Ever since its invention by Satoshi Nakamoto (an identity that is still debated) in 2008, Bitcoin took the world by storm and was endorsed by many public celebrities and public figures. Today over 17 million bitcoins out of a total of 21 million have been mined, and people are eager to get their hands on the cryptocurrency.
Not only does it make transactions look like a walk in the park, but due to its blockchain technology, bitcoin is also quite difficult to hack.
However, when it comes to storing bitcoins, that is where major security concerns have been raised in the past and present. Researchers have found that many bitcoin wallets have potential loopholes and weak spots that a professional hacker could exploit and take advantage of, doing considerable damage in the process.
This can be further related to various events in recent years, as mentioned by a report published by ADVFN, a London financial services company. Inputs.io, a bitcoin wallet service was hacked in 2013 through a social engineering attack, where 4,100 bitcoins were stolen that was worth $1.2 million at the time.
Furthermore, Mt. Gox, the global leader in bitcoin exchange back in 2014, lost around 850,000 bitcoins valued at $450 million at the time. The case is still pending the court’s final decision.
Table of Contents
- Why Is There A Need For Bitcoin Security?
- What Are Security Breaches?
- How Does Cyber Security Work?
- 1. Try Not To Use an Online Wallet
- 2. Limit Access to Your Wallet
- 3. Divide Hot and Cold Wallet
- 4. Increase Email Security
- 5. Store Private Keys Offline
- 6. Using Effective Operating System
- 7. Using Dedicated Hardware
- 8. Keep wallet backups
- 9. Secure the PC
- 10. Protect your identity
- 11. Making use of Escrow service
- 12. Two-factor authentication
Why Is There A Need For Bitcoin Security?
One bitcoin today is valued at $13,520.80 as of November 3, 2020, while back in December 2017, it reached a value of $20,000. There is no telling where bitcoin would see itself in the future. However, there is no doubt that it is a mouthwatering prize for any experienced cybercriminal as a valuable asset. This is why deploying a robust bitcoin security system is a must.
What Are Security Breaches?
Bitcoin’s actual representation is in the form of numerous lines of codes, while bitcoin wallets are in the form of alphanumeric strings. In simple terms, bitcoin can be viewed as a computer file that can be stored in a digital wallet app on your PC or a smartphone.
This is why it becomes less susceptible to hackers even with genuinely gifted talents since bypassing blockchain technology and the layers of encryptions are no easy feat. However, as mentioned in the examples above, bitcoin exchanges can be hacked into, and this makes them a jackpot for cybercriminal activities.
As a decentralized digital currency that utilizes cryptography to secure transactions, all transactions are recorded in a blockchain digital ledger.
While a constant review of the blockchain system and technology has made it difficult to hack bitcoins, there is no doubt that adept hackers can steal bitcoins by gaining access to the digital wallet of a bitcoin owner.
Due to this reason, many critics have pointed out that with the increasing popularity of cryptocurrency amongst the masses, the future of digital currency would indefinitely be rigged with fraud, theft, and hacking issues. Only a few trading sites and platforms would be considered trustworthy, and probably none of them will be 100% secure.
How Does Cyber Security Work?
Let’s bring this to a full circle. We already have mentioned that hacking the bitcoin itself is virtually impossible; however, that doesn’t necessarily mean it is a safe investment. The prime target for criminals is not the bitcoin itself but where it is kept.
Places like digital wallets, cryptocurrency exchanges, and other storage forms are the primary targets of cybercriminals. Hence, cybersecurity measures required to keep bitcoins safe from being exploited by those with felonious intentions are to secure digital wallets, digital currency exchanges, and the entire trading process involved in transactions.
Hence, the main task required would be to set a team of developers to improve digital wallets’ security features where bitcoin owners commonly keep and store their cryptocurrency.
Secondly, a much greater focus would also be required to protect transactions from being infiltrated along with a better and deeper understanding of the digital space and technology itself that is utilized by cryptocurrency networks all over the world.
In light of this information, let’s take a quick look at some of the best security tips that can help you secure your bitcoins.
