The recent hack of Bitcoin exchange Bitfinex is reminding everyone once again the importance of holding your own keys, using paper and hardware wallets as well as setting the stage for wider use of decentralized exchanges.
Also read: Bitfinex Hack: US Regulation ‘Prevented Cold Storage Use’
Hodl Your Keys
One thing that is for certain is a lot of people keep large amounts of money on third party exchanges. The reasons for this is because people naturally like to trade, and secondly, there isn’t that many decentralized exchanges. However, numerous decentralized cryptocurrency exchanges already exist such as Bitsquare. Founder Manfred Karrer has the project currently running in beta at the moment and users can be seen on forums promoting its use. Many Bitcoin users are sick and tired of centralized exchanges failing to secure funds. Bitsquare’s Github repo explains how it is different than the rest:
Bitsquare is a cross-platform desktop application that allows users to trade national currency (dollars, euros, etc) for bitcoin without relying on centralized exchanges such as Coinbase, Bitstamp or (the former) Mt. Gox.— There are no central points of control or failure in the Bitsquare network. There are no trusted third parties. When two parties agree to trade national currency for bitcoin, the bitcoin to be bought or sold is held in escrow using multi-signature transaction capabilities native to the bitcoin protocol.
Back to the Basics: Paper
Paper wallets are a great way to keep Bitcoin offline and out of hackers’ reach. Creating paper wallets is easy but losing the paper also means the bitcoins are lost forever so be careful. Paper wallets contain both private, and public keys in order to bring the cryptocurrency back online.
The most common place that people use to create a paper wallet is BitAddress.org where users can generate a fresh new Bitcoin address. The website will ask the person to initiate some steps and are then given both public and private keys after the process. From there all one has to do is print the paper wallet using BitAddress.org’s website or another service. After printing a copy, you can load as much bitcoin as you want into your public QR-code.
For example, check out a review of the Piper paper wallet:
Currently, there are quite a few choices out there when it comes to Bitcoin hardware wallets. Some of them being Ledger, Case, Trezor, KeepKey, and most of these companies have a pretty solid reputation in the cryptocurrency community.
The concept is similar to a paper wallet except Bitcoin is stored and protected on a hardware device. The user simply saves their seed (a mnemonic phrase) and creates a pin to access the funds. Hardware wallets can be a little easier to use when it comes to spending bitcoin in contrast to paper wallets while also keeping your funds safe.
Bitcoin.com has a few choices of hardware wallets at our store. Be sure to also check out our latest review of the Ledger Nano S as well as this informative comparison video:
Keeping Bitcoins Safe is Key
Following some simple steps like adding two-factor authentication and checking out the methods above is a great idea to keep your bitcoins secure. Securing your coins means protecting your private keys in some fashion. There are even smartphone wallet applications that keep your cryptocurrency just as secure as a hardware wallet and if the device is broken or lost all one has to do is reestablish the seed.
The moral of the story is to keep your coins secure and keys in your possession. People will always trade on exchanges, but they should be willing to lose all of their funds by choosing to keep it with a third party. Centralized exchanges will continue to be a thorn until a majority of traders switch to a decentralized exchange such as Bitsquare, Bithalo, and others. Until then more exchanges can be compromised and people will continue to lose money.
How do you keep your Bitcoins secure? Let us know in the comments below.
Images courtesy of Pixabay, Shutterstock, Bitcoin Wiki