Keeping Your Wallet Safe
By Alisha Bennett
Bitcoin…..the word may be generating more buzz than the Super Bowl this year. While any new type of investment comes with its own inherent risk, investing in Bitcoin poses new challenges as a crypto-currency.
Arguments can be made for and against the security of the wallet (one of the cons being if you lose the information…..you’re out of luck). Obviously, having a secure backup of your wallet login information is important but securing your computer is often overlooked.
Here are 10 tips to help you keep hackers hands out of your wallet.
Top 10 Bitcoin Security And Safety Tips
Here is an excellent introduction guide to Bitcoins. As such, there will not be any transaction fees to pay and no need to give out your real name and other personal information. Yet despite these advantages, the Bitcoins also come with security shortcomings and if you are not aware of the Bitcoin security and safety tips you could end up being a victim.
These days, you will find that more and more merchants are beginning to accept Bitcoins as mode of payment. You can purchase webhosting services using your Bitcoins. You can buy pizza using this, and you can even get a manicure with this currency.
Payments made using Bitcoins are almost instantaneous. There’ no credit card that needs to be processed. There’s no lengthy verification and above all, there won’t be any hidden fees for every transaction.
In addition, using Bitcoins for international payments is cheaper since they are not tied to any country and is not subject to any government regulation. Small businesses love the fact that there are no fees with using this crypto currency and that’s why you can find a lot of them using Bitcoins in doing business now.
There are even others who make money out of it, by buying Bitcoins as their investment and selling them at a later time once the value goes up. But then, there are also some drawbacks that come with using Bitcoins and if there’s one major weakness, it’s the Bitcoin security and safety.
When you have Bitcoins, you store them in your own Bitcoin wallets. In effect, you are your own bank. If in case you encrypt your wallet and you happen to forget the pass key, your Bitcoins will be gone forever and there is no way of recovering it.
There are also instances that hackers and scammers would be able to get access to your Bitcoins. In some cases, a malware virus will get to it and whatever Bitcoins you have on your wallet will all be gone in seconds. Remember that if your Bitcoins will be lost, there is no one you can turn to.
As mentioned, you are your own bank, so unlike a traditional way of banking where your money is covered by insurances, with Bitcoins, there is none. But this is not to scare you, if ever you are planning to be part of the Bitcoin network. This is just to inform you of the importance of Bitcoin security and safety. Indeed, security and safety are of utmost importance when transacting with Bitcoins so here are ten tips that you should keep in mind when it comes to securing your Bitcoins.
Do Not Use Web Wallets
A web wallet is also called a hosted wallet because this is a type of Bitcoin wallet that is hosted by a third party. It’s like entrusting your Bitcoins to another company. Although they may be easier to use, not all of them are able to provide a higher level of security to all the Bitcoins you have given them to be stored.
Once you decide to make use of this wallet, you will need to sign up for an account and you can then start to deposit your Bitcoins to your account. Once you have Bitcoins on your account, you can start buying the things you want using it and you can even send and receive Bitcoins through the web wallet.
But then, these web wallets are a magnet for hackers and therefore, they should be avoided as much as possible. But if it is really necessary to use one, then do your research well and choose the company that can provide the highest level of Bitcoin security and safety. You can read reviews online from other Bitcoin users who have tried using the web wallet. Also, you can choose to transfer your Bitcoins from your exchange based wallets after every exchange transaction. You can store it on your own personal computer and should be kept encrypted.
Limit the Access to Corporate Bitcoin Wallets
You probably run a business and you have decided to use Bitcoins as your medium of currency. But be very careful with giving access to your Bitcoin wallets. This is very important in a corporate environment. Due to the anonymous nature of every Bitcoin transaction, it can be hard to trace if ever someone will attempt to steal your Bitcoins. If ever an employee would get access to your Bitcoin wallet, he or she can easily transfer the funds to another wallet without your knowledge. There is no way of tying the destination wallet to any individual employee.
For organizations that have several employees and staff and that some of the employees need access to the Bitcoin wallet in order to make certain transactions, it is recommended to make use of a wallet that come with multiple sub wallets. You should be able to assign one sub wallet for every employee who will need to have access to your Bitcoins and make sure that each sub wallet should be protected with encryptions. This is one of the most important Bitcoin security and safety tips to remember.
Separate your Bitcoins to Hot and Cold Wallets
Wallets that stay on machines which are connected to the World Wide Web are called hot wallets, since they are at high risk to network based attacks, as opposed to wallets that are offline in nature. If you are running any kind of Bitcoin online business, offline wallets will be a better tool. They are way safer and they are not that attractive to hackers. If you really need to make use of web based wallets, try to keep some of your Bitcoins on an offline wallet, or a cold wallet.