1. Try Not To Use an Online Wallet
Online wallets are software or web services that enable you to control and store your online shopping information, including various other details like logins, shipping addresses, passwords, and even credit card details. This allows them to be used seamlessly for online shopping and purchasing products from online retailers.
However, with their popularity on the rise, cybersecurity professionals warn that this will inevitably also cause fraudulent use of payment networks and data theft to increase. Here are a couple of alternatives that might pique your interest when it comes to bitcoin safety concerns.
a. Type 2 Deterministic Wallet
A deterministic wallet is one where the system derives keys from a single starting point known as a seed. In its most basic form, a deterministic wallet can generate an unlimited number of addresses on the fly, while users can conveniently create a single backup of the seed in a human-readable format.
However, a Type 2 Hierarchical Deterministic Wallet goes a step further where the seed is a random 128-bit value, plus the seed is used after 100,000 rounds of SHA-256 (Secure Hash Algorithm 256-bit), thus slowing down attacks that tackle weak spots in the user strings directly.
b. Hardware Wallet
Hardware wallets have the ability to store user’s private keys in a secure hardware device. One major advantage over standard software wallets is that they are immune to computer viruses that steal from software wallets.
Furthermore, the private keys are often stored in a protected area of a microcontroller, and as such, they cannot be transferred out of the device in the form of plaintext. Plus, since the software is open-source, it allows you to validate the device’s entire operation and how well it performs.
2. Limit Access to Your Wallet
Perhaps one of the best ways to ensure your wallet’s safety is taking it off the grid and keeping it safe in the real world. This will allow you to limit electronic devices’ access and minimize the risk of losing valuable information in case of a system failure or cybercriminal related activity.
To protect your privacy, be wary of online services, consider keeping only small amounts of bitcoins, and the remaining part of your funds in a much safer environment.
Most importantly, your private key is only for your eyes, so there is no point sharing it with anybody else. Lastly, you can keep a separate wallet or wallet for day-to-day transactions, and then you can manage safety for your entire portfolio.
3. Divide Hot and Cold Wallet
There are hot wallets, and then there are cold wallets, which is why you should get to know them better and be able to differentiate between the two. The basic difference between the two is that hot wallets are connected to the internet while cold wallets are not.
This is exactly why hot wallets are often considered to be most likely to face security issues and the potential to be hacked. Therefore best practice between hot and cold wallets is to keep the hot wallet only for a small amount of their crypto while cold wallets store the remaining assets. The two can be used together to facilitate one another.
You can transfer a sum of your bitcoins to the hot wallet for trading and transaction purposes while a major portion of their bitcoins stays safe in cold storage.
4. Increase Email Security
Email security is important as it directly becomes a part of communication with authorities and thus represents your identity online. A compromise in your email’s security can lead to a heap load of troubles that nobody ever could wish for in this life.
First and foremost, consider using strong passwords that are at least ten characters long with upper and lowercase letters, numbers, as well as special characters. Ensure that your SMTP (Simple Mail Transfer Protocol) includes the latest version of TLS (Transport Layer Security), a cryptographic protocol designed to provide communication security over a computer network.
Furthermore, keep an antivirus installed on your computer for additional security purposes such as Bitdefender Antivirus, Kaspersky Antivirus, and Norton Antivirus, to name a few. For sensitive emails, you can also consider using additional encryption like OpenPGP, and you must be extremely resilient towards unknown email addresses and shady attachments.
Lastly, keep your email address as private as possible and absolutely avoid using public Wi-Fi to access sensitive information online.
5. Store Private Keys Offline
Have you heard of the term “Paper Wallets”? They are an offline mechanism for storing bitcoin and were primarily popular in the early years of bitcoin. However, as technology progressed, hardware wallets soon became the most secure form for storing your private keys.
Not only are they one of the finest offline storage options for private keys, but they also provide you with a physical device that can be used for secure storage. In fact, even if a hacker succeeds in controlling your computer, they will still not be able to steal your private keys or access your crypto assets.
