How to protect your Bitcoin holdings
You have finally made the plunge into Bitcoin. You have set up a wallet, purchased your first round of coins as a long-term investment. Good for you!
Welcome to the wonderful world of Bitcoin hodling. Don't forget to give some thought to how you are going to protect your bitcoins.
It is true that one of the benefits of making payments via cryptocurrency is relative security. The combination of pseudonymity and cryptography make cryptocurrency transactions among the most secure in the world. But there is no such thing as a 100% secure payment system. You can still be hacked. You could still lose all of your coins under the right circumstances.
How do you protect your new Bitcoin holdings? By practicing a few basic strategies as explained below. If you do not understand the intricacies of the strategies, no worries. There is plenty of online information you can utilize for research purposes.
Use a hardware or paper wallet
As you know, your digital wallet is the vehicle by which you store your digital tokens and records of your transactions. There are three kinds of wallets: software (usually online), hardware, and paper. Software wallets are the least secure because they are the most exposed. We recommend using either a hardware or paper wallet.
A hardware wallet is a wallet contained within a dedicated flash drive or hard drive. Flash drives are more convenient because they are portable. A paper wallet is nothing more than printed copies of your public and private keys, your addresses, and your transaction records.
Paper wallets are perhaps the most secure in relation to hacking. But in order for them to be secured as much as possible, you have to take a couple precautions. For example, store your paper records in safe deposit boxes or water- and fireproof safes. Each printed record should be laminated as well.
Use cold storage for Private Keys
In the cryptocurrency world, there are two kinds of storage: hot and cold. Hot storage involves storing your private keys and tokens online through something like an exchange or a digital wallet service. This is inherently dangerous for a number of reasons. Those online sites can be hacked, data can be lost forever if it is not backed up, and the operators of those sites could abscond with your digital funds.
A better option is to utilize cold storage. What is cold storage? Any storage solution that does not involve an internet connection. You absolutely should store all of your private keys this way. Whether that means a USB flash drive, an external hard drive, a CD/DVD, or even a paper ledger doesn't matter. Just do it.
Transfer files with hardware
Next, you are likely going to want to move files from your internet-connected computer to another location for security purposes. Never do this over a public wi-fi network. Wi-fi networks are too easily compromised. Instead, transfer files using a piece of dedicated hardware that will never be used for anything else. Once again, a USB flash drive fits the bill.
Back up everything
The history of cryptocurrency is rife with stories of people who lost their holdings as a result of a fatal hard drive crash or misplaced flash drive. That is all it takes. Since cryptocurrency transactions are irreversible and protected by encryption, there is no way to recover lost data once it is lost. Lose your wallet and you lose all of the coin in it.
What's the lesson here? Back up everything. It doesn't matter whether you use hot storage, cold storage, or combination of both. It doesn't matter whether your cold storage consists of a flash drive or a set of paper documents. Everything should be backed up in multiples.
Do you utilize flash drive cold storage? Great. Get five more flash drives and put the same data on each one. Then store each flash drive in a separate, secure location. The more backups you have, the lower the risk of losing all of your holdings in the event something goes wrong with one copy.
Secure your computer
It is inevitable that you are going to use a computer at some point to manage your cryptocurrency holdings. Maybe you use a desktop computer to buy and sell at your favorite exchange. At any rate, secure your computer with every possible tool you can get your hands on.
You should definitely have antivirus and anti-malware software installed and up-to-date. If you use either a hardware or software firewall, it should be kept up-to-date as well. If you are not using a secure VPN while you're conducting Bitcoin transactions, start using one right away.
Along those same lines, there are two additional considerations:
Consider switching OS
Windows is not really the best operating system when it comes to security. Its flaws are well known and no longer a matter of debate. We suggest setting up a separate computer with an alternate operating system dedicated to your crypto transactions, or just swapping out Windows entirely.
Linux is your best choice here. It has the best track record of avoiding virus and malware infections. It has the best track record of resisting USB attacks. It is permission-based, so even getting into a Linux system doesn't guarantee success for hackers.
Avoid crypto on your smartphone
As much as this next point may upset people, it is nonetheless valid: you should avoid conducting crypto transactions involving exchanges and other high-volume online locations whenever possible. Those larger volume transactions should be conducted on your computer rather than a smartphone.
What's the problem with smartphone-based crypto transactions? First and foremost, cell phone signals are incredibly easy to intercept and hack. Anyone with a rudimentary knowledge of hacking can take apart the data on your smartphone in mere minutes. Second, smartphones are notoriously easy to misplace. Lose your phone and you can kiss your crypto goodbye.
Utilize escrow services
No one wants to be conned out of their Bitcoin holdings by purchasing something online that never arrives. For transactions that require the delayed exchange of goods, it is best to utilize an escrow service. Both parties are protected by escrow.
Under an escrow arrangement, you push your bitcoin payment to the escrow service after making a purchase. The escrow service notifies the seller who then sends the purchased goods with the knowledge that you've already made payment. Once you receive the goods, you notify the escrow service so they can release the funds to the seller.
An escrow service isn't perfect but does offer a lot of protection to online shoppers. Escrow protects both parties in the exchange by electronically mediating the transaction.
Use multiple addresses
As a crypto user, you have the ability to create a new address for every transaction. Do it. We understand that generating dozens of addresses can become a hassle if you use Bitcoin as often as you do fiat, but it is for your own good.
If you use the same address for multiple transactions, you expose that address to every person you have traded with. So let's say you've made five purchases online. Each of those five merchants now has access to your Bitcoin holdings associated with that one address. That is too much risk.
It is far safer to generate unique addresses for every transaction. That way, a hacked address only exposes the coin associated with that one transaction. The rest of your holdings remain secure and unaffected.
At the end of the day, the most effective thing you can do to protect your Bitcoin holdings is to maintain discretion. Do not brag about how much Bitcoin you own on social media. Do not tell your friends and family members about your personal experiences buying and selling with Bitcoin. Do not talk to other people about your digital wallets, cold storage, or anything else.
There is no benefit to telling other people about how much Bitcoin you hold. Of course you'll want to talk about crypto to turn others on to it, but there's no need to tell them about your personal holdings. You can proclaim all the benefits of crypto without revealing your ownership. You can explain all of the ins and outs of how it works without explaining what you personally do as a crypto owner.
As secure as cryptocurrency platforms are, they are not perfect. There is no monetary system in the world that isn't vulnerable to fraud and theft to at least some degree. Crypto is no exception. Therefore, protecting your Bitcoin holdings should be a priority. Protect your bitcoins with the same zeal and dedication you apply to protecting your fiat. Hopefully the tips explained here are more than enough to get you started in the right direction.