Now that cryptocurrency has gained the attention of the general public, it is important to guard your money safely. While security has always been a major concern with holding cryptocurrency, the increased visibility of their value has attracted the attention of more and more less than reputable people; hackers.
One of the more infamous stories, that of Mt. Gox, may solidify it:
“FROM A DISTANCE, the world’s largest bitcoin exchange looked like a towering example of renegade entrepreneurism. But on the inside, according to some who were there, Mt. Gox was a messy combination of poor management, neglect, and raw inexperience.
Its collapse into bankruptcy last week – and the disappearance of $460 million, apparently stolen by hackers, and another $27.4 million missing from its bank accounts – came as little surprise to people who had knowledge of the Tokyo-based company’s inner workings. The company, these insiders say, was largely a reflection of its CEO and majority stake holder, Mark Karpeles, a man who was more of a computer coder than a chief executive and yet was sometimes distracted even from his technical duties when they were most needed. “Mark liked the idea of being CEO, but the day-to-day reality bored him,” says one Mt. Gox insider, who spoke on condition of anonymity.
Last week, after a leaked corporate document said that hackers had raided the Mt. Gox exchange, Karpeles confirmed that a huge portion of the money controlled by the company was gone. “We had weaknesses in our system, and our bitcoins vanished. We’ve caused trouble and inconvenience to many people, and I feel deeply sorry for what has happened,” Karpeles said, speaking at a Tokyo press conference called to announce the company’s bankruptcy. This would be the second time the exchange was hacked. In June 2011, attackers lifted the equivalent of $8.75 million.” (Wired, 2014)
To combat this, the owners of this new Internet gold (cryptocurrency) must take the appropriate steps to ensure that nobody gets their hands on our future. To understand the best way to save our coins, it is important to first have an understanding of the different methods available to us:
Exchange: A cryptocurrency exchange is an online platform or digital marketplace where traders can buy and sell cryptocurrencies using different forms of fiat currency or other altcoins. A cryptocurrency exchange typically has a few forms of supported crypto, so you may need to use more than one depending on the different types of coins you would like to dabble in. This can be looked at similar to pocket cash. One of the most popular exchanges today is Coinbase. Sign up with this link and receive $10 in free Bitcoin: https://www.coinbase.com/join/593b0777d0ff9b08bb0ace8d
Online Wallet: A wallet is a software program where altcoins are stored. For this definition, online is intended to mean a device that is connected to the internet. To be technical, coins are not stored anywhere; there is a private key (secret number) for every wallet address that is saved in the specific wallet of the person who owns the balance. Online wallets facilitate sending and receiving altcoins and gives ownership of the coin balance to the user. The wallet comes in many forms; desktop, mobile, and web-based are the three main types of wallets. Hardware wallets are also, technically, online wallets, but with a much higher amount of security. This can be thought of similar to a Checking account. One of the more popular web-based wallets, with great security features, can be found at Blockchain.info
Hardware Wallet: A hardware wallet is a special type of cryptocurrency wallet, which will store the user’s private keys in a secure hardware device. These devices have major advantages over standard software wallets, such as an online wallet or an exchange. Private keys are often stored in a protected area of a microcontroller of the hardware wallet, thus cannot be transferred out of the device in plaintext. These devices are typically unhackable, and the only risk of losing coin is in the event of losing the hardware itself. This is similar to a Savings account. While there are many hardware devices to choose from, I personally suggest the Ledger Nano S. You can learn more about this hardware wallet here: https://www.ledgerwallet.com/r/73c4
Paper Wallet: A paper wallet is an offline means for storing altcoins; also referred to as cold storage. The public key and the private key will be printed either on paper, plastic, or metal, saved on a USB drive, or physically written down. Depending on how the paper wallet is set up, it can be seen as the most defendable and secure means of guarding your coin. As soon as a paper wallet ‘touches’ the Internet, it is no longer secure. This can be seen in a similar fashion to a bar of gold, 401K, or bonds. Here are a few tutorials on how to create paper wallets:
Now that we have become familiar with the different ways in which to store coins, it is time to discuss which will be best suited for your needs. For most people, any of the coins available will be traded, exchanged, or spent. For this reason, it is important to have them available. As described above, having spending money (an exchange account) is a good idea for smaller everyday purchases and trading. Using an online wallet, or checking account, can be beneficial for higher trading, sending money to friends and family, and paying bigger bills. Hardware wallets are the most versatile and can be easily used to store larger funds as well as funding your other accounts. The paper wallet should always have multiple redundancies and be looked at as a nest egg. Deposit money to it when you have it, otherwise never use it. At the end of the day, diversification will be the smartest decision for most, but make the decision that is best for you!
McMillan, R. (2014) Wired. The Inside Story of Mt. Gox, Bitcoins $460 Million Disaster. Retrieved from https://www.wired.com/2014/03/bitcoin-exchange/