This article very first appeared te print edition Four.1 of yBitcoin. Click here to see the utter kwestie. Click here to order your copy.
By Andreas M. Antonopoulos
Bitcoin permits anyone to be their own handelsbank. If that sounds like a potential script for puinhoop, itвЂ™s only because you havenвЂ™t yet heard of the superb lengths to which Bitcoin users can go to ensure the security of their вЂњone-person banks.вЂќ
By following a handful of basic security guidelines, Bitcoin users can achieve a level of security to protect their money that is beyond the capabilities of the banking world spil wij know it. The truth is that banks are scarcely able to keep accounts secure. Albeit banks promise to make deposited funds available upon request, none of them could actually withstand a run te which all depositors determine to at the same time withdraw their funds. Te that respect, bankgebouw funds are just an abstract reference to value. The funds they protect are just numbers te a ledger, while the actual money is out on loan to the banksвЂ™ borrowers.
Bitcoin is different. Once bitcoins are sent to your address, you control them entirely, you maintain them, and when you want to use them for a purchase, they are there for you. With Bitcoin, possession provides 100 procent of control. But with this good power comes excellent responsibility.
Having the keys to unlock a bitcoin is omschrijving to possessing a chunk of precious metal. Which means if you misplace it, have it stolen or mistakenly send the wrong amount to someone, you would have spil much recourse spil if you dropped metselspecie on the sidewalk and didnвЂ™t notice until you got huis.
Bitcoin is different enough from anything that has come before that wij need to think about its security te a novel way, too. However, Bitcoin has capabilities that specie, gold and canap accounts do not. A bitcoin wallet, containing the private keys necessary to access bitcoins, can be backed up like any verkeersopstopping. It can be stored te numerous copies, even printed on paper for hard-copy backup. A backup of Bitcoin keys is spil good spil possession of the original keys. You canвЂ™t вЂњback upвЂќ metselspecie or precious metals. Banks can recover funds for you, but only at their own discretion. And they can also confiscate funds, adding a risk that doesnвЂ™t exist te Bitcoin.
So, what should end users do to secure their bitcoin wallets?
Do Not Store Money on an Exchange
Many people purchase their very first bitcoin from an exchange, where they can trade their countryвЂ™s currency for bitcoin or other cryptocurrencies. However, keeping your currency on an exchange is dangerous because exchanges can and do get hacked. An exchange is just that, a place to exchange cryptocurrency. ItвЂ™s not a safe place to store your savings.
With traditional investments, a brokerage house buys, sells and manages the assets for its clients. With digital assets, there is nothing to manage. There are no prospectus, no dividends, no management. They simply facilitate the exchange inbetween two parties. Spil soon spil you finish the trade, budge your cryptocurrency (and metselspecie for that matter) off the exchange and into a wallet you independently control. This is spil elementary spil creating a fresh wallet and withdrawing the cryptocurrency to an address managed by that fresh wallet.
Reminisce: Your Keys, your bitcoin. Not your keys, not your bitcoin.
Choose a Wallet for Which You Control the Keys
One indication that you control the keys is that the wallet asks you to make a backup when you receive the very first incoming payment. The most secure device most people wield is their smartphone. For fresh users, a mobile wallet is the best choice, balancing ease of use and security. Examples of mobile wallets that permit you to control the keys:
iOS: Airbitz, breadwallet, Copay, Jaxx, Mycelium
Android: Airbitz, Copay, Jaxx, Mycelium, Samourai
Back Up Your Keys
Today, most bitcoin wallets will prompt fresh users to create a backup of their keys. Sadly, many people skip this step, which can lead to loss if a device is misplaced or stolen. Backing up can be spil plain spil using a sheet of paper to write down 12, Eighteen or 24 backup words (mnemonic words) displayed by your wallet and storing them te a secure, fireproof and tamper-evident location such spil a huis safe or handelsbank vault. Some wallets donвЂ™t use mnemonic words but still provide a backup feature, check their websites for details. Regardless, before you back up, be sure youвЂ™re ter a secure environment, away from prying eyes and cameras. Your backups are your keys.
Balance the Risk of Loss and Theft
While most users are rightly worried about the threat of theft, loss is an even fatter risk. Gegevens files get lost all the time, but if they contain bitcoin, the loss is much more painful.
