Money has seamlessly changed forms with passing years. Starting from gold coins, the money took the forms of paper bills and proof of credit. These forms can be physically different from one another, but they are still backed by governments. Legal tenders majorly constitute fiat currencies that are governed by officially established monetary systems. However, in 2009 came the bitcoin—a new digital currency that was not backed by any bank or government but was created using a computer code.
Cryptocurrencies have certainly revolutionized the way how money will work in the future. The digital currency has captivated many with its soaring highs—this was the only currency that managed to rise from just $10 to a whopping $1,200 in a matter of one year. Now, let us steer the topic to one of the more popular and powerful digital currencies available today—bitcoins.
The design of bitcoins makes them inflation proof because there is a hard-set limit of 21 million bitcoins that will be ever generated. So unlike any other currency, the value of bitcoins will keep moving up in due course. Further, to fuel this growth, more and more people are already buying and using this virtual currency. This growth is due to its pseudonymous, decentralized, borderless nature. And it is because of this nature only a bitcoin’s utility value has remained robust in large part. Now before going to the topic of securely storing bitcoins, everyone should know a bit about their existence and about all the factors that drive their success in the first place.
The existential journey of bitcoins
Mining is the process through which this powerful cryptocurrency came into existence. Now, what is mining anyway? Well, it can be thought of as a process of solving very hard mathematical problems for strengthening and securing the bitcoin network’s cryptography. Which is why when it comes to mining bitcoins, the miners will sure need the best-in-class computer power. Plus, the more bitcoins are mined, the harder such mathematical problems will become.
For mining a bitcoin, people will need powerful computer hardware, to begin with. Apart from the hardware, miners should even have dedicated applications that help in generating it. Now, well before setting up the hardware and software used for mining bitcoins, the miners should have an account within a mining pool as well.
Why everyone wants to own bitcoins?
The public’s trust is declining in the existing fiat currencies and banking systems. It is true that the money loses its value with time; for example, the dollar’s value today is worth a tiny fraction of what it used to be much before it was taken off the precious gold standard.
The money, and the entire financial ecosystem, is in trouble right now. Because of the growing mistrust, it is beneficial to find a better way of investing—a way that is both innovative and secure. That is where bitcoins, and other digital currencies, come in.
Put simply, nobody controls bitcoins—and the trust is placed right within the evolving network of peers; the source code of the encryption and mining is reviewed by peers rather than bankers and biased politicians. And that is exactly why bitcoins are not inflated at will. Because of these factors, this virtual currency has sure become a compelling candidate for countless investors, crypto brokers, etc.
If the recent market trends are analyzed, a bitcoin will significantly push its long-term value upward. Also, the investor’s interest is continuing to grow in this investment commodity as more and more people are demanding it. In the coming time, speculators will even start viewing bitcoins as a powerful alternative hedge to silver and gold. This is why many investors have started referring to this cryptocurrency as digital gold.
Now, there has to be some way of buying and storing this digital currency in a secure way. And when it comes to that, you will need to have a wallet for sure. So the next section of this post is dedicated to wallets and how to securely store your virtual currency in them.
Buying and storing bitcoins
Today, speculators will find so many ways to buy a bitcoin; they can simply exchange their euros, dollars, or any other currency into bitcoins—but, first, they have to get a wallet for themselves. Every cryptocurrency—whether it is a bitcoin or a litecoin—will only be stored using a digital wallet. The digital currency will need to be transmitted using a specific bitcoin address that is actually long strings of letters and numbers.
For security reasons, each of such wallets should be encrypted and should be backed up regularly so that its owners are protected from any loss whatsoever. It is simple with bitcoins and any other virtual currency—if investors lose their wallet, they will lose all the bitcoins present in it; that is very similar to the fate of a lost physical wallet. So it is the right time to dig deeper into these special wallets that are meant for storing virtual currencies.
The variety of wallets
The digital wallets can be based on either hardware or the web. (The web-based storage facility for bitcoins is even known as online wallets.) Likewise, there are even those wallets that can reside on a computer desktop or a mobile device. Much contrary to the digital wallets, there is also its physical version where the bitcoin addresses and keys are printed on a piece of paper. These wallets are used for storing not only bitcoins but also other varieties of digital currencies such as ethereum.
