Bitcoiner, ask yourself: Are you taking the security of your money seriously enough?
In a world where monetary middlemen are so commonly used, we often forget the risks they can pose to our savings. Fraud, for instance, costs some people an eye-watering amount of money every year.
The same applies to cryptocurrency. In 2014, leading Bitcoin exchange Mt. Gox imploded after losing more than $450,000,000 worth of Bitcoin to hackers.
Today in The Big Bitcoin Refresh, we explain the best practice for Bitcoin wallet security so you can avoid falling into the same pitfalls as others.
Lock up your key
Your Bitcoin wallet doesn’t store your cryptocurrency itself. Rather, it stores the proof that the Bitcoin you own belongs to you.
This proof is commonly referred to as your private key: a string of data which is actually held within the wallet itself. Whoever controls this key has the power to unlock (i.e. send, spend) your Bitcoin on the network.
Tip 1: Clearly then, the most fundamental way to keep your digital coins safe is to treat your private key as your most prized possession. But what does that involve?
Choose your wallet wisely
Naturally, you’d never let anybody access your digital wallet unless you trust them implicitly. But are you actually aware of whether your wallet allows a third party to control your private key?
For many people, the answer is ‘no.’ It’s important to understand that, when you choose a Bitcoin wallet, you’re also choosing where your private key will be located—and therefore, who controls it.
The reason for this is that some Bitcoin wallets are custodial, meaning your private key is stored by a third party. Cryptocurrency exchanges and even some mobile wallets are custodial, meaning they have control of your private key.
In contrast, non-custodial Bitcoin wallets involve no third parties. This means your private key stays on your device directly and nobody else has access unless you choose to give them it.
Tip 2: Avoid storing your Bitcoin in a custodial wallet, such as a cryptocurrency exchange and even some mobile wallets, and make sure you choose a reputable wallet that can be trusted.
Turn down the heat
Next, make sure you’re aware of your storage options. ‘Hot wallets’ include mobile apps, desktop apps, and also web wallets (including cryptocurrency exchanges). These are all connected to the internet, and anything online is vulnerable to potential hacking.
‘Cold wallets’ are those which are not connected to the internet. Instead, they’re physical: either a hardware device like a Ledger, or a simple paper wallet. Since these are offline, would-be hackers cannot target them.
For convenience, such as regular trading, a hot wallet is ideal. But, if you’ve got a large amount of Bitcoin that you rarely need to access, store your coins in a cold wallet for added security.
Furthermore, never store all of your Bitcoin in one mobile or hardware wallet alone: spread it across multiple different wallets. Doing so protects you from losing everything if one wallet is hacked or lost.
Tip 3: Remember that Bitcoin wallets connected to the internet are prone to hacking whereas hardware wallets are not. Plus, for damage control, never store your Bitcoin in one wallet.
Leap the last hurdle
Ideally, you’ll be using a non-custodial digital wallet, such asthe Bitcoin.com wallet, for everyday transactions and a hardware wallet for long-term storage. But there’s still one last security hurdle to leap over.
What happens if the phone holding your Bitcoin wallet breaks? Or if the hardware wallet you use gets lost when you’re moving house? The final hurdle is to prevent the above from ever becoming a reality.
Always backup your mobile or desktop wallet by following the in-app instructions. You’ll get a backup phrase which can be used to quickly restore your wallet: this phrase is essentially your private key in an encrypted format.
Store this backup phrase in a safe place where it can never be lost or damaged. Remember that you should never store it on an internet-enabled device, such as a note or screenshot on your phone: these could be accessed by hackers.
Finally, store your hardware wallet in a separate safe place—not where your backup phrase is stored. It’s not a good idea to store them together, just in case something goes wrong.
Tip 4: Don’t fall at the last hurdle by not taking the final steps to secure your Bitcoin wallet. If you lose access to your wallet, your Bitcoin is permanently lost.
