How to Secure Your Bitcoin Wallets
In the same way that you wouldn’t walk around with your real wallet hanging out of your back pocket, or keep your bank card PIN number on a piece of paper inside that wallet, you need to be security conscious about your bitcoin wallet, too.
Secure mobile bitcoin wallets
A mobile bitcoin wallet is convenient to use, because it can be installed on either a tablet or smartphone. Either of these devices is more often than not in close proximity to everyday consumers and doesn’t require users to take additional items with them wherever they go.
Similar to how a desktop bitcoin wallet works, having access to an Internet connection — either through mobile data or WiFi — is a great plus when it comes to sending and receiving transactions. However, this is not a must, as most bitcoin wallets allow users to send and receive funds through NFC or Bluetooth Low Energy connection. In return, this makes mobile wallets more versatile compared to their computer counterparts, which is also part of the reason why bitcoin has received a lot of appreciation from its users.
In terms of security, the story with mobile bitcoin wallets is not all that different from a piece of software installed on your computer. The private key — which allows you to spend bitcoins from your wallet — is stored on your mobile device itself. As a security measure, this reduces the risk of the private key falling into the wrong hands.
However, there is a potential risk in doing so as well. Given the current rate at which technology — and consumer behavior — evolves, smartphones and tablets are being replaced at a rapid pace. Considering that your private key is stored on that mobile device, it is important to make a backup as soon as you install the mobile bitcoin wallet of your choice.
Depending on which type of mobile wallet you’re using, a backup feature is included in the software itself. A copy of your backup can then be exported to cloud services such as Dropbox or Google Drive, or even sent to yourself via e-mail. Any application you have installed on your mobile device with backup capabilities should be available to use.
Authentication is an important security measure to prevent funds being stolen or misused by someone who “borrows” your phone. Most mobile wallets enable a PIN code system, forcing users to enter a four- to six-digit code before accessing the wallet itself. Failure to provide the correct PIN code within a certain amount of attempts will automatically lock down the wallet. The bitcoin wallet owner will be notified either via SMS or e-mail with instructions on how to unlock the mobile wallet again.
All in all, mobile bitcoin wallets can provide the best solutions when balancing the needs of security and convenience, but it all depends on the individual user in the end. If users are careless with their device, or forget to back up their private key, there is no option to restore access to their mobile bitcoin wallet. Bitcoin allows users to take full control — and full responsibility — at every step, which includes responsibilities such as backing up their mobile wallet.
Secure online bitcoin wallets — or not
You could easily draw a parallel between online bitcoin wallet providers and financial institutions such as banks. Both services handle your personal funds, and you can check the balance, as well as send and receive funds at any time. But you are trusting a bank to keep your funds safe, and that’s not what bitcoin is about. Ever since bitcoin’s inception, trust has played an integral role in the development of this ideology.
Satoshi Nakamoto envisioned that the future development of bitcoin would eventually lead to a “trustless” society, where all interactions were done between people directly, without using any third-party service.
An online bitcoin wallet service is very convenient, but it’s also a tremendous security risk. Being able to store bitcoins online and accessing them from the browser at any time sounds like an advantage, but in doing so, the user is relying on the online wallet provider to be honest at all times.
Online wallet providers are third-party services, as they will control your funds for you. Additionally, the biggest security risk is that, even though you know your online wallet address, you don’t have access to your private key. In the event of the online wallet service shutting down or being hacked, you would have no control over the funds being stored in your wallet.
On top of that, you are responsible for protecting your personal mobile wallet service account. Most online bitcoin wallet platforms provide options such as two-factor authentication. And although that additional layer of security protects the user from harm — in most cases, as no system is truly perfect — it will not prevent your funds from being stolen if the online wallet service itself is hacked.
If you already have the mindset of wanting to control your own funds at any given time, there’s no reason why you should even consider using an online bitcoin wallet. As convenient as these services may be, there are risks to your funds, because you are not in control of your funds at any given time. Online bitcoin wallets are not what Satoshi Nakamoto envisioned when he created bitcoin.
Secure paper bitcoin wallets
A bitcoin paper wallet can be best described as a document containing all the data necessary to generate private keys, effectively forming a “wallet of private keys.” But that is not its only purpose, because a paper wallet can also be used to store bitcoins safely and securely, in which case the paper itself also includes public keys and redeemable codes.
The main purpose of a redeemable code is to use it as a means of funding and “redeeming” funds associated with a certain bitcoin wallet address. However, it is important to note that paper wallets should only be used once, because a paper wallet is not a bitcoin wallet intended for daily use.
Paper wallets can serve many purposes. A bitcoin paper wallet makes for a great gift when introducing friends, family, and loved ones to bitcoin. Or you can give someone a paper wallet as a tip, to show your appreciation for something the other person has done. Redeeming a paper wallet as a gift or tip requires recipients to have a bitcoin wallet installed on their computer or mobile device, through which they can import the private key associated with that address.
Regardless of how you look at it, paper wallets are a very secure way of storing bitcoin. A paper wallet is not connected to the Internet, can’t be hacked, and is not a third party you rely on. However, it is a paper wallet, making it subject to theft, fire or water damage, getting lost, or being redeemed by someone else. Storing a paper wallet inside a vault or safe deposit box is a good way of securing your funds, but it’s not too practical for most users.