It would be ideal to keep the bulk of your Bitcoin funds on the offline wallet or the cold wallet. This can be stored on a safety deposit box if you prefer. Then you can keep just a small float of your Bitcoins on your online wallet or web wallet and this is what you are going to use for your day to day Bitcoin transactions. If in the event that you will receive huge amount of Bitcoins on your online wallet, move them as fast as you can to your offline wallet before the hackers could attack.
Store Private Keys Offline
Another important Bitcoin security and safety tip that any Bitcoin user should remember is to keep private keys offline. As you know, Bitcoin wallets would make use of public keys for sending and receiving Bitcoins. The public keys are also used for other functions such as checking your Bitcoin account balances. It is also the public keys that you will use to authorize payments from your Bitcoin wallets. Therefore, if anyone would be able to have access to your private keys, they can pretty much use your Bitcoins in whatever way they want without your knowledge.
In order to enhance the security of your Bitcoin wallet, remove its private keys and then store them somewhere, perhaps, in a separate computer that is not connected to the Internet. This way, you can be sure that it will not be compromised by hacker or malware attacks.
When making a payment of a transaction that is generated online, bring it to the offline computer with the use of a USB stick, and when it’s already on the offline computer, that’s when you enter the private key. After that, bring it back to your online computer and then complete the transaction there.
You may find this inconvenient but this is actually for your Bitcoin security and safety. Doing this will surely provide significant extra protection to your wallet. Remember, it is extremely important that you keep your wallet protected especially if your wallet contains a large amount of Bitcoins. Compromising a cold wallet is very difficult since it would require physical access.
Use a Dedicated Hardware
Make use of a dedicated hardware for doing your Bitcoin transactions. You can make use of a dedicated USB key in moving data from your online computer to your offline computer. This is to minimize its exposure to potential viruses. It would also help if you dedicate your offline computer exclusively for your offline wallet. This will also help to minimize its potential exposure to viruses and web hackers.
Use Linux on Online and Offline Computers
The best way to move data in between online and offline computers is to make use of a USB drive. This is also for your Bitcoin security and safety. Linux has the best record of resisting any USB based attacks so choose this as the USB drive for transferring Bitcoin related transactions from online to offline computers.
Keep a Highly Secure Offsite Backup
If your computer accidentally gets lost or stolen, or perhaps it got destroyed and your hard disk fails to function, then you will no longer be able to have access to your wallet and most especially the Bitcoins that are on the wallet. This is the reason why Bitcoin experts would recommend that you back up your Bitcoin wallet elsewhere. One of the most useful Bitcoin security and safety tip is to create multiple backups that are stored on different locations.
Depending on the type of wallet that you will use, you might be able to back up your wallet after every transaction or right after every 100 transactions in order to keep it updated with the latest private keys that have been created in order to have access to your Bitcoins.
Make Use of a Type 2 Deterministic Wallet
The biggest benefit of Type 2 Deterministic Wallet, which is a feature found on both Armory and Electrum open source wallets, is that it makes use of a seed in order to deterministically produce all of the future private keys for any of the Bitcoins that you have received. This means that you will only need to create one backup server.
The reason behind this is because the backup has the seed. So if ever you lose your wallet accidentally, you can simply create new wallet using that same seed and your lost wallet will immediately be recreated with all of the private keys as well as the Bitcoins that were inside it.
Make Use of Fragmented Backups
Although you might only need to create one backup for your seed ever, it is still recommended that you create multiple copies of such backup and then store them at various locations. If you are concerned on the physical security of your backup, then create fragmented backup. This will split the seed into six fragments and any four will need to recreate the seed. You can then store each fragment on various locations. Before a thief could get access to your wallet, he would need to first have access to the four of the six fragments which is somehow difficult for him. The Armory wallet is one of the web wallets that provide the option of fragmented backups.
Make Use of Hardware Wallet
A hardware wallet is also highly recommended if you are after the Bitcoin security and safety. This wallet effectively makes use of a USB key that comes with an on board computer running in its own special operating system, which is dedicated to operating a Bitcoin wallet.
A good example of this type of wallet is the Trezor. Its hardware is able to store the private keys of your Bitcoin wallets and will never divulge them. It works the same way as other laptop computer’s TPM or Trusted Platform Module, which holds encryption keys.
By merely inserting a hardware wallet to an online machine, all Bitcoin transactions can be signed with the use of private keys that are stored in the hardware. Even if the online computer gets infected with malware and other viruses, Bitcoins will still be able to securely send and receive funds without getting access to all of the important private keys.