Cryptocurrency removes the user from the traditional banking system. Essentially you become your own bank.
As your own Bank, you are the one in charge of security. It is crucial that you understand this. There are basic security requirements that you must meet. If you do not, you could lose your Bitcoin. Adopting proper security precautions will put you ahead of many Bitcoin users, who continually make basic mistakes, which results in lost Bitcoins. Bitcoin users have lost Millions of dollars in Bitcoin, and continue to do so, often for reasons that were entirely avoidable.
No Bitcoin Cold Storage
First, let’s look at the potential for loss or failure of computer hardware holding your Bitcoin. Bitcoin is a digital currency, and most bitcoins will exist solely on computers or smartphones. However, any Computer or Smartphone can break, even if the quality is good. There are several infamous examples, such as this man in the UK, who discarded a broken laptop. Unfortunately his laptop hard drive contained the equivalent of eighty million dollars in Bitcoin. He had no backup.
Poor Backup Technique – Only One Copy?
- This man in Australia did make a backup of his bitcoin Wallet, using the Thumb Drive method of Cold Storage.
- Unfortunately he used a cheap five dollar USB Thumb Drive. When he tried to recover his Bitcoin, the thumb drive was dead.
- He lost millions.
How many people lose their own Bitcoin.
One of the most common forms of lost Bitcoin is simply forgetting a security phrase or PIN to access a Wallet. This locks the owners out of their own Bitcoin Wallet, forever. Next, we come to a serious form of lost Bitcoin, which is cyber-crime. This can affect your own devices, or websites such as Bitcoin exchanges, or Online Wallets.
Fraudulent Bitcoin Exchanges and Bitcoin Wallets continually pop up on the Internet. These are scams designed to steal Money and Bitcoin. You should only ever use a trusted and recommended Online Bitcoin Service or Wallet through Websites such as Bitcoin.org
There is also the possibility of software failures and real computer hacking. In January of twenty-eighteen, a Japanese Bitcoin Exchange called ‘CoinCheck” was hacked. It lost five hundred Million dollars of its customers Bitcoin. Similar losses have occurred on other exchanges.
In November twenty seventeen, a Bitcoin Wallet Developer called Parity accidentally locked all of their user’s Cryptocurrency Wallets, on their own client’s devices. In a panic to unlock their Client’s Wallets, the Developers accidentally destroyed them, plus the three hundred million dollars in crypto-currency they contained.
Online Wallets are an alternative to holding your own Digital Wallet on your own device, but there have been several cases of hacking of Online Wallets that have also led to huge losses.
There is a lesson here, which Information Technology security professionals have always known: if something is connected to the internet, there is a chance it can be hacked, or it can break. Most software is updated continually, including operating systems, Bitcoin Wallets, and websites. Every new update brings the potential for a new type of cyber-attack, exploiting a new weakness. Loss of Bitcoin continues to be one of the biggest drawbacks to using it, and why you must protect yourself.
With a cyber-attack through the internet or Wi-Fi, it is possible to lose the contents of your Bitcoin Wallet. You could lose the device holding your Bitcoin Wallet to hacking, hardware damage, destruction, or theft.
Update your Device Operating System
But don’t panic, you can recover from a total loss of your device, if you plan ahead. So, just how do you recover from a catastrophic loss of the entire device holding your Bitcoin? The first step is to secure your devices, whether a computer or smartphone, against cyber-attack through the internet, or through a Wi-Fi connection, which is a common method of attack. To do this, update the Operating system, such as Microsoft Windows on your Computer or the Android Operating system on your Smartphone, and keep them updated.
Internet Security Tools & Bitcoin
Next, make sure all of your Digital Devices have a class-leading Internet Security and anti-Malware tool installed. There are many to choose from today, that will protect all of your devices with a Firewall, which blocks malicious internet or Wi-Fi attacks, plus anti-malware and anti-virus tools. We have links on this webpage at learnbycartoon.com to two class-leading Internet Security products, BullGuard Internet Security, and Bitdefender Total Security.
