However, even the most secure options lack some of the security features of hardware wallets. Exchanges are also custodial, which means they hold custody of any fund stored in their accounts, leaving users without access to their private keys. “Not your keys, not your Bitcoin” is a common refrain among those cryptocurrency advocates who reject the idea of storing their crypto on an exchange. Of course, it’s worth noting that many exchanges, including the major ones such as Gemini, Coinbase and Bittrex, are insured—protecting users against a range of threats including insider theft and cyberattacks.
Use a strong password
Like most cryptocurrency wallets, hardware wallets use a mnemonic phrase that can be used to recover your wallet; this can be used in the event that the device itself is lost. It’s also one of the biggest vulnerabilities for hardware wallets, since anybody who gets their hands on the recovery phrase will have unfettered access to the funds it contains. Secure hardware wallets like Trezor or the Ledger Nano S cost about $100 or less and have a straightforward setup. You just choose a PIN number and a recovery “seed” (usually a set of words and numbers) in case you forget your PIN, or your wallet malfunctions. It’s pretty robust security, so make sure you keep copies of your PIN and seed somewhere accessible to you, but not to home intruders. Recovering currency stored on a hardware wallet after losing both the PIN and the seed is a whole thing.
How to Keep Your Bitcoin Safe and Secure
If you haven’t got your seed (and/or passphrase) stored somewhere, then you should consider yourself as not having any backups at all. The most important thing to do if you are storing large amounts of bitcoins is to make sure you don’t keep them within the exchange you bought them in. While exchanges have become more secure in recent years, there were several high-profile hacks(new window) in 2019 alone.
Offline transaction signing
Some exchanges, such as CEX.IO(new window), store user bitcoins offline in cold storage for better security, but this is not a guarantee of safety either. Because of the “cash-like” nature of Bitcoin, we recommend you take security into your own hands. Your hot wallet’s public address can be seen by anyone, as can the amount you have stored what are the disclosures for a producer’s inventory in it. You can see an example of this using a blockchain explorer for the crypto you use. Large amounts draw the attention of thieves because it is easier and faster for them to steal from one large piggy bank than several small ones. If you have a decent amount of bitcoin and store your keys in your connected wallet, you become a target.
Backup your wallet
Remember that your transactions are only as anonymous and secure as your wallet information and passwords. Not everyone needs to take all of the above steps to improve their security; it all depends on how much bitcoin you hold and how comfortable you are with the risks. But if the security of your bitcoins is playing on your mind, then it’s time you took a few steps in a more confident direction. Then use an encrypted email account to open your Bitcoin-related online accounts. Mary Ann Callahan(new window) is a UK-based freelance journalist who specializes on Bitcoin-related topics.
- Between 2011 and 2020, $11 billion was stolen in crypto hacking incidents, with a “significant amount” lost in hacks of crypto exchanges, according to research by Inside Bitcoins.
- You can use a 24-word seed if you wish (or if it’s your only option), but you’re not compromising on security in any practical way by using a 12-word seed.
- Hot wallets are more convenient because you can access your cryptocurrency from anywhere you have an internet connection or cell service, but they are more vulnerable to hacking.
- Using a passphrase in conjunction with your seed is a simple and effective way to add an extra layer of security to your bitcoins.
- Many people also use Proton Mail to store a copy of their Bitcoin address private key for the same reason ─ a Proton Mail message can only be accessed by the email account owner.
- Software wallets are convenient for day-to-day usage, but if you’re using a software wallet on your everyday computer, you’re leaving your bitcoins vulnerable malware and viruses.
They’re more resilient than even the most robust hardware wallets, and several feature built-in anti-tamper mechanisms. They’re most useful for long-term storage in a secure location, since they won’t afford you instant access to your funds. Software wallets are one of the most popular ways to store Bitcoin among mobile users, since many can be used to manage a wide variety of cryptocurrencies from most mobile devices. There are also desktop versions of many software wallets, allowing users to manage their own private keys on Linux, macOS, and Windows. The backup system is always a good place to start when it comes to backing up your data.
In doubt, you might want to keep a paper copy of your password in a safe place like a vault. Even a computer that is connected to the Internet is vulnerable to malicious software. As such, encrypting any backup that is exposed to the network is a good security practice. Stored in a safe place, a backup of your wallet can protect you against computer failures and many human mistakes. It can also allow you to recover your wallet after your mobile or computer was stolen if you keep your wallet encrypted.
If you buy BTC as part of your investment strategy, prepare for highs and lows. “Bitcoin technology is relatively safe, but it isn’t anonymous and relies on passwords,” says Daniel Rodriguez, https://cryptolisting.org/ chief operating officer at Hill Wealth Strategies. Falling prices and an increasing risk of criminal fraud are enough to make anyone think twice about the security of their Bitcoin.
These phrases allow you to recover your keys if you ever lose your storage devices or your access. Your keys are encrypted and a series of words are generated from that encryption that gives you access to your wallet. They also differ in their security stack, including their use of cold storage and account-side security features. We’d recommend sticking to exchanges that use multi-signature cold storage and offer two-factor authentication for accounts. Some exchanges, such as Binance, also let you use a hardware key for 2FA, adding an additional layer of security. Metal wallets are physical metal plates or devices that can be used to securely store recovery phrases, private keys, and potentially other sensitive information offline.
Steel is the material of choice for solid seed storage (high tensile strength and high melting point), and there are a few ready-made metal seed storage options on the market. In other words, a passphrase adds an extra lock on the door to your bitcoins. Below are the simplest and most effective steps you can take toward securing your bitcoins.
In this arrangement, the custodian stores your private keys for you, guaranteeing their safety and sometimes providing insurance on holdings up to a certain amount. Hot wallets are software that store your keys and have connections to the internet. These wallets create vulnerability because they generate the private keys needed to access crypto. While a hot wallet is how most users access and make transactions in bitcoin, they are vulnerable and can be hacked. Cryptocurrencies can feel secure, because they decentralize and often anonymize digital transactions. But those measures don’t make cryptocurrencies any less susceptible to the types of simple, time-honored scams grifters have relied on in other venues.
Scott Nevil is an experienced freelance writer and editor with a demonstrated history of publishing content for The Balance, Investopedia, and ClearVoice. He goes in-depth to create informative and actionable content around monetary policy, the economy, investing, fintech, and cryptocurrency. Marine Corp. in 2014, he has become dedicated to financial analysis, fundamental analysis, and market research, while strictly adhering to deadlines and AP Style, and through tenacious quality assurance. Despite their limitations, exchanges remain an extremely popular way to store cryptocurrencies, due to the simple fact that they’re typically convenient and easy to use. As the name suggests, mobile Bitcoin wallets are downloadable apps that can be used to store, send, and receive cryptocurrencies on a smartphone. “A prudent strategy is to use a combination of hot and cold storage, with most assets being held in cold storage,” Burke says.
This involves having 3 copies across 2 different types of storage and keeping 1 in a separate location. For example, storing your bitcoins on a hardware wallet with two paper copies of your seed (with one of those seeds stored in a different physical location) would meet this requirement. If you do use an online wallet or a Bitcoin exchange, make sure it is connected to a secure email account(new window). A Proton Mail account with two-factor authentication(new window) enabled is a good option.