Once the wallet is set up, the speculator will get a specific address. The client, who has issued the wallet, can even allow investors or traders to develop more of such addresses. And the wallet owners can get as many addresses as they can possibly wish for—ranging from one to many.
While receiving the payments, the traders can just give their addresses to the sender. These addresses can easily be thought of as conduits existing between different Bitcoin wallets. In addition, to make cryptocurrency transactions simple and quick, these addresses can be either permanent or temporary. Now, let us give an overview of different wallets where bitcoins and other similar virtual currencies can be stored.
Whenever you wish to set up an online wallet, you should use blockchain.info—that is the recommended service allowing investors to do transactions and get regular backups with just a single click. Also, some online wallets even allow simple creation of a number of addresses for supporting a variety of transactions; such wallets may even ensure a two-factor authentication as well.
However, with the online wallets comes a pretty fair share of security concerns as well. Online wallets are part of a website which can be unresponsive or slow because of extremely high traffic; the site can even be under a DDoS, or Distributed Denial of Service, attack sometimes.
Now, if investors are totally paranoid about the way online wallets work, then they should invest in a local wallet—this is a wallet stored on the computer’s hard disk drive of the investor. However, for setting up a desktop wallet, the investors will need to put in more hard work. A desktop wallet offers a great number of advantages over its online variant. The online wallets can be easily accessed from anywhere worldwide, and that is precisely why they are much more vulnerable to hacking than the online version.
The reason why these wallets are resilient to potential hacking threats is because they are stored on the investor’s private computer where she/he can store all the personal security keys. Because of this, the exposure of this security key is considerably brought down. However, a desktop wallet is still susceptible to a number of hacking incidents. For instance, the computer that has the wallet can get infected with malware—a program that is specifically designed for rooting out the keys to steal bitcoins.
Now, if the investors want to improve their bitcoin’s security, they should invest in a full-fledged hardware wallet. These wallets are stored on a few bits of hardware such as USB sticks or external devices that you can carry around with you. The added benefit of having a hardware wallet is that it allows the investors to have complete anonymity while transactions are carried out.
That is basically because there is not even a modicum of information which is linked to the existing hardware, so the probability of data leakage is very low. Plus, the hardware-based wallets are pretty resilient to malware too. So, in the future, if the speculators even lose their hardware wallet, they will recover the funds by using a dedicated seed phrase.
A paper-based wallet is also a safe way to store bitcoins; although, this will require a very advanced understanding of the different ways by which these cryptocurrencies work. Further, the investors can even generate paper wallets using a few dedicated websites.
Similarly, the investors may even generate an offline wallet for enhancing the security of the bitcoins. Further, this variety of wallet is easy to store because it does not take a lot of space and offers true anonymity. In simple terms, a paper wallet is just a bitcoin seed that is written in an encrypted way on paper.
Physical bitcoins have been there for years now, but they are anything except mainstream. More and more companies are getting involved in this evolving part of the digital currency. However, it can be stated that the market for such coins is just meant for diehard enthusiasts and collectors. Such physical coins include a tamper-proof sticker that covers a pre-specified amount the bitcoin.
However, for buying these physical coins, you will need to pay a bit of a high premium—that is, the value of a physical coin will surely be over a bitcoin’s existing value. That is because a physical coin’s value will even comprise the costs of shipment and manufacturing.
Anonymity matters a lot
It is always a great idea to have multiple addresses for carrying out a variety of transactions. By having different addresses, the investors will make that one smart move of not letting any transaction trace back to them no matter what. Of course, if this address is published on a website with the investor’s name beside it, everyone will know that the bitcoins are moving to this very address.
Bitcoins—or for that matter any other cryptocurrency—will never provide total anonymity unless the investors take some concrete steps to put security on the front burner. First things first, the digital-currency transactions will become more secure than ever if investors answer the following questions:
- What do the investors associate their addresses with?
- How many of these addresses should an investor use?
- What are the different transactions for which the speculators are using bitcoins?
The bitcoin transactions and addresses are made public and are stored inside the blockchain; these details are generally kept in a number of copies located across the entire length and breadth of a network. Every time an investor receives or sends bitcoins, that transaction will be visible to everyone. But everyone will see only the address and the amount that is moving back and forth—there is absolutely no way to know that these addresses belong to a particular investor unless she/he explicitly associates herself/himself with an address.
