After getting to a climax in price late 2017 and later fading from popularity, cryptocurrencies like Bitcoin have accomplished a more another significant surge through 2019 and 2020, exceeding their former all-time highs. As this has taken place, so too have the number of disclosed hacking events went high as well. Given that many investors are strange to the system and may not know how to secure their investments, hackers are coming up with imaginative ways of stealing funds. Some of the most prominent thefts have been those that have taken place in plain sight: some hacks even blatantly reroute tokens bound for one wallet for another. The victims watch as their tokens got stolen away from them, with nothing they can do to stop it.
- Users can lose bitcoin and other cryptocurrency tokens as a result of theft, computer failure, loss of access keys, and more.
- Cold storage (or offline wallets) is one of the safest methods for holding bitcoin, as these wallets are not accessible via the Internet, but hot wallets are still convenient for some users.
- Those interested in the safest storage should consider using a hardware wallet for all of their long-term Bitcoin and cryptocurrency storage.
Just the way we keep cash or cards in a physical wallet, bitcoins are also stored in a wallet—a digital wallet. The digital wallet can be hardware-based or web-based. The wallet can also reside on a mobile device, on a computer desktop, or kept safe by printing the private keys and addresses used for access on paper. But how secure are any of these digital wallets? The answer to this depends on how the user runs the wallet. Every wallet contains a set of private keys . Without private keys the owner or user wont be able to access the currency. The biggest danger in bitcoin security is the individual user perhaps losing the private key or having the private key stolen. Without the private key, the user will never see bitcoins again. Besides losing the private key, a user can also lose her bitcoin by computer malfunctions (crashing a hard drive), by hacking, or by physically losing a computer where the digital wallet resides.
Below, we’ll take a look at some of the best ways to store bitcoin safely.
Hot wallet is internet based wallet. The wallet can only be run on internet-connected devices like computers, phones, or tablets. It is one of the most popular, most used and more of user friendly but less secure. It can create vulnerability because this type wallet generate the private keys to your coins on these internet-connected devices. While a hot wallets allow users to easily send and receive tokens because it is connected to the internet, they also lack security.
It is not advisable to keep huge amounts of cryptocurrency in any hot wallet, especially an exchange account. Instead, it is suggested that you withdraw the majority of funds to your own personal “cold” wallet (explained below). Exchange accounts include Coinbase, Gemini, Binance, and many others.
The next type of wallet, and the safest option for storage, is cold wallets. cold wallet can be simply defined as a wallet that is not connected to the internet and therefore stands a far lesser risk of being compromised. It can be referred to as an offline wallets or hardware wallets.
These wallets store a user’s details (address and private key) on something that is not connected to the internet and typically come with software that works in parallel so that the user can view their investment collection without the private being put at risk.
Perhaps the most secure way to store cryptocurrency offline is through a paper wallet. It is a cold wallet that can be generated off of certain websites. It then produces both public and private keys that can be printed out on a piece of paper. The ability to access cryptocurrency in these addresses is only possible if you have that piece of paper. Many people laminate these paper wallets and store them in safety deposit boxes at their bank or even in a safe in their home. Paper wallets have no corresponding user interface other than a piece of paper and the blockchain itself.
A hardware wallet is typically a USB drive device that stores a user’s private keys securely. This has serious advantages over hot wallets as it is unaffected by viruses that could be on one’s computer because private keys never come in contact with your network-connected computer or potentially vulnerable software. These devices are also typically open-source, allowing the community to determine its safety rather than a company proclaiming that it is safe to use.
Cold wallets are the most secure way to store your Bitcoin or other cryptocurrencies. For the most part, however, they require a bit more knowledge to set up. It’s essential for anyone interested in owning cryptocurrency to learn about safe storage and the concepts of both hot and cold wallets.
Services are cropping up which allow Bitcoin investors to buy physical Bitcoins. The coin you purchase will have a tamper-proof sticker covering a predetermined amount of Bitcoin. In order to purchase the physical coin, you may need to pay a slight premium over the value of the Bitcoin that you’re buying, owing to the cost of the manufacture and shipment of the coin itself.
Other Security Precautions
It is important to always backup your entire bitcoin wallet early and often. In case of a computer failure, a history of regular backups may be the only way to recover the currency in the digital wallet. Make sure to backup all the wallet.dat files and then store the backup at multiple secure locations (like on a USB, on the hard drive, and on CDs). Do not forget to also set a strong password on the backup.
Keep your software up to date. A wallet running on non-updated bitcoin software can be a soft target for hackers. The latest version of wallet software will have a better security system in place thereby increasing the safety of your bitcoins. If your software is updated with the latest security fixes and protocol, you may evade a big crisis because of the enhanced security of the wallet. Consistently update your mobile device or computer operating systems and software to make your bitcoins safer.
The concept of a multi-signature has gained some popularity; it involves an approval from a number of people (say 4 to 5) for a transaction to take place. Thus this limits the threat of theft as a single controller or server cannot carry out the transactions (i.e., sending bitcoins to an address or withdrawing bitcoins). The people who can transact are chosen in the beginning and when one of them wants to spend or send bitcoins, they require others in the group to certify the transaction.