Wallets: how to safely store virtual currencies
Ever wondered how you can safely store your hard-earned online currencies? We’ll give you an overview of the options you have for storing and securing your digital money safely on mobile, on desktop and anything in between.
What is a wallet?
The wallet is an application that helps users store their private key, or keys that allows them to access our bitcoin address that is stored publicly on the blockchain. However, you can only start transactions if you are familiar with the exact private key.
You can query a bitcoin address and see how much bitcoin an account stores, and you can also see the history of the account, i.e. its past and present transactions. This query can be done using the following link, where you need to provide the bitcoin address in the search field: https://blockchain.info/address.
Types of wallets — according to place of location
- on your desktop or laptop computer
- applying a hardware key
- installed smartphone application
- web-based solutions
- paper wallets
Storing bitcoin on the desktop or laptop computer
The protection of the private keys is done through an application that can be downloaded on the computer. This software allows you to transfer and receive funds. Due to security concerns, the safest means is to use one of the applications that are available on the bitcoin official homepage (http://bitcoin.org/en/wallets/desktop/windows)
The most widespread desktop wallets are the following:
- Bitcoin Core: this is one of the most well-known and simplest wallet applications available for Windows, OSX and Linux distributions. This was designed by a team crucial to the development of bitcoin. It’s a full-blown desktop application, so the whole blockchain will be downloaded.
- Electrum: a popular wallet application that uses remote server connections as well, so some of the functions can be performed on machines with lower hardware specifications, too.
- Armory: an advanced wallet application that places emphasis on security. Multiple types of encrypting functions are available.
- There are further applications on the official site: http://bitcoin.org/en/wallets/desktop/windows
Important information in regards to desktop wallets
The above clients were developed for bitcoin payment networks, so they cannot be used to store other types of virtual currencies. There are wallets, though, that can handle virtual currencies, but they are basically web-based solutions. The desktop application download, either partial or full, the bitcoin blockchain, so it needs a considerable amount of storage place. Furthermore, in order to use it, the blockchain needs to be updated continuously, which require large amount of data transfers. The current size of the blockchain is 210 GBs. (You can always query the current size here: https://blockchain.com/charts/blocks-size)
Protect your online wallet
Just as in the real world, your online wallet needs protection as well. Bitcoin makes transferring your values very simple, and this enables you to control your assets. However, these great services require serious security considerations. If you use it correctly, Bitcoin can provide you with a high level of security. Don’t forget, though: it is your task and responsibility to employ good practices to protect your online currency.
Be careful with online services
All the services that center around securing your online funds should be treated with care and consideration. These kinds of services do not offer secure enough means, therefore, you should consider using Bitcoin-wallets. If you choose not to, and prefer some online service, the minimum that you need to do is to turn on and employ two-factor authentication.
Use small sums for everyday usage
The Bitcoin-wallet is like a regular wallet with cash in it. If you are uncomfortable with having multiple thousands of dollars in your pocket at a time, you should do the same with your Bitcoin wallet as well. Store only a small number of Bitcoins on your computer, mobile or your server for everyday transactions, while keeping the rest in a safer environment.
Make secure backups of your wallet
If you store your wallet in a safe place, you will be protected against equipment malfunction or any kind of human errors. If you encrypt your wallet, it will make it easier to restore in case your mobile or your computer gets stolen.
Make security backups of your whole wallet
Some wallets use a hidden, inside private key. If you make a copy of only the visible private keys on your Bitcoin-address, you may not be able to restore your funds — unless you have a full backup at hand.
Encrypt the online security backups
Any kind of online backup copy may become a victim of theft. Even a networked computer is vulnerable against the attacks of malware or other malcontent software. Therefore, any kind of encryption of a security backup can be considered to be a good practice.
Use multiple safe places
Critical points of error (SPOF) can undermine your assets’ security. If your security backup is not dependent on a single backup location, it is less likely that any unfortunate event would prevent you from restoring your funds. Using different kinds of media — like flash drives, paper notes and CDs — may also be worth your time.
Make regular backups
If you want to make sure that all the Bitcoin-address and all the changes connected to these addresses are part of your backup, you need to back up regularly. Nonetheless, all the applications will soon employ a means of backup that will require the owner to do so only once.
Encrypt your wallet
The encrypting options of your wallet or smartphone give you the option to protect all incoming and outgoing transactions with a password. Although these passwords protect you from thieves, it will not guard you from keylogging hardware and software.
Never forget your password
You must never forget your password, otherwise, all your funds will be lost forever. As opposed to the regular banking systems’ solutions, Bitcoin has only a narrow range of options to restore your password. You even need to remember your password if you haven’t used it in years. If you don’t trust your memory in the long run, you may want to put down that password on a piece of paper and store it in a vault.
Use strong passwords
All passwords that consist of only letters or recognizable word are considered to be weak, i.e. easily hackable. A strong password should consist of letters, numbers, symbols and should be at least 16 characters long. The most secure passwords are usually generated by applications specifically designed for this purpose. Strong passwords are hard to remember, so make sure that you study and remember them.