Security is a key consideration when it comes to Bitcoin. Here’s how you can keep your Bitcoins safe from theft and hacking.
When you invest in Bitcoin, there isn’t just the worry that the price of Bitcoin will drop, but also the possibility that your Bitcoin will be stolen. Unlike traditional investments, there is very little insurance or other safety nets to protect investors in the case of a theft or hack. Recently, as Bitcoin prices have continued to rise, more and more creative methods are being employed to steal Bitcoins.
How to buy Bitcoins safely?
If you are new to Bitcoin, we recommend first reading our article about how to buy Bitcoins which includes a beginner’s guide to Bitcoin. Then, if you would like to spend your Bitcoins, it is now possible to get an anonymous ProtonMail email account with Bitcoin.
How to prevent Bitcoin theft?
Everyone talks about how great it is that Bitcoin is a decentralized currency, but as with everything, this has its downsides. If you use a centralized version of cash and just hold it in a bank account, you are basically guaranteed that it will be there when you go to retrieve it. This is because each bank has a brand value they would like to preserve, so they have incentives to secure the money in order to maintain customers’ trust. If the money is stolen, they would replace it themselves to uphold the customers’ confidence in their bank.
Bitcoin doesn’t have any sort of insurance like this. There is no one who can guarantee your Bitcoin will be where you left it the day before, and due to the huge amount of complexity in the Bitcoin ecosystem, there are also massive security risks. These risks will likely be progressively mitigated as time goes by and with the development of better tools. In the meantime, there are a few things you can do to keep your Bitcoins safe:
The first and most important thing to do, if you are storing large amounts of Bitcoin, is to make sure you don’t keep them within the exchange you bought them in. Exchanges seem to be the most frequently hacked, and you hear a story every few weeks discussing how “X” exchange got hacked and numerous customers lost all their Bitcoins.
While there are some exchanges, such as CEX.IO which store user Bitcoins offline in cold storage for better security, this is not a guaranty of safety either. Because of the “cash-like” nature of Bitcoin, it is recommended to take security into your own hands.
Taking Bitcoin security into your own hands
There are two main factors to consider when assessing your own security: storage security and computer security.
Storage is what you do with regards to keeping your private key safe, and computer security is your entire security effort to make sure your computer is not compromised in a way that could cost you all your Bitcoins.
Computer security is important not just for protecting your Bitcoin, but all your identity and banking-related information. There are too many examples where viruses and keyloggers end up on people’s computers and cost them everything. We recommend rigorously updating all software and adhering to computing best practices, such as not downloading or opening email attachments from unknown senders. ProtonMail can help in this case due to the strong set of anti-phishing protections used to warn and protect users from malicious emails.
When it comes to storage security, the first important lesson is to not keep all of your eggs in one basket. In the real world, nobody walks around with their life savings in their pocket, because on the off-chance they get mugged, that would completely ruin them. Similarly, it is advisable to divide up Bitcoins into several wallets. A quick summary of the different types of Bitcoin wallets can be found here.
We recommend being cautious with online wallets. Any online web wallet that stores your private key online is asking for way too much trust considering the fact that they get hacked all the time. Similarly, you probably shouldn’t keep your private key on your computer. There are too many ways for it to end up lost if your computer is stolen, crashes, or is compromised.
If you do use an online wallet or a Bitcoin exchange, make sure it is connected to a secure email account. A ProtonMail account with two factor authentication enabled is a good option. Your messages are protected with end-to-end encryption, and your password is required to decrypt any messages, even in the unlikely event that ProtonMail itself would be compromised. Similarly, many people use ProtonMail for storing a copy of their Bitcoin address private key for the same reason – a ProtonMail message can only be accessed by the email account owner. Furthermore, because ProtonMail is a cloud email service, there is no risk of losing your private key if your computer crashes.
Bitcoin Cold Storage
For long term storage of large amounts of Bitcoins, we recommend storing Bitcoins completely offline, using what is known as cold storage. This involves either using a hardware Bitcoin wallet (such as the Trezor wallet) or writing down your Bitcoin private key on paper stored someplace secure, like in a bank vault. Because your private key is safely stored offline, your bitcoin storage is now immune to computer viruses, and many other hacking attempts.
When holding large amounts of Bitcoin, the cost of losing them increases drastically. Compared to the value of Bitcoins, the cost of taking additional security measures is quite low, so it is worthwhile for every serious Bitcoin investor to take precautions.
About the Author
Mary Ann Callahan is an UK based freelance journalist who specializes on Bitcoin-related topics. Currently, she writes for CEX.io, a multi-functional cryptocurrency exchange. She writes articles related to blockchain security, bitcoin purchase guides or bitcoin regulations in different countries. Previously, she worked for Boston Globe Media and holds a Master’s degree in Journalism from Columbia University.