The exponential growth in bitcoin investments over the past few years is something that has garnered a lot of attention. Investors have started to realize the potential of digital technology and the majority of people are already a part of this community. Bitcoin allows you to transfer money everywhere easily and securely. However, great features are often accompanied by security concerns. Therefore, it is important to keep your bitcoin wallet secure. Along with the considerable increase in cryptocurrency followers, the number of publicized hacking events have increased as well. But it is important to understand that Bitcoin provides you with some extraordinary features to protect your wallet.
In this article, we will cover topics like :
- Online wallet
- Desktop wallet
- Paper wallet
- Hardware wallet
- Ledger Nano
- Fake trezor
- Wallet security
- Multisignature wallets
There is a lot of money involved and newcomers often tend to ignore the minor details that are important to keep your wallet safe and secure. This allows hackers to come up with indigenous ways of stealing your money in plain sight. This article deals with everything you need to know about bitcoin security. Following are the various kinds of wallets that can be used to store your bitcoins:
- Desktop Wallet
While online wallets are easily accessible, they are more prone to hacking. On the other hand, Desktop wallets can only be accessed by your private computer which reduces their vulnerability. This is because of the security codes that are present only on a particular machine. This allows desktop wallets to be considerably safer and secure. However, desktop wallets can still be hacked if the host machine is infected with malware designed to steal bitcoins and root out personal information.
- Online wallets
Online wallets are mainly digital wallets that can be accessed anywhere from the internet. Although easier to use and accessible, they are prone to malware and can be hacked if proper measures are not taken. Online wallets store your security keys online and they can only be accessed through the user set password. Wallets like breadwallets, mycelium, bitcoin wallet, GreenBits, and Airbitz are some of the common wallets that can be used in an android mobile. On the other hand, wallets like copay, Airbitz, and breadwallets (iOS) can be used for iOS devices.
- Hardware wallet
A hardware wallet definitely takes an upper edge when compared to a desktop wallet in terms of security. These wallets are actually hardware devices that can be physically carried around. Another benefit of them is the fact that they allow you to complete your transaction with complete anonymity. Devices like USB sticks are used that don’t contain any personal information, which prevents your identity from being public. The best part is that hardware wallets are resilient to malware and even if the device is lost, the funds can be easily recovered using a seed phrase. Different types of hardware wallets have been mentioned below
- Ledger Nano
It is a smart card based hardware wallet. It is set up using the Ledger application of chrome. Private keys are signed offline in smartcard’s secure environment. Ledger Nano can be used on any computer or Android phone with GreenBits. A random 24 digit seed is generated which is used to recreate your wallet in case of theft. A PIN code is also assigned to avoid any physical theft or hacking.
A Trezor is basically a tiny computer instead of a smartcard. Trezor also generates a 24 bit seed but it has a small screen where the seed is displayed. Trezor offers extra security as the seed is displayed in an offline device. In case a hacker determines the 24 digit seed, Trezor also allows adding an extra passphrase to the seed. If the passphrase is forgotten, it can be easily recovered.
Beware from Fake Hardware wallet
Fake Trezor : As if the potential hacking techniques weren’t enough, fake Trezors are something that have been responsible for multiple bitcoin thefts lately. With an offer too good to be true, the trezor lookalikes can be easily bought at manufacturing hubs like china before investing in bitcoins, it is important to make sure that device is authentic and does not have any backdoors.
Always buy Hardware wallet from the official website of wallet provider.
Opendime, also known as a bitcoin stick is a small USB stick that allows you to spend bitcoin like a dollar bill. It can be connected to any USB to check the present balance. It acts like a USB flash drive and the user can unseal it to spend money online. What makes Opendime secure is that the private key is generated inside the device and is not known to any human. Although gradual developments have been observed in the bitcoin world but Opendime follows the fundamental bitcoin features that have not changed since five years.
