How to secure your bitcoins – tips and tricks
Securing bitcoins with different wallets
Bitcoins have significantly grown in popularity in the past couple of years. A number of businesses now let consumers pay in bitcoin and receive payments in bitcoin. People, on the other hand, love it because it is completely decentralized and one does not need a bank to conduct transactions.Given the ever-increasing convenience with which people can spend and receive bitcoins, it goes without saying that securing your transactions is the number one priority since like your conventional money, bitcoin currency can also get stolen.In fact, given that bitcoin currency is digital, there are simply numerous ways in which you can be subject to cyber theft and have your money stolen by various hackers out there who can simply inject malware into your system and retrieve vital information.
As such, here you will find the various ways in which you can secure your bitcoins using different types of wallets depending upon the frequency and magnitude of transactions that you conduct.
What is a wallet?
Before we can go into the detail of what types of wallet you can use, it is first worthwhile to consider as to what a wallet actually is.
As most of you may already be aware, a wallet for a cryptocurrency such as Bitcoin has two different keys with which you are able to conduct various transactions. The two keys are the public key and the private key.
The public key, is the address that you give to others to send you money in bitcoin currency. As such, it is the address that is known by others and can be tracked back to you.
On the other hand, the private key is the key that only you know about and can be password protected. It is the key that allows you to send money in bitcoin currency to others.
As such, the private key has to be kept extremely safe as anyone who happens to get hold of your private key can withdraw bitcoins from your account.
The frequency and amount of transactions that you conduct
As mentioned earlier, the frequency and amount of your transactions will determine as to which type of wallet is the best for you.
Your transactions, as such, can be divided into four categories as follows: –
- High frequency and high amount
This implies that you conduct a lot of transactions on a daily or a weekly basis and that the amount of each transaction is quite high. This will usually occur if you trade in bitcoins on a daily basis.
- High frequency and low amount
This category consists of those who perform a lot of transactions but only spend a little in each. This can be in the case of those who use bitcoins to buy everyday items at a shop.
- Low frequency and high amount
Low frequency and high amount transactions are normally associated with business investments made in bitcoins. As such, it involves investing larger sums only occasionally.
- Low frequency and low amount
This is where only a small amount of bitcoins are traded rarely.
Types of wallet to use to secure bitcoins
Now that you know the different types of transactions that one might have, it will be easy to select a type of wallet that best suits your transaction patterns. The different types of wallets that can be used consist of: –
- Mobile wallets
- Online wallets
- Hardware wallets
- Paper wallets
Mobile wallets, as the name suggests, consist of Bitcoin mobile wallet apps. These apps will be available on your Android as well as iOS devices.
Such wallets are highly efficient if you make a lot of transactions that are of low value. That is, you have a high frequency of low amount transactions. A low amount, in this context, is assumed to be the amount of money that you would be willing to carry as cash.
You can use the wallet to buy everyday items at shops. The bitcoins can be stored safely in them and you benefit from the added security features provided by the particular service to which the wallet belongs.
Online wallets are those that let you conduct transactions on any device. They can be accessed anywhere at any time as long as you have a digital device in your hand. All you need is your username and password and you can easily access the online wallet on any device.
Given that the wallet is out in the open, it goes without saying that the wallet is vulnerable to hacks and other types of cyber espionage whereby vital information can be stolen.
As such, online wallets are more suited to those who conduct low frequency and low amount transactions. This ensures that even if you lose your bitcoins, the loss will not be significant.
Nevertheless, it is recommended that you use a strong password as this is the only thing protecting your wallet from being stolen.
Hardware wallets are probably the safest. They are usually meant for high frequency and high amount transactions.Hardware wallet, as the name suggests, is more like a USB that stores your key on a chip and can be connected to the computer. You can perform all the functions that you would with any other wallet.
There are various hardware wallet brands, the most common one being the Ledger Nano series. It is an easy-to-use device that lets you conveniently store your bitcoins in a safe place.
The hardware wallet is password protected and therefore, it adds an extra layer of safety in case if it gets stolen. Also, given that the wallet is not online, it is safe from hacks and from any other kind of cyber theft.
While configuring your hardware wallet, it will ask you to enter a security phrase. It is recommended that you keep a copy of the phrase with you. This will allow you to recover your bitcoins if the device happens to get lost.
Paper wallets are wallets that have your private and public keys stored as QR codes on a piece of paper. You can generate the paper wallets from bitaddress.org and password protect your private key.All you need to do is log on to the website and drag your mouse around randomly. This is because the website uses these movements to generate your public and private keys. You can then choose whether you want a paper wallet for just one address or more. You can then print your wallet and store it in a safe place until you use it to conduct transactions.
Paper wallets, however, need to be dealt with extra care as there are many ways in which the private key of the wallet can be stolen or get damaged.
Essentially, when you are generating your paper wallet, it is strongly recommended that you do it offline or use a computer that has never been connected to the internet ever before. This ensures that no one is tracking what you are doing and thus protects your key.
One way to do so is to use Tails, which is a stand-alone operating system that lets you use your computer with complete anonymity. It can be used from a USB and can be downloaded for free.
The advantage of using Tails is that once you use it and close the system, there is absolutely nothing that is left on your actual computer with regards to what you have done while using Tails. Even the data in the USB gets completely wiped off.
It also recommended that you make several copies of your paper wallets, so if one gets lost or the paper gets damaged, you will have extra as backups.
Paper wallets are to be used when you have low frequency and high amount transactions. This is because it is usually advised to use a paper wallet only once. Using the same wallet with the same address can interfere with your privacy.
In order to use paper wallets, all you need to do is scan the QR codes using online cryptocurrency apps such as CoPlay and receive and send bitcoins as you wish.
Other ways to secure your bitcoins and yourself is to use different bitcoin addresses every time you make a transaction. Using the same address again and again for conducting transactions can severely compromise your privacy.
This is because the public address is known by the senders of bitcoins. As such, if you happen to conduct a lot of transactions with the same address, the sender can track down everything you do using the same address.
In addition, it is always a good idea to have a combination of different wallets to store your bitcoins rather than storing them in just one. This will ensure that no single wallet contains a large amount.