In 2009, the world bared witness to the birth of a new type of currency, one that wasn’t backed by any government or bank but rather created through complex computer code: Bitcoin. This form of digital currency, also commonly referred to as cryptocurrency, is continually increasing in both popularity and financial value despite major setbacks.
Regardless, Bitcoin has received its fair share of hacking and scamming incidents that resulted in the loss of hundreds of millions of dollars. This has made it more important than ever to take every necessary measure to keep your digital currency safe, secure, and anonymous. Read on to learn all about this and more.
Is Bitcoin Safe?
The Bitcoin world is plagued by ICO scams such as the PlexCoin scam which conned thousands of investors into buying 15$ million worth of digital tokens by promising a 13-fold profit in less than a month, or the Prodeum scam where the startup that sought to innovate the vegetable and fruit industry with Ethereum disappeared from the internet with millions in investor cash.
Stories of multi-million dollar hacks have also made it to the headlines time and time again. Take, for instance, the downfall of Mt. Gox, which until February 2014 was the largest Bitcoin exchange in the world, or the NiceHash hack that resulted in $64 million in cryptocurrency being stolen from the Slovenian-based crypto-mining marketplace.
All these incidents raise the question, “Is Bitcoin safe to invest in?” Well, the short answer is: yes. It’s actually far more secure than other financial systems. In fact, here’s a short video to help you better understand how Bitcoin works:
Since Bitcoin uses a decentralized system, known as the blockchain, no centralized information exists for a hacker to exploit and compromise the network. They would need to control 51% of the network nodes to be able to walk away with everyone’s money, but this has proven to be an impossible task so far.
Furthermore, all transactions made using Bitcoin are not only public but also irreversible. A transparent ledger makes it impossible to fake transactions or make errors in recording the balances of accounts. It also decreases the risk of money laundering and other illicit activities like fraud.
Loss of funds and other mishaps, however, can occur if you don’t secure your private keys which are needed to spend or transfer Bitcoins held within your wallet. Andreas M. Antonopoulos, who is the most knowledgeable man when it comes to Bitcoin, states the following about private keys:
“The private key must remain secret at all times because revealing it to third parties is equivalent to giving them control over the Bitcoins secured by that key. The private key must also be backed up and protected from accidental loss, because if it’s lost it cannot be recovered and the funds secured by it are forever lost, too.”
Why Do You Need Anonymous Bitcoin Wallet?
Bitcoin doesn’t exist physically so they can’t be stored anywhere and you’ll need to get yourself a “wallet”. Unlike traditional wallets, a Bitcoin wallet stores a collection of private keys which let you access and spend your Bitcoins.
However, contrary to popular belief, Bitcoin isn’t that anonymous and you can still be tracked by hackers if you don’t protect your bitcoin wallet well enough from malicious individuals. Here’s what Bitcoin.org has to say on their site:
Bitcoin is not anonymous but rather pseudonymous. Your pseudonym is the Bitcoin address through which you are able to receive Bitcoin. The blockchain stores every transaction related to that address, so if your identity is somehow linked to that address, every transaction can be easily traced back to you.
For this reason, it’s important that you use anonymous Bitcoin wallets as they separate your personal information from your money and prevent any prying eyes from tracking you down and stealing your Bitcoins.
Moving on, Bitcoin keys…
Bitcoin Public & Private Keys
To help you better understand the concept of private and public keys, we will take a close look at an example first. Take, for instance, the mailbox placed outside your house. Everyone has a mailbox at the end of their driveway, right?
The mailman would need to know your address (public key) which includes the number of your house/flat, area, and street to be able to deliver your mail. And, you as the receiver will have the key (private key) to open the mailbox and collect the mail.
However, do you ever hand over the keys of your mailbox to somebody you don’t know? Well, of course not. You probably keep it in a secure location so that the contents of your mailbox don’t get compromised and remain safe and sound.
Similarly, if someone from the cryptocurrency world wants to send you Bitcoins, they would need to know your public key (or address). To unlock those Bitcoins, you’ll need your private key (or address) for which you’re entirely responsible – just like the keys of your mailbox.
What is a Bitcoin Private Key?
It’s a secret string of numbers and alphabets that allows you to spend or send Bitcoins. The Bitcoin private key is picked randomly when you set up your bitcoin wallet, and it looks something like this:
What is a Bitcoin Public Key?
It’s another string of numbers and alphabets derived from the private key itself. The Bitcoin public key allows you to receive Bitcoins from others, and it looks something like this:
Why Is Bitcoin Security Important?
Since the private keys make it possible to spend your Bitcoins, it’s important that you keep them safely and securely. After all, if they get stolen or leaked due to human error or poor bitcoin wallet security, you won’t be able to protect or retrieve your Bitcoins.