Or people will only come to know that the addresses belong to a specific investor if the person is leaving a few clues with her/his transactions patterns. Ideally speaking, the speculators can easily have an entirely fresh address for every single transaction; the new addresses for every new transaction can easily make it next to impossible for knowing who is behind all the deals. Now, security comes right after anonymity. Which is why, let us have a rundown on the different strategies that will help bitcoin traders and crypto brokers store the digital currency in the safest manner possible.
Proven strategies for storing the bitcoins safely
As we have read that nearly every other digital wallet is vulnerable to malware, hacks, and other similar attacks. So how safe are these wallets, anyway? Well, the answer completely depends on how users are managing their respective wallets from the get-go. The thing is that every wallet consists of a group of private keys without which the users cannot access the stored cryptocurrency.
The riskiest thing happening with the bitcoin security is when the individual user loses the private key or when someone steals the key. Without the private key, the user will never be able to see the bitcoins again, much less trade them. Apart from losing their private keys, speculators can even end up losing their respective bitcoins because of computer malfunctions, hacking, and similar incidents.
Also known as cold storage, this offline wallet can be used for safely storing the bitcoins. Since cold-storage wallets are not online, they are less likely to get hacked. Now, accessing the cold-storage wallet can be highly inconvenient most of the times—that is why it is best to split the bitcoins owned by a speculator. The investors should keep a very small amount of digital currency in any form of digital wallet—this small amount should be sufficient for a trader to meet her/his everyday trading requirements; whereas, the rest of the bitcoins should always be kept safely inside cold storage.
The cold storage will take the private keys in an offline mode, and that is how the chances of theft are decreased. The practice of keeping the private keys inside cold storage is not only common among investors but also prevalent in cryptocurrency exchanges. (These exchanges deal with a huge sum of bitcoins and other digital currencies daily, and that makes them under consistent threat of getting hacked.) The most common cold-storage methods include sound wallets, paper wallets, and other storage devices such as a USB drive.
The investors should create a backup of their bitcoin wallet very early and often. This will be helpful when there is an absolute computer failure—during such times, a regular backup will be the sole way of recovering the currency that is available in a digital wallet.
So the investors should always make sure of backing up the wallet.dat files regularly, and then they should store the backup at a number of secure locations such as a hard drive, a CD, or a USB stick. Additionally, the backup should be protected using a very strong password.
The digital wallet’s software should be updated whenever there is an update available. Any wallet that is running on an older version of bitcoin software is simply a sitting duck for a number of hackers. However, if the speculators will have their wallet running on the latest software, they will enjoy better security.
So, put simply, a digital wallet’s software that has the latest security patches, advanced protocols, and right fixes will sure let users evade some big-ticket crises related to cryptocurrencies. Which is why it makes complete sense to consistently update the wallet’s application and the mobile device’s or computer’s operating systems to make sure that the bitcoins are safely stored.
Nowadays, encryption is one of the most common ways of protecting the bitcoins present in a wallet. For those who do not know, encryption adds a very solid layer of security on a file, folder, or message. Now, such an encrypted file can be only accessed by those who know the right keys.
That is exactly why many prudent investors are moving toward getting their bitcoin wallets encrypted. Every digital wallet should be properly encrypted so that the digital currency is protected from online rogues nearly every time. Plus, the password that will decrypt the encryption should be a combination of special characters, capital letters, and numbers.
Today, every standard transaction taking place over the bitcoin network needs a single signature only. The concept of having multi-signature is rising to popularity, however. For having a multi-signature, the speculator needs to get an approval from a number of people—say, 3 to 5—for executing any transaction involving this virtual currency.
Further, the people who are involved in the transaction are decided in the very beginning. So whenever one of them wants to send or spend bitcoins, the person should get a prior approval. Also known as the M-of-N transaction, the idea behind this concept is offering the bitcoins that have become “encumbered” by giving addresses to multiple parties.
So investors should follow these strategies for evading a number of incidents related to hacking, fraud, and theft. For making the bitcoins grow legitimately, it is important to store them safely and reliably. Always remember that taking backups and security precautions will improve the security of bitcoins remarkably.