Cryptocurrency investment isn’t much of a big deal these days, especially when compared to the scenario a few years back. Nevertheless, stakeholders still face a lot of risk and instability when it comes to making a big purchase, be it a specialized mining hardware or the cryptocurrency itself. The dangers aren’t simply theoretical or abstract; a huge number of scams have already made their presence felt with hundreds of individuals losing out on their hard-earned money. Whether it is a fake wallet which has been set up to trap clients, or a phishing effort to steal the private keys, or maybe fake cryptocurrency schemes, one must always be on the lookout for anything suspicious.
No doubt, digital assets are secure owing to the fact that these anonymize and decentralize digital transactions. The transactions are validated on open, unalterable blockchains. Yet, even these safety measures don’t make digital assets any less vulnerable to cyber threats. There are scams which transfer the coins from the mining rigs to Ponzi wallets, since users forget to change the default login password. Search engine scams that advertise shady trading sites over genuine exchange platforms have also looted people in many ways. A scam project by the name CryptoShuffler stole millions by lurking on PCs, and prying on BTC wallet addresses which ended up in the copy/paste clipboards.
A couple of straightforward rules, however, can help Bitcoin miners to guard themselves against sudden attacks. Just like you store away cash in your personal account away from prying eyes, or hide away your jewellery in a protected vault, you must similarly exercise a little caution when it comes to your digital currency.
How Bitcoin Wallets Operate
The main thing that one needs to realize is, no matter what one does, he or she won’t be literally storing the BTC itself. This is because Bitcoin does not have a physical form, it is just an encrypted address registered on the blockchain. One basically owns the private key that opens a specific location, and this is the thing that you need to constantly protect by storing the coins away in a wallet.
There are different ways in which you can store your Bitcoin. Again, it all depends on how safe you want your coins to be and how much you will be using them on a daily basis.
Electronic wallets are either downloaded software programs, or hosted via cloud. In the first case, it is basically a formatted file which is saved on your PC and facilitates exchanges. Hosted, i.e. cloud-based wallets have an easy-to-understand and user-friendly interface; however, the twist is that you will have to trust an outsider with the private keys.
Directly installing the wallet on your PC provides you with the sole ownership of your private keys. Most of these are free to download and have a moderately easy configuration. The basic disadvantage is, they do need to have a backup as you will lose your Bitcoin if your PC gets corrupted or stolen and the private keys are not saved elsewhere.
These also need enhanced safety precautions. In case your PC gets hacked, the thief will steal your Bitcoins by getting hold of your private keys or your wallet. Bitcoin Core protocol is the original Bitcoin software wallet. If you download it, you will essentially have to download the transaction ledgers since the inception of Bitcoin. This will eat up a lot of storage space, over 150 GB.
Many of the wallets being used today are SPV (basically ‘light’) wallets which don’t download the whole ledger, rather synchronize to the genuine thing. A notable SPV wallet is Electrum. This is a desktop wallet that provides ‘cold storage’ (an offline option meant for extra security). The ones such as Exodus track different currencies with a modern UI. A few like Jaxx can hold an extensive variety of cryptocurrencies, and some like Copay provide shared accounts.
Cloud-based online wallets offer great convenience for the users – you can have access to your Bitcoin from any gadget in the event that you have the correct passwords. These applications are easy to download and free to set up, and can be used on a desktop as well as on your mobile. One can easily send or receive Bitcoins.
The basic disadvantage of online wallets is low security when compared to other Bitcoin wallets. Since the private key is stored on the cloud, one has no option but to trust the security measures of the host. Do ensure that the third party is reliable and will not vanish with your Bitcoins, close down or deny you access.
A few leading online wallets come in the form of exchange wallets and some of these (Xapo and Coinbase) offer extra security features like offline storage.
A mobile wallet is available in the form of an app on your phone and it comes in handy if you wish to pay the merchant using Bitcoin or if you wish to send or receive Bitcoin while travelling. All online wallets and the majority of the desktop wallets have a mobile version as well. There are a few, however, such as Bread, Airbitz and Abra which were basically meant for smartphone purposes.
The simpler method to store Bitcoin is in an online digital wallet, or on the phone or PC. In any case, leaving your Bitcoin for public access may lead to assaults from phishing scams and hackers. Thus, the best alternative is but a hardware wallet which stores your Bitcoin even when offline.
The hardware wallets (which mostly seem identical as an USB drive) can be effortlessly connected with a PC. A PIN number and a secondary password (known as ‘seed’) are used for security purposes. The secondary password helps you unlock your wallet in case you forget your wallet PIN number. On the off chance that you forget the PIN as well as the secondary password, then you’re practically screwed, so it may be worth saving the ‘seed’ in some safe place offline.
One issue with such a wallet is that it becomes difficult to actually spend the Bitcoins. The ideal solution will be to store a small portion of Bitcoin in digital wallets such as Mycelium which are intended to work in joint collaboration with the offline storage spaces.
Another big drawback of a hardware wallet is, once you lose access to it, you will not be able to recover your coins. It is better to be on the safe side and have a backup on some other encrypted storage platform, to say the least. There are a number of options available in the market below $100. Trezor, Case, Keepkey and Ledger Nano S are the recommended ones.
If you want to store the Bitcoins online but do not wish to opt for a hardware wallet, then paper wallet is your best bet.
The simplest of all wallets is the paper wallet. It nothing but a piece of paper where the private as well as the public keys for the Bitcoin address have been printed. These are ideally meant for long-term storage or for gifting purposes and are more secure than the rest. However, the downside is that they may be easily lost.
Some of the best services are provided by Bitcoin Paper Wallet and Wallet Generator. Now you can create your new address and get it printed. If you are not considering any Bitcoin transactions in the near future, then paper wallet sounds like a good option.