6. Using Effective Operating System
Operating systems are known to have loopholes in them, and this can compromise their security features. This is also why once an operating system is released in the market, bugs found in the system can be removed through system updates. For bitcoin security, Tails OS is considered one of the most secure operating systems, while NSA (National Security Agency) calls it a ‘threat’.
Tails OS offers users with a bitcoin wallet option called Electrum Bitcoin wallet. Likewise, we also have an example of the Hong Kong-based NYNJA Group Ltd., which is working in collaboration with Amgoo smartphone makers for a blockchain-based virtual operating system (VOS).
Many malware and virus are often created to specifically target systems running on Windows by Microsoft. Therefore people dealing with bitcoins will often consider using Linux as their OS of choice instead.
While Linux being open-source, it undoubtedly can be optimized for bitcoin mining purposes. However, people often fail to undermine the fact that Linux itself is far more secure than other OS out there. Plus, with a firewall like GUFW and Trezor, a hardware bitcoin wallet, you can virtually fend off any criminals that want to steal your bitcoins.
7. Using Dedicated Hardware
With hardware wallets gaining prominence worldwide, there is no doubt that investing in dedicated hardware for added protection for your bitcoins seems like the most sensible approach. Take Trezor, for example.
This small and key-sized device connects to your computing device through a USB cable while offering the secure features of cold storage along with the convenience of a hot wallet as well. Trezor One is relatively cheaper as compared to Trezor T. Other popular hardware choices include Ledger Nano S and Ledger Nano X.
8. Keep wallet backups
There is always human error, and computer failures do occur. In such cases, a backup of your wallet can help you recover even after the device is stolen. Furthermore, you should consider encrypting your online backups since they are highly susceptible and vulnerable to theft.
So any backup that is exposed to a network should be encrypted. Moreover, a single location for your backup can also leave you stranded if that particular location’s security is compromised. Hence it’s best that you keep backups at multiple locations. Lastly, you need to update your backups regularly.
Fragmentation is another method through which you can amplify security. Fragmentation breaks down data and information stored into different segments, which can either run together or split over the storage disk. Hence a fragmented disk would take longer to read and indefinitely slows down the system from running faster.
In order to protect yourself from a hacker’s attack, fragmented data backups can help you maintain backups of sensitive information stored in different locations. These can, later on, be assembled together through defragmentation software to make the data whole again.
9. Secure the PC
Without question, if you want your computer to be safe and secure, then you need to keep your system and security software up to date. These updates are vital as they remove previously found shortcomings and the loopholes in the system and making the software more secure.
Vulnerabilities are addressed, and at the same time, updates make your computers more effective and efficient in what they are tasked to do. Firewalls, anti-virus, and anti-spyware software are extremely important as well as they keep fighting malicious attempts made to your computing devices on a consistent basis.
Lastly, using a VPN is also very much advisable because Virtual Private Networks allow you to surf online and keep your identities safe while traversing through the World Wide Web landscape.
10. Protect your identity
As a bitcoin holder, it is best to keep a low-profile online since you do not want to risk any unnecessary attention from those who are living desperate lives and willing to put your life and their own at risk. Try to stay as much anonymous regarding your crypto holdings for your own safety and wellbeing.
Apart from this, you should absolutely never discuss personal and sensitive information online or with anybody else that includes passwords, PINs, and even phone numbers and email addresses that are associated with sensitive and volatile information.
11. Making use of Escrow service
Escrow services are also growing in demand as they provide both the buyer and seller with equal levels of protection throughout the transaction process. Escrow service also protects the interest of both the parties since the seller knows that payment is safe with escrow service, so they send the product, while the buyer waits and only finalizes the payment when they receive the merchandise.
12. Two-factor authentication
2FA is just the tip of the iceberg; there are various ways to add more layers and making accessing your sensitive information even more difficult for hackers. You can downright make their lives miserable by adding multiple layers of protection through the means of multi-factor authentication.
Cryptocurrency, especially bitcoin, is considered and treated in many countries as assets while at the same time deny it as a legal tender. Nevertheless, bitcoins owners must feel responsible for protecting their digital assets at all costs as cybercriminal activities have run rampant in recent times and only starting to show their vile colors.