, which could theoretically be read by crypto-seeking malware when you connect to the internet again.
Be aware that there are malicious websites out there posing as paper wallet generators. They will happily create a Bitcoin address for you, and will be even happier if you actually send Bitcoin to it, since they also likely have your private keys.
Paper wallets are great for storing Bitcoin (especially if there’s no rush to use it or sell it), but you can’t directly pay for anything using a paper wallet. To transact or sell the Bitcoin they’ll need to “sweep” or import the keys on the paper wallet into a digital wallet that can connect to the blockchain.
Additionally, and this is very important to make this clear to your recipient, when they import their keys into a software wallet to spend or sell their Bitcoin, they must transfer the entire balance in one transaction. If they attempt to transfer only a portion of the amount on the paper wallet, the remaining balance will likely be lost forever. There is a complex explanation for why this would happen when trying to use paper to interact with a digital protocol, but long story short, just make sure to send the entire amount in one transaction.
Verdict: Paper wallets make great gifts for anyone who wants a simple, secure, low-tech way to hold onto Bitcoin as an investment. You can generate an address for your Bitcoin wallet for free at https://www.bitaddress.org.
A hardware wallet is similar to a USB thumb drive, but much more secure and resistant to malware.
Additionally, the fact that hardware wallets store private keys offline, they’re naturally more secure than online storage systems or online software wallets. They’ll also cost you a decent chunk of change — the popular Trezor hardware wallet, for example, currently goes for 69 euros (~$77US).
You’ll also need to set it up yourself, which involves going through a series of steps you can read about here.
During the set up phase, the device is going to generate a “seed phrase.” This is a string of (usually) either 12 or 24 words that act as a recovery password.
They’ll need this seed phrase if the wallet is lost, stolen or damaged. If that happens, the owner can buy a new wallet and recover the keys on the new device. The recovery seed phrase can also be entered into a number of other hardware and software wallets provided by various companies, so you’re not stuck using the Trezor forever if you don’t like it.
The seed phrase needs to be copied onto a piece of paper, which the recipient should treat exactly as they would a paper wallet — i.e., protect it from physical damage and keep it secret. And like a paper wallet, under no circumstances should they make a copy on their computer or take a picture of it.
Alternately, if you don’t want to bother with all of that, you could always just give the wallet as a gift and let them set it up and buy their own Bitcoin.
Verdict: Hardware wallets are a great choice for anyone who is interested in getting into Bitcoin or other Cryptocurrency and wants direct access to the funds and wallets. Only buy a hardware wallet directly from the manufacturer, never from a third party.
Several companies, like Denarium, also make physical coins that store the Bitcoin key underneath a removable panel on the coin. Denarium coins have a removable hologram that you peel off when you’re ready to spend the coin. Technically, this is also a type of wallet, but it comes in a physical form that people are more familiar with.
Physical coins make great gifts (especially for collectors), though like with any collector’s coin, they sell at a premium so you’re going to pay more than the base Bitcoin value. But they are genuinely cool looking coins that have real tradable value just like any form of Bitcoin.
One word of caution: with physical coins, you are implicitly trusting that the company creating them is not storing the private key somewhere. We’ve never heard of this happening and don’t have any particular reason to believe that it will, but it’s worth pointing out. When you generate the private keys yourself, you know you’re the only one who has a copy (as long as you do it securely). With a physical coin, you’re trusting that this is true. Just saying.
Verdict: Simple and easy (no need to set up an account/wallet), these are great for people who like collectible items and for anyone who might like to own Bitcoin without setting up a hardware or software wallet.
Hopefully by now you understand the basics of how to buy Bitcoin and how to give it as a gift. If you find the concept of Bitcoin a little hard to wrap your head around, buying it (and even setting up a wallet) can be a good way to get a feel for how it works. Which makes Bitcoin a fun and valuable gift for the recipient, and potentially an educational one for you as well.