This is a guest post by Evie Harrison discussin how to secure your Bitcoins and what to think about when choosing a cryptocurrency wallet. Evie Harrison is a blogger by choice. She loves to discover the world around her. She likes to share her discoveries, experiences and express herself through her blogs. Find her on Twitter: @iamevieharrison.
Bitcoin has completely revolutionized the way people do business payment transactions nowadays. This cryptocurrency was created in 2009 by a person under the pseudonym Satoshi Nakamoto. The unique thing about this currency is that the transactions are often made with no middlemen. This conveniently excludes the involvement of both banks and the government. Cryptocurrency’s popularity is evident everywhere. From being able to buy a Subway sandwich to using AutoCoins at the Autoblock to deal in car purchases and car leases; bitcoins are the talk of the town.
Possible risks if you don’t secure your Bitcoins
Bitcoins are stored in your own Bitcoin wallets. To see all options available to you, check out the Cryptocurrency Wallet List prepared by Cryptowisser. It is the biggest such list in the world. Whe you store the Bitcoin in a Bitcoin wallet, you are your own bank. If you happen to forget the passkey after encrypting your wallet, your Bitcoins could be lost permanently without a way of recovering them. Bitcoins are also vulnerable to hackers and scammers who can get access to your Bitcoins. Unlike traditional transactions where your money is compensated by insurance companies, with Bitcoins, there is none. Thus, adding security to your Bitcoins is highly crucial.
The following are the best tips and tricks on how to secure your bitcoins.
1. Avoid Using Web-Wallets
A web wallet/ hosted wallet is called so because it is hosted by a third party. It’s as if you are entrusting your Bitcoins to another company.
These web wallets are easily accessible to hackers and should thus be kept away from. If one does really need to use hosted wallets, he should research thoroughly and choose a company that promises security of the bitcoins. First-hand reviews from other users of these services might come in handy. You can also choose to transfer your Bitcoins from your exchange-based wallets after every exchange transaction. You should ideally store them on an encrypted personal computer.
To find out which wallets that have a high degree of security, review the Cryptocurrency Wallet List prepared by Cryptowisser and look for the “green dot” in the Security-column. The green dot means that you are yourself in full control of the private key to your wallet.
2. Limit the Access to Corporate Bitcoin Wallets
Be very careful while giving anyone access to your Bitcoin wallets, especially in a corporate environment. Due to the anonymity surrounding all Bitcoin transactions, it is often hard to trace if someone attempts to steal your Bitcoins. There is also something called a Mixing Service, that scammers can use to further complicate the traceability of transactions. If any of your employees gain access to your wallet, he could easily transfer the funds to another wallet without your knowledge. There is no method of tying the destination wallet to any individual employee.
In big organizations, some of the employees need access to the Bitcoin wallet for business transactions. In this case, it is best to make use of multiple sub wallets, each assigned to an individual person. This way, you can trace any discrepancy to the source.
3. Keep your Bitcoin Hot Wallet and Cold Wallet Separate
Crypto Wallets connected to the internet are termed hot wallets, since they are at a high risk to network-based attacks, compared to offline wallets (also known as cold storage). For any business that makes use of cryptocurrency, cold storage is a better tool as cold storage wallets are safer and not accessible to hackers. If you really must use web-based wallets, keep most of your Bitcoins on a cold storage wallet.
4. Store Private Keys Offline
Every Bitcoin user should be careful and keep their private key offline. Bitcoin wallets make use of public keys for sending or receiving Bitcoins. These public keys also have other functions, e.g., checking your Bitcoin account balances. They are also used to authorize payments from your Bitcoin wallets. Therefore, if anyone is able to access your private key, they can use your Bitcoins in whatever way they want without your awareness.
To consolidate the security of your Bitcoin wallet, remove its private key or keys and then store them somewhere, ideally, in a separate computer that is not connected to the Internet. This strategy will again help protect it against hackers.
5. Use a Dedicated Hardware
You should make use of dedicated hardware for doing your Bitcoin transactions. Using a dedicated USB key in moving data from your online computer to your offline computer will enable security and minimize its exposure to potential viruses.
6. Use Linux OS
The best way to move data on and offline is to make use of USB drives. Linux has the best reputation of resisting any USB based attacks so choose this as the USB drive to transfer bitcoins from online to offline computers.
7. Make Use of a Type 2 Hierarchical Deterministic Wallet
Type 2 Hierarchical Deterministic Wallet is notable because it makes use of seed to produce all keys for any Bitcoins transactions that are made. This means you only need one backup server. In case you lose your wallet, you can easily make a new one using that same seed. Your lost wallet will be recreated with all of the private keys as well as its Bitcoins
8. Use Fragmented Backups
Although you may only need one backup for your seed, it is still best to create multiple copies of such backup and then store them at various locations. You should create a fragmented backup in the case of a physical security concern. This will break up the seed into six fragments. You will then need any four to recreate the seed. You can then store each fragment in different locations. Before a thief can access your wallet, he would need to first access four of the six fragments which is more difficult.
9. Make Use of Hardware Wallet
We highly recommend using a hardware wallet. Hardware Wallet makes use of a USB key that comes with an onboard computer running in its own special operating system, which is dedicated to operating a Bitcoin wallet. Trezor and Ledger Nano S are notable examples of hardware wallet. Ledger Nano S supports more than 700 cryptocurrencies and has for a long time been considered the most secure cryptocurrency wallet in the world. Just by inserting a hardware wallet to an online machine, all Bitcoin transactions can be signed with the use of the private key that is stored in the hardware. Even if the online computer gets infected with malware, Bitcoins will still be able to securely send and receive funds without getting access to all of the important private keys.
Bitcoins are extremely convenient but unfortunately, highly volatile to hacking, and other risks which are why using these strategies to strengthen your transactions is very significant. Although some of these strategies might sound inconvenient to an average user, they do wonders when it comes to ensuring your Bitcoin’s security.
To properly protect yourself against the fraudsters out there looking to get you, please also read the guide Security Measures prepared by Cryptowisser. And also, pick one of the following wallets. They are currently the highest rated wallets in Cryptowisser’s Cryptocurrency Wallet List:
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