Like in real life, the way we keep cash or cards or any other valuables in a physical wallet or secure location, bitcoins are store in a digital wallet. Bitcoin makes it possible to transfer BTC value to any other wallet in a very easy and fast way while allows you to be in control of your money. Such features also come with great security concerns. It is always your responsibility to adopt best practices to protect your assets.
Digital wallet can be hardware-based, software-based or web-based. Every wallet contains a set of private keys and addresses without which bitcoin owner cannot access the currency. The biggest danger in bitcoin security is that the private key can be lost or stolen. Without your private key you won’t be able to access or transfer your money. On the other hand, stolen private key will let anybody else to use your money without your permission.
The digital wallet can reside on a mobile device, a computer, a hardware-encrypted storage or kept safe by printing the private keys and addresses on paper and storing them in a secure location. I’m going to discuss bitcoin storage models, their pros and cons along with recommendations on how to secure your bitcoins.
Lets start with general recommendations on how to keep your digital crypto assets safe.
- Be careful with online services
Many exchanges and online wallets suffered from security breaches in the past and still lack in providing enough insurance and security to be used to store money like a bank.
- Backup your software wallets
Some wallets may use hidden private keys internally. It is always good idea to backup your entire wallet completely.
- Encrypt your backups
A backup can be vulnerable to theft. Always encrypt your backups to protect your data.
- Use multiple secure locations for your backups
if your backup is not dependent of a single location, it is less likely that any bad unpredictable event (like hardware failure) will prevent you to recover your wallet.
- Encrypt your wallet
Encrypting your computer and/or smartphone will protect your wallet with password from anyone trying to access your wallet
- Use strong password
A strong password must contain letters, numbers, punctuation marks and must be at least 12-16 character long.
- Use multi-signature to protect against theft
Bitcoin includes a multi-signature feature that allows a transaction to require multiple independent private keys to be approved.
- Small amounts for everyday uses
Last but not least, it is a good practice to keep only small amount of bitcoins on your computer or smartphone, just enough for everyday use while keeping the remaining part of your funds in a safer environment.
Online Wallets
As I mentioned before, online wallets might be dangerous since you don’t have any control of software and hardware the wallrt is running on. Online wallets are getting a lot of attention from all sort of software attack and most likely to be hacked. I’d recommend to keep only small amount of your money in online wallets required for trading and other needs. Keep the rest of your funds in a wallets with better security and protection.
Software Wallets aka Hot Wallets
Always keep your software wallets on your computer and smartphone up to date. A wallet running outdated bitcoin software might be a soft target for hackers. The latest version of wallet software will have better security system in place thereby increasing the safety of your bitcoins. Consistently update your device, operating system and wallet software to make your funds safer. Do not keep more than 5% of your bitcoins in any single hot wallet.
Offline Wallets aka Cold Wallets
The offline mode of securing bitcoins is usually referred to as cold storage. Cold storage wallets are not connected to Internet and are thus less susceptible to hacking. Cold storage wallets can not be easily accessed by attackers so it is always good idea to keep your savings there. As a cold wallet I can recommend using a hardware wallets like Trezor or air gapped dedicated computer running secure OS like Tails. Read more about security related OS here
Paper Wallets
Paper wallets are probably the best way to secure your long time bitcoin storage. Private keys and can be printed out on a regular paper and stored in real secure locations to protect your funds from anybody. I recommend to encrypt paper wallets before putting in a safe bank cell. You can refer to bitcoinpaperwallet.com to find out how to make your own paper wallet. I recommend to BIP38 (https://bitcoinpaperwallet.com/bip38-password-encrypted-wallets/) encrypt your paper wallet as well.
Since bitcoin was first introduced back in 2008-2009, there have been many incidents of hacking, theft and fraud involving bitcoin. For bitcoin to grow in legitimacy, safe and reliable storage is very important. Taking a few simple security and backup precautions can greatly increase bitcoin security and save your money.
