Bitcoin and
other cryptocurrencies may be volatile investments, but they can’t be ignored. Coinbase, one
of the largest cryptocurrency exchanges, has served more than 20 million
customers, and Blockchain.com, the leading digital currency wallet
service, has more than 32 million users and handled more than $200 billion in
transactions.
If you’re just getting started with cryptocurrencies, you may be unaware of the risks and security holes associated with this type of investment.
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Just like a
physical wallet holds your cash and credit cards, a digital or bitcoin
wallet holds your
digital currency. Protecting your wallet is of the utmost importance. Hacking
is a serious concern for all digital currency holders. Here’s how to protect
your bitcoin wallet.
<h2 Backup Your Wallet
Backup your
bitcoin wallet often. If there’s a computer failure, your backups may be the
only way you can recover your digital currency.
Be sure to
include all wallet.dat files in your backups, and store them in multiple secure
locations (hard drives, USB, etc.). Also, be sure to secure your backups with a
strong password.
<h2 Cold Storage
Take your
bitcoins offline with cold storage. Cold storage wallets aren’t connected to
the Internet, so there’s less of a risk of hacking.
There’s just
one problem with this option: accessing your bitcoins can be inconvenient. For
this reason, many investors choose to keep most of their bitcoins in
cold storage and keep a small amount in their digital wallet for trading needs.
Cryptocurrency
exchanges often use cold storage to shield themselves from hackers. There are
several cold storage options, but some of the most popular include sound
wallets, paper wallet, hardware (or hard) wallets and storage devices.
Hard wallets
are considered the most user-friendly and secure way to store your bitcoins.
Think of these wallets as little banks that fit into your back pocket. Hardware
wallets are small, air-gapped devices that will generate your private keys
offline.
<h2 Encryption
Encryption
adds an extra layer of security to a folder, file or message. Only those who
know the right key can access the wallet and its contents.
Encryption
is even more important when using mobile, desktop or hardware wallets.
<h2 Software Updates
Make sure
that your software is always up to date. Outdated software may have
vulnerabilities that hackers can use to access your wallet.
It’s simple
and easy to update your software to ensure that it has the latest security
fixes. By taking this one quick step, you can save yourself from a potentially big
crisis.
<h2 Multi-Signature
Multi-signature
protection is becoming popular with investors. Like a two-step authentication
system, the multi-signature system requires approval from 3-5 people for a
transaction to take place. This reduces the risk of theft, as a single server
or controller cannot carry out the transaction.
<h2 Dedicated Hardware for Offline Transactions
Some bitcoin
holders have two different computers for offline transaction signing. The
first computer creates the unsigned transactions, and the second computer hosts
the entire wallet along with the private keys needed to sign the transaction.
When making
a payment, simply create a transaction on the first computer (connected to the
web) and save it to a USB drive. Next, transfer it to the offline computer,
sign in with the private key, and transfer back to the online computer to
complete the payment.
Although
this method requires multiple steps, it goes a long way in protecting your
bitcoins and wallet.
