Safeguard your Bitcoin

Your bitcoin is a digital value attached to your public key. You can spend your bitcoin using your private key. Safeguarding your bitcoin is all about managing your private keys. In other words, we can say that your bitcoins are your private keys.

Like any fiat currency, you would like to have your bitcoins available to you whenever you want to spend them. And you do not want anybody to steal it or be able to spend it.

Most of the time people who are new to bitcoins and do not understand the nitty-gritty, tend to store their secret key on their local computer, mobile or other such devices connected to the internet.  This is very convenient from the point of being able to spend your bitcoins at the click of a couple of buttons on your device but this is not the safest method. If you lose your device, or the files get corrupt and you have to wipe the data, you lose your secret keys and all the bitcoins associated with those keys. your device may get infected with malware and someone can access your keys and your bitcoins.

You never carry all your fiat money in your wallet, in fact, you keep most of the money in a locker or in a bank and carry only the amount required for a couple of days expenses. A smart bitcoin holder follows the same principle and carries only a limited number of bitcoins in his/ her mobile wallet and keeps most of the bitcoins safe somewhere else. Let’s see how to store bitcoins – 

Hot and cold storage:

Hot storage of bitcoin is when you store your money on a mobile or computer device that is connected to the internet. this method is though convenient but risky. 

Cold storage is when you keep your bitcoins on a device that is not connected to the internet. though it is not convenient when you have to spend the money relatively safer.

Another issue with cold storage is that since it is not online you do not have your hot storage and cold storage connected to each other. For receiving bitcoins you need not worry as your cold storage public key is known to hot storage and therefore hot storage can send the money to your cold storage at any time.

For the privacy reason bitcoins are sent to new public keys, so every time your hot storage sends bitcoin to your cold storage it has to be a different public key. And for hot storage to get all the public keys the cold storage has to connect to online some time to send public keys to your hot storage for it to be able to send money next time to your cold storage linked public keys.

And that is the time when there is a minor risk of compromising your bitcoin securities.

To avoid this risk you can use deterministic wallets. it is a system of generating keys from a single starting point known as a seed. The seed allows the creation of public keys without the knowledge of private keys using a master public key. In this system, the offline computer knows the private key and the online computer knows the master public key. For transferring bitcoins from cold storage to hot storage can be done using a flash drive to avoid online network-based attacks.

An online business’ web server can generate new public keys for each order to receive money from customers without giving the web server access to corresponding private keys. for details on Hierarchical Deterministic Wallet (HD Wallet), visit the link

Brain wallet: it refers to storing bitcoins in your own mind be memorizing recovery seed or passphrase. The passphrase can be turned into a public and private key. The risk is someone guessing your passphrase and taking away all your bitcoins. Or in case of loss of memory or loss of the person, bitcoins can never be recovered.

Paper wallet: It is information printed on paper to be able to generate private keys or private keys themselves printed on the paper and stored safely. Paper wallets are safe if very generated taking all the necessary precautions.

There are some other mechanisms like splitting of keys, use of multi-signature to keep safe your bitcoins. We will learn more about these in next post.

 

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