How do I keep my bitcoins safe?

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Thanks to the sharply rising price of bitcoin in recent times, there is an increasing demand for safe ways to store bitcoins. For example, many people use a desktop wallet (such as Electrum, Bitcoin Core or GreenAddress). A desktop wallet is software that you can install on your laptop, PC or, for example, a Raspberry Pi and that manages the private keys. Managing bitcoins via a “web wallet” is also an option. Your private keys are managed through a website and you get access to your bitcoins through a username and password. In addition, there are options such as a mobile wallet (Android, iOS or Windows) and hardware wallets. Each type of wallet has individual benefits and risks.

Risks

All these wallets have one thing in common: they can be hacked. Especially a wallet based on username and password is susceptible to attacks. Wallets where the source code is not public (open source) pose an increased risk.

The problem here is that there are a lot of advanced malware (viruses) in circulation nowadays. These viruses are not always detected by a virus scanner. The moment you unknowingly open a dangerous file, the damage may already have been done. Think of a downloaded movie, attachment to an email, and so on. Often you don’t even realize it, but in the meantime all keystrokes you make on your keyboard are registered and forwarded to the hacker. For example, it is sometimes easy to obtain the login details of your bitcoin wallet and transfer all your bitcoins to another bitcoin address. The chance that you will ever get the bitcoins back is nil.

Safety

The above is just one form of an attack. There are many other attack techniques to steal your bitcoins from you. It is therefore wise to take extra security measures, especially when holding larger amounts of bitcoins. For example, you can think of 2FA (Two factor authentication). Many exchanges and web wallets already support this. When logging in, you will not only be asked for a username and password, but also for an OTP (One Time Password). This is a unique code that only you can generate on your smartphone, for example. It is often also possible to receive the OTP in your mailbox, but this is actually an outdated technique. Your mailbox is often secured with just an email address and password. In theory, an attacker could fish your OTP out of your mailbox if they have access to your inbox. Google offers a good method to use 2FA, unfortunately this is often not possible to secure a personal bitcoin wallet. Learn more about Google’s 2FA.

hardware wallet

If you really want to be sure that your bitcoins are and remain safely stored, it is advisable to look at so-called hardware wallets. This is a form of 2FA in a way, however the actual access is given through a physical device (hardware) from which the transactions are sent. In this way, it is virtually impossible for someone to use your username, password, or OTP remotely to gain access to your bitcoins. Your private key (the key needed to spend the bitcoin) never leaves this device. That is why it is not possible for hackers to steal it from your computer or smartphone.

Explanation hardware wallets

For this example, the Ledger Nano S was used. This is one of the best known and most used hardware wallets. Other hardware wallets will work in a similar way.

It goes like this:

  • You use the supplied software of the Ledger as a usual wallet (an application on the computer)
  • As soon as you start the application, you will be asked to connect your Ledger to the computer, and to enter a pin code on the Ledger itself
  • You will now have access to the wallet and can view the balance, transactions and other data
  • When sending bitcoin, you enter the transaction details via the software on the computer. The details (recipient, amount, fees) are displayed on the screen for verification.

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  • The transaction is only really sent when you confirm it with a physical button on the Ledger

An attacker will therefore have to gain physical access to your hardware wallet and PIN code in order to spend your bitcoins. This makes it very difficult for the hacker, if not impossible. Of course it can happen that you lose the device, or that it breaks. A smart solution has also been devised for this. When setting up the hardware wallet, you will receive a series of 24 words, which you can enter on the supplied card. With this string of words, it is always possible to restore your wallet and regain access to the bitcoins.

Read the review about the Ledger Nano S that we published earlier here.

We have also set up a special wallet page that also advises on hardware wallets. In addition to the review about the Ledger Nano S, we also wrote a review about the Digital Bitbox and Trezor:

  • Review Digital Bitbox
  • Review Trezor

At the moment we do not offer them for sale ourselves. You will therefore have to purchase this from a third party.

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