- Paper wallet
Although a bit difficult to understand, paper wallets can be extremely safe if operated properly. Paper wallets require more advanced understanding of how currencies work. These can be generated online using numerous dedicated websites or offline if more security is desired. Paper wallets offer anonymity and don’t take up a lot of space. In other words, they are simply a bitcoin seed written on paper.
Earlier it was mentioned the major types of wallets that are used to store bitcoin. However, these wallets can be further broken down into different kinds of storage.
- Hot Wallets
Hot wallets refer to the bitcoin wallets that can be accessed online using devices like mobiles, computers and laptops. Due to online availability and the presence of loose ends, there is always a risk of theft. Hot wallets can be extremely helpful for regular bitcoin needs involving smaller amounts. It is considered better to carry small amount in hot wallet and store the rest of the amount in cold storage.
- Cold storage
Cold storage is a type of storage in which private keys are generated offline. This makes them more secure as it prevents malware from affecting your wallet and stealing your personal information. Paper wallets, Hardware wallets and software wallets generally come under cold storage. One should think of cold storage wallets as a savings account. Use them only when required and put majority of your savings in these wallets for a longer term.
- Multisignature wallets
These are the kind of wallets that allow multiple parties to share bitcoins. Wallets like Copay make it easier to share bitcoins between multiple parties. They require the signature of multiple parties in order to allow the transaction to proceed. For example in a 2-2 wallet, confirmation from both parties is required in order to complete the transaction.
How to Protect and Save your Bitcoin Wallet.
It is important to understand that good practices are necessary for a secure wallet. It is only the practices of the user which allows any sort of potential hacking. Thus the most important thing is to make sure that certain measures are adopted and evaluated while using your bitcoin wallet.
- Be careful with online services
The user should be wary of the visited websites in order to prevent a breach of personal information. Often, opening spam emails or other messages can introduce malware into your system which can lead to a hacker gaining access to your wallet. Usually, two prevent online hacking, using 2-factor authentication is recommended.
- Backup and encrypt your wallet
It is necessary to make regular backups of your wallet in order to recover your funds. Stored in a safe place, a backup of your wallet can protect you against human mistakes and computer failures. It is also necessary to encrypt your wallet in order to avoid the backup getting into wrong hands. In case your mobile or computer was stolen, the funds can be recovered using your encrypted backup
- Update your software
Using the latest versions of the bitcoin applications allows the user to gain access to the additional features that can help in advance investments. It also increases security features and provides more stability. Apart from the bitcoin software, it is also important to update all the other applications on the device in order to achieve a safer environment.
- Multisignature to protect against theft
A Multi-signature is another security step which requires multiple approvals before providing access to the wallet. This means that even if a hacker gains access to a single device, it cannot use the wallet until all the accounts linked with the wallet are hacked.
- Use only small amounts regularly
Using a bitcoin wallet with large sums of money can often generate loose ends which might lead to potential hacking. It is important to understand that if the bitcoin wallet is being used regularly, only small amounts of money should be present in it. For instance, in order to do a 20 dollar transaction, one should only have about 200 dollars in the wallet and the rest of the money should be kept in cold storage.
- 2 factor authentication
In recent years, it has been observed that a new layer of security is required on top of the already existing authentication techniques. This is where 2 factor authentication comes into play. Even if someone gains access to your username or password, the 2FA prevents the hacker from doing any damage to your account. Generally, it is of the form of a google authenticator or one time passwords (OTP’s). A code is generated in the mobile phones linked with your account that needs to be entered in order to gain complete access. These codes need to be entered instantly as they become inactive after a short span. Although 2FA are extremely convenient and secure, they also have some drawbacks. The user must have access to the linked mobile phone with enough battery to access the code.
“A little knowledge is a dangerous thing”.
These are the words of the infamous Alexander Pope. Bitcoins have completely changed the course of digital investments. It has been beneficial for a lot of investors, allowing them to make a lot of money. However, they must be used only after adequate knowledge. Bitcoins can be a very safe way to invest your money but good things often come with high risks.