Cryptocurrencies are a digital currency which doesn’t exist in physical shape but is accessed through private keys. Private keys are is a secret number through which bitcoin transactions are facilitated. A link between a sender’s private key and the recipient’s key makes it possible for a deal to happen.
Bitcoin is one of the first of the current cryptocurrencies introduced nine years ago to allow one to make transactions without the use of cash. It is online with the transactions being electronic and anonymous. Bitcoin just like other cryptocurrencies is mined by individuals who solve a mathematical equation to get new bitcoin, but this will cease once the number of Bitcoin reaches 21 million.
Through hard work or working smart to get money, no one could just want to lose his sweat to a fraudster. With news all-over mainstream media hacking or attempted hack to bitcoins can make one wonder if indeed this investment is safe from hacking. The fear of if there is going to be crash in future and the crusade from most governments discouraging their citizens not to invest in bitcoins can discourage many who were interested. It's no secret that the returns from investing in cryptocurrencies are much better than investing in the stocks and bonds or any physical asset.
Understanding The Wallet
Just like money is stored in a wallet or a safe somewhere, Bitcoin also is stored in a wallet. The wallet also referred to as a digital wallet or a virtual wallet is a software program designed to store bitcoin. This software can be accessed over the internet through your desktop computer, laptop and even mobile device.
Also, the wallet can be stored offline through hardware which is the safest as it is not vulnerable to hacking. It is the same wallet through the private keys that facilitate the transaction of bitcoins between the buyer and seller giving ownership a balance. Some of the online wallets include the Green Address, Mycelium, Breadwallet, Airbuz and GreenBits.
After the setting up of the wallet, you can access the following:
Bitcoin balance- This shows the balance you but and it can be broken down into many lesser units of bitcoin just like a dollar can be broken down into pennies. The smallest being 0.00000001 called Satoshi named after the creator of bitcoin.
The Transactions- This feature will show all the recent transactions.
Address and QR code- Creating an address will authorize you to track where you are receiving bitcoin from. You can choose to use one address or many for those who want to track the transactions. The QR code will be helpful while accepting payment to which you will show the QR code enabling them to send you the money.
Types Of Wallets And Their Security Features
Desktop Wallets –
They are downloaded and installed on a desktop, enabling you to store your private keys on your hard drive. They are more reliable and secure as they do not distribute their data with or through any third party. However, they are still connected to the internet making them vulnerable.
They can be used anywhere as an app on the mobile device. Most of them run on Android while Apple store banned them in 2014. They are very useful to those individuals who use bitcoin frequently to either pay for goods and service by tapping your device against a reader or trading them face to face. Despite being convenient, they are susceptible to hacker attacks, and besides if someone accesses your phone you may lose your coins.
With this wallet, your private keys are stored on a server of the firms proving these services. You must note that these servers are open always and controlled by someone else. You can access the wallet from a mobile device which has the internet. Just like mobile wallets you can access your coin on the go if you are connected to the internet. Online wallet users run the risk of giving up control of their private keys to the website owner thus putting them at risk of losing their coins.
This is a unique wallet that stores the private keys in a dedicated hardware device. This wallet is very secure, and there has been no incidence of money lost from this hardware. They are safe from virus attacks as the funds cannot be transferred to plain text. The challenge is that ones you misplace destroy or lose through theft the hardware device you will lose your funds too.
It is a document with a public address with the private key allowing you to transfer or spend and also receive bitcoin. With this, you do not need doing any installation or digital back up. You can download to a USB or CD without the need for the internet to generate and print your wallet and the keys will not be stored on the internet. This makes it zero risks to hackers, but just like the hardware wallet the paper wallet if not kept safely you may lose all your pension or saving.
Securing Your Wallet
As you protect your sweat, several precautions should be taken to reduce the risk of losing the coins. It takes personal responsibility to ensure you keep your money safe. All wallets have both strongholds and weak points but what matters is what are the goals for an investor.
The first step is avoiding keeping all your bitcoins in the same wallet. You can agree with me that it is risky carrying thousands of dollars in a wallet or putting all your savings in one bank. The same is risky with bitcoin while under a single wallet. Keep most of your bitcoins where the wallet is less prone to attack like hackers. Paper wallet seems to be the better option here.
The second point is back up your wallet. This backup should be where unauthorized persons will not access and where the failure of a computer will not damage it. Have more than two backups, on-site with a trusted firm and off-site on several independent areas.
Thirdly, Avoid address error. You have noticed there is no go-between while transacting. It's you and the other partner. It takes personal responsibility that you counter check to ensure you keep your money safe. When transacting, one should always strive to use QR when possible. Copy paste the addresses while receiving or sending the coins, with a double check before you submit.
Encrypting your wallet is the fourth way of securing your private keys and wallet. By this, you are adding another layer of security to the already you have. This will make it harder for hackers to crack. The encryption should be on both your wallet and device, and the passwords shouldn't be stored together.
Moreover, the passwords should not contain only numbers but a mixture of words and numbers. Fifth is Trusting and understanding the exchanges. We have two exchanges, centralized and decentralized.
Centralized allows one to withdraw units of bitcoins and convert them to ‘real currency' and also the transfer of bitcoin to your private owned addresses. On the other hand, decentralized involves the transfer of units of cryptocurrencies from one person to another.
Here there are immediate dangers of someone hacking to your private keys unless they access your computer or phone. If you are using, centralized exchange ensure that withdraws you to an account not connected to the exchange and providing you do not leave money in the online account.
Lastly, ensure your wallet offers two-factor authentication and a multi-signature. This involves a prompt to several independent approvals before a transaction is completed and a two-factor authentication will authenticate using a phone call or an SMS to your phone or email if there is an attempt to access the account from an unauthorized source.
The Multi-signature is gaining much popularity as it involves more than two individuals counter checking the addresses before the transaction is complete.
Practices For Cryptocurrency Wallet Security Conclusion
The security of the wallet has been a debating issue on whether bitcoin is a safe investment. Yes, they are but just like money in the bank; one has to take measures to protect it. It’s important to note that fraudsters will come out with new tricks and so it’s important that investors be on the look. Avoid visiting sites that claim to you do not trust or opening any email you receive.
For instance, you may get an email which seems to have the same spellings with the company you are dealing with. Such emails are used for phishing purposes, and you may end up giving your passwords. Keeping our wallet secure is very important, and the above mentioned ways will go a long way to help you enjoy your investment in bitcoin.