How Can You Secure Your Bitcoins? Is there a Fool Proof Way?
Where can you store your bitcoins without compromising safety? Are passwords enough to save them from being hacked?
Safety is a luxury that only a few of us can afford. It has become difficult to save your valuable assets unless it is encrypted and has the unrecognizable password of all time. Having said that, it is necessary to remember the password in order to save it. There have been several reports of people forgetting the passwords to their bitcoin private key. The New York Times report mentions Stefan Thomas from San Fransisco, who lost the password to his bitcoin wallet that holds 7,002 bitcoins. The report says, “The problem is that Mr. Thomas years ago lost the paper where he wrote down the password for his IronKey, which gives users 10 guesses before it seizes up and encrypts its contents forever. He has since tried eight of his most commonly used password formulations — to no avail.”
The need to secure cryptocurrencies
Cryptocurrencies like bitcoin reside in the world of the web and the internet. It is not governed by any particular body. Cryptocurrency transactions happen through encrypted data. Bitcoin uses blockchain technology to transfer data on the internet. Since blockchain uses distributed ledger technology it is a more secure way of digital transactions.
Although, bitcoins need a strategy to secure themselves. Bitcoin is stored in wallets that are either on computer software, mobile apps, or any hardware system. These wallets have private keys with passwords and these passwords are only known to the bitcoin possessor. Thus, a person cannot approach any intermediaries to restore their password, which makes the wallet vulnerable to thefts and hacking.
However, there are various ways to secure your bitcoins.
An encrypted wallet
The bitcoin wallets should have encrypted passwords. Encryption makes the password more strong by changing them to codes. These codes are not easily retrievable. While creating a password, one should take care that it is not very common. Especially, if you use your primary personal information like name, house number, date of birth, etc., it is easier for the password crackers to find them.
There different types of wallets:
- Cold wallets physically store bitcoins in hardware devices like a USB or paper. You can physically carry your cold wallets and put them away in safe lockers. They remain safe from system viruses, malware, and hackers.
- Paper wallets are a type of cold wallet. Here, users write down their private key passwords literally on paper. The private key and encrypted bitcoin address are printed on paper with QR codes. These codes can be scanned and used later.
- Hot wallets use a digital user interface and can be accessed from anywhere. These wallets can be used to store bitcoins. But, they are more vulnerable to scamming and hacking since it uses a cloud-based internet system.
- Desktop wallets can be installed as software in your system. Mobile apps also use this system of storing crypto passwords in software that is only accessible to users.
Backups are necessary to safely store your private keys to bitcoin wallets. Keep the data in backup devices like USB or flash disk. Mailing it to yourself and sending it to cloud dropbox are other backup systems. While using the internet to backup, it is imperative to encrypt the data with codes.
Maintaining backup will help to retrieve passwords in case of a crisis, system downtimes, or software dysfunctions.
Maintaining multi-signature wallets helps secure the cryptocurrency. It requires multiple approvals from different authorized users to enable transactions. This makes it difficult for thieves and hackers to reach the coins. There are various multisig service providers like Blockstream, Specter, Casa, etc.
Two-factor authentication (2FA) is a very commonly used security procedure in online banking and other sectors. Bitcoin wallets should be secured with two-factor authentication, where there are two layers of security and passwords. This saves your wallets from password crackers and illicit users. Usually, 2FA has the first layer of the password set up by the user and a second layer with biometric authentications like facial recognition or fingerprints.
Is this enough?
Apart from these measures, continuous software updates, maintaining separate computers and passwords can also help safe storage of cryptocurrencies. The most significant measure to remember is to never forget your password to private keys of bitcoin wallets.
A Livemint article on bitcoin investing says, “Do not trust anyone with the password. Once cryptocurrency is seized from you by a third party, it cannot be recovered by a court order. The courts or police cannot ‘freeze’ the crypto account of the thief because, in this instance, the cryptocurrency is not held by a regulated entity.” Bitcoin investment can earn you good money depending on the fluctuating value. But once the credentials are lost, it is nearly impossible to retrieve them.