No matter which Internet Security Application you select, please make sure that you do actually use one, and keep it updated. Once you have an Internet Security Tool on your Device, and before you install a Bitcoin Wallet, run a full antivirus scan to make sure your device is clean from any viruses or malware.
How Many Wallets?
Once you know you have a clean device, it’s a good idea to use more than one Digital Wallet Application. These can be on the same or separate devices. There is no limit to the number of different Wallets you can install from different Wallet providers on the same device. Always encrypt your Wallet with a passcode. This will help protect your wallet from thieves, but it will not protect you from malware, such as key loggers. You need an Internet Security Tool for that.
For day-to-day transactions keep small amounts of Bitcoin in one wallet. The rest of your Bitcoin you can spread over several Wallets. If a security vulnerability occurs affecting one wallet, there is less chance that it will affect the others.
Hardware Wallets & Cold Storage Wallets
You can also use Cold Storage Wallets, including Paper Wallets, USB Thumb Drives, or specialist hardware Devices, such as the “Trezor” or the “Nano S” Bitcoin Wallet. Cold Storage Wallets separate your Wallet from the Internet and Wi-Fi, although you must make sure to follow the instructions and keep these in a safe location.
You must also backup all of your wallets data with Backup Software that allows for encryption. This means you can secure the backup file with a passcode. If you use your Wallet on a regular basis, then you must also backup regularly. Consult the user instructions for each wallet, which will tell you what you need to do. You may need to backup several files, as some wallets include a private key that is separate from the main data file. You can even include a backup of a Paper Wallet digitally, using a screenshot of the original Paper Wallet, before it was printed, storing this as a high quality image in a backup file.
— It’s getting complicated, isn’t it?
— And this is just the beginner’s course.
The trouble with Bitcoin is that it is complicated – even for someone who understands computers. But don’t worry, there are links on this page to Bitcoin.Org and other pages that will walk you through these steps in more detail.
Wallet Backup Data, Seed (Secret Keys), Private Keys and Passcodes.
Lastly, you must safeguard the Secret Keys, Private Keys or Passcodes used to create and access your Wallets. These secret keys should be long and complex, but you must be able to remember them. Unlike email passwords, Bitcoin Wallet password recovery options are limited, or non-existent. If you think you might forget these passcodes, then they must be kept in a file in a safe place, well apart from your devices, such as a vault.
One of the most common ways people lose Bitcoins is simply forgetting or losing the secret key or passcode to their Wallet. If this happens to you, then your Bitcoins could be locked forever.
Summary for your Bitcoin Protection
- Before you install any wallets, make sure your Device Operating system is fully up-to-date.
- Use a quality Internet protection tool such as Bullguard or Bitdefender.
- Use several Wallets to spread your Risk.
- Consider using a Cold Storage Wallet to completely separate some of your Bitcoin from the possibility of internet attacks.
- Use Backup Software that offers Encryption to backup all of the files needed to recreate your Wallets, including any hidden private keys.
- Consult the User Instructions of each Wallet, and make sure that you are backing up all required files.
- Keep your backups encrypted and in a secure location. This could be an online backup service, or a USB Key that you keep in a Security Deposit Box or a Vault.
- Never forget your passwords, or any secret keys that you need to access or recreate your Wallets.
- If you might forget, keep a printed record in a secure location, such as a vault or Security Deposit Box.
- Always keep the information you need to recreate your Bitcoin Wallet completely separate from the Device that actually holds your Wallets, and keep this secure.
- You must plan for disaster, such as the loss of the Computer or Smartphone holding your Bitcoin Wallet.
- You must always be fully prepared to recreate your Wallets, and the Bitcoins they contain.
Bitcoin is complicated, there is no getting away from that fact. But with our Bitcoin for Beginners course, we will keep you on the right path.
Check out our Bitcoin for Beginners Course for more information. Until next time, so long and have fun!