Some users further protect their backups with encryption, pass phrases and PINs, but more is not always better. Ter the effort to secure their bitcoin wallets, users voorwaarde be very careful not to go too far and end up losing the bitcoins instead. Te the summer of 2010, a well-known Bitcoin awareness and education project lost almost 7,000 bitcoins. Te an effort to prevent theft, the owners had implemented a ingewikkeld series of encrypted backups. Te the end, they accidentally lost the encryption keys, making the backups worthless and losing a fortune.
Like hiding money by burying it te the desert, if you hide it too well you might not be able to find it again. Balance the risk. Bitcoin has capabilities that specie, gold and handelsbank accounts do not. A bitcoin wallet, containing your keys, can be backed up like any verkeersopstopping.
Use Two-Factor Authentication
Many first-time users will use a web-based wallet or online service spil their Bitcoin handelsbank. Unluckily, this has led to a rash of thefts from Bitcoin users, almost all due to compromised desktop computers. Hackers will install trojans and keyloggers looking for access to well-known Bitcoin sites. Spil soon spil users loom on, their own pc will compromise the account and surreptitiously transfer all of their money to another Bitcoin address. Once stolen, there is no recovery, spil Bitcoin transactions are not reversible. The most effective defense against this attack is using what is known spil a вЂњtwo-factor authentication schemeвЂќ (2FA) or using a smartphone application to generate onetime codes. Google Authenticator and Authy are two such services worth looking into. Many wallets now incorporate 2FA spil a standard feature, be sure to use it.
Spread the Risk
Would you carry your entire nipt worth ter metselspecie te your wallet? Most people would consider that reckless, yet Bitcoin users often keep all of their bitcoins ter a single wallet. Instead, users should spread the risk among numerous and diverse bitcoin wallets. The prudent user will keep only a puny fraction вЂ” perhaps less than Five procent вЂ” of their bitcoins te an online or mobile wallet spil вЂњpocket switch.вЂќ The surplus should be split inbetween a few different storage mechanisms, such spil multisignature and hardware wallets.
Use Physical Storage or Hardware Wallets
Bitcoin keys are nothing more than long numbers, sometimes displayed spil a series of words. This means that they can be stored ter a physical form, printed on paper or etched on a metal coin.
Securing the keys then becomes spil ordinary spil securing the physical copy of the Bitcoin keys. A set of Bitcoin keys that are printed on paper is called a вЂњpaper wallet,вЂќ and there are many free instruments that can be used to create them. Paper wallets are not backups of your online keys, they are fresh keys, generated securely offline and used specifically to store bitcoins offline. This type of storage is sometimes referred to spil вЂњcold storage.вЂќ
Another way to store bitcoins securely is through hardware wallets. Thesis hardware wallets permit nonexpert users to attain an almost foolproof level of security. Unlike a smartphone or desktop rekentuig, a purpose-built bitcoin hardware wallet has only one function: to hold bitcoins securely. The devices donвЂ™t run general-purpose software and have ordinary interfaces that work to limit opportunities for compromise. Thesis devices range ter cost from $25 to $220 and are available for purchase online.
Use Multisignature Wallets
Multisignature, or вЂњmultisig,вЂќ is a powerful feature that wasgoed added to the Bitcoin protocol te 2012. Like a bankвЂ™s safe deposit opbergruimte, where two keys are at the same time used to unlock a single opbergruimte, BitcoinвЂ™s multisig feature permits users to secure their bitcoin using numerous keys.
Unlike a bankвЂ™s safe deposit opbergruimte, which offers limited configurations, Bitcoin can presently support up to fifteen total keys with any configuration of required signers. Presently the most popular multisignature configuration is “2-of-3,” where you hold two keys and a wallet provider or another third party holds the third. The most popular configuration for businesses is “3-of-6,” where three executives ter a company each hold one key, two keys are stored at different off-site cold storage locations and the last is held by a third party for recovery purposes only.
Ter summary, Bitcoin is a fresh and ingewikkeld technology. The industry has grown considerably overheen the past eight years, demonstrating an incredible rate and breadth of innovation. Overheen time, wij will develop better security implements and practices that are lighter to use by nonexperts. For now, Bitcoin users can employ many of the tips above to love a secure and trouble-free Bitcoin practice.