How to Safeguard Your Digital Currency
Prevent Your Digital Cash From Getting Stolen With These Storage Solutions
The technical details of Bitcoin can be quite confusing for the novice. But this shouldn’t stop you from getting involved in this great money revolution. You can be up and running quite easily without having to understand all the jargon.
But taking a roll of the dice to multiply your wealth is not much good if your bitcoins get stolen. And make no mistake: This can happen. In fact, over the last five years, over half a billion dollars’ worth of bitcoins have been stolen. It’s thought that as many one in 16 bitcoins is now sitting in the wallet of a thief.
“It’s crucial to properly secure your bitcoins. Because the reality is that it’s the Wild West out there in the digital world.”
This is why it’s crucial to properly secure your bitcoins. Because the reality is that it’s the Wild West out there in the digital world. There are outlaws and bandits and goodness knows what else — and these hackers know the turf much better that you do. So if you do decide to invest in Bitcoin, here are some precautions you should take.
Think of Bitcoins as Digital Cash
If you have a load of cash, you take steps to look after it. You keep it in your pocket. You hide it at home. You leave it in a bank. What you don’t do is leave it lying about where anybody can take it.
Bitcoin is no different. It’s a form of cash. Bitcoins exists in the digital world, but they’re not like the virtual dollars that are sitting on a bank balance sheet somewhere. They’re like the physical dollars in the bank’s vault or in your pocket.
To use bitcoins, you need a wallet to keep them in. You can get wallets as easily as you can sign up for an email account. I have more than one. I’d recommend you do too.
I have a Web wallet that I store online. I can access it from my computer or from my phone.
I regard this as the wallet in my back pocket. I keep the bitcoins that I use on a day-to-day basis in there. If the wallet gets hacked, it’s a pain in the backside, just as losing your normal wallet is a pain. I lose the equivalent of a couple of hundred bucks or something — but it’s not going to be the end of the world.
You can also have a desktop wallet. I don’t use one, but a lot of people I respect do. One of the benefits is that you’re not relying on somebody else to look after your coins; they’re on your machine at home. A drawback, though, is that they are vulnerable to malware (software designed to disrupt computer operation or gain access to private information). Among the most trusted desktop wallet providers are Armory and
Of course, keeping your desktop wallet on a computer you can disconnect from the Internet is safer.
Finally, you can have a hardware wallet. That’s a bit like a safe at home. In fact, you might put your hardware wallet in your safe. Look at the wiki page for more information on these. They’re the safest place to store coins, but the least practical for making payments to and from.
Storing Bitcoins With a Third Party
You can also consider using a service provider to keep your coins in “deep cold storage.” This is a process whereby your coins are encrypted and stored on a computer that’s not connected to the Internet. It’s a bit like putting your cash in the bank.
The one problem with this method, though, is that you’re relying on a third party, and that always leaves open the possibility that they could go belly up. Mt. Gox — at one time the largest Bitcoin exchange — was one such firm, after all.
The whole point of Bitcoin is that you’re supposed to be getting rid of third parties. Nevertheless, these services provide an essential service to some, and most of them will not go the way of Mt. Gox. It’s unlikely other companies will be so badly run — indeed, most will have learned from Mt. Gox’s mistakes. Coinbase and Bitstamp are among the most reputable.
Practical Steps to Keep in Mind
Finally, here is some general advice on ensuring your bitcoins are safe and secure. Use only your own phone or computer for transactions. Make sure your wallet address and password or key are kept separately. Back up your wallet on a hard drive that is offline, just as you would back up other data on your computer.
If you keep your coins in “deep cold storage” — whether with a service provider or on an encrypted, offline hard drive at home — they should be safe. But you can’t be too careful. As the expression goes, don’t put all your eggs in one basket. It’s wise not to keep all your bitcoins in one place if you have a sizeable quantity. Split them up between wallets.
P.S.: In today’s e-mail edition of this article, published in our daily and FREE e-letter, Tomorrow in Review, we showed readers how to not only safeguard their Bitcoin but also a number of ways to grow it. From Bitcoin ATMs that are sprouting up in cities worldwide… to an upcoming IPO of a Bitcoin company, the e-mail edition laid out a case where you could more than triple your money on Bitcoin in the next 9 months. Why miss another issue? Sign up for Tomorrow in Review here, now.