As mentioned earlier, the threat of losing your money isn’t through the blockchain – it’s actually very secure. You can lose your Bitcoins if your wallet or exchange provider is targeted or your computer or device on which your bitcoin wallet is stored gets hacked.
Your personal information can be tracked and stolen from the provider’s end, which mind you also include your private key, and then used by hackers to gain access to your Bitcoin wallet and steal your money.
Additionally, intruders more often than not use a combination of malware and phishing techniques so that they can hack into your device or computer and use your private key to steal all your precious Bitcoins.
Must-Have Tips to Secure & Anonymize Your Bitcoin Wallet
Luckily, there are a few important measures that Bitcoin users can take to protect their bitcoin wallets and these include:
1. Separate Your Money – Use Cold Storage
You should have at least two Bitcoin wallets and in some cases, even more, depending on the number of Bitcoins you’re dealing with.
One Bitcoin wallet should be for transactional and trading purposes only, while the other can be used for storing your savings and should be tucked away safely.
Nowadays, targeted attacks against crypto exchanges are increasing. We have linked smominru botnet to some recent attacks as a result of our infrastructure analysis. It seems more incidents are coming. Using Cold storage will be beneficial.
— Arquanum (@Arquanum) February 8, 2018
Use a cold storage, aka offline wallet, as they aren’t connected to the internet and therefore eliminate the possibility of being targeted by a hacking attempt.
2. Always Be Cautious
It’s important to be careful about where you switch on your Wi-Fi when you’re using the device that has your wallet and private keys.
Crypto security reminders 🐬:
1. Never share your private key.
2. Don’t hold tokens on exchanges.
3. Use 2-factor authentication.
4. Don’t publicise your holdings.
5. You can never be too cautious.#PacCoin #PAC #cryptocurrency #bitcoin #Ethereum #Litecoin
— PAC Dolphin 🐬 (@PACCoinDolphin) January 8, 2018
When visiting websites, make sure the address starts with HTTPS as it ensures your communications with the site are secure and encrypted.
Moreover, avoid using public Wi-Fi networks without the protection and security of a VPN and don’t lend your device to anyone or leave it unattended.
3. Beware of Phishing Scams
Phishing scams via email and ads are becoming increasingly common in the Bitcoin world and you need to avoid them at all costs.
Therefore, whenever you receive emails from your bitcoin wallet provider, be sure to check if the domain is correct. You wouldn’t want to share your private key with a phishing website.
The #bitcoin blockchain has never been successfully hacked. The failures in security have always occurred on the systems where bitcoins are stored, and mostly due to insider actions or people failing to use standard common sense. (Aka, phishing emails and whatnot)
— Deplorable Mark Gess (@MarkGess) January 21, 2018
Also, refrain from clicking any rogue ads as they can trick you into installing unwanted applications that can set you up for malware.
4. Keep the Bitcoin Wallet Software Up-to-Date
Keep your Bitcoin wallet software up-to-date. If your wallet is running on an older version of the software, you’re a potential target for hackers.
Just make sure u move it onto a more recent BTC wallet. It gets harder and harder to move BTC the more outdated your bitcoin wallet software is.
— MyDigitalSauce (@mydigitalsauce) January 25, 2018
With the latest version of wallet software installed on your computer or device, you will have much better Bitcoin security which allows you to move your funds safely.
After all, the software is going to be updated with the latest protocol and security fixes which will increase the safety of your Bitcoins.
5. Turn On Two-Factor Authentication
If your Bitcoin wallet or exchange allows you to set up a password for accessing it, you should do so right away – a strong password can quite literally save your life.
However, adding an extra authentication factor can make it a lot harder to gain unauthorized access to your wallet or exchange.
CryptoGirl Tip #7: Always enable Two Factor Authentication for ALL of your exchanges. I have seen far too many people see their balances disappear overnight! I cannot stress this enough. specially for long term HODLers#DailyTips #Bitcoin #CryptoCurrencies #StaySafe
— Indian CryptoGirl (@DesiCryptoHodlr) December 11, 2017
Don’t forget to turn Two-Factor authentication on if your Bitcoin wallet or exchange supports it. You’ll either be asked to provide a unique code via Google Authenticator, or biometric identification such as a fingerprint.
6. Use New Bitcoin Address for Each Transaction
One of the more popular Bitcoin wallets are hardware (HD) wallets, which allow you to generate a new receiving address every time you receive Bitcoins.
Using a new address for every new transaction may prove confusing at times, but it’s a good practice nonetheless. Why, you ask?
That’s because with different addresses being used each time, it would be a lot harder to link those transactions back to you.
Bitcoin is pseudonymous. Bitcoin transactions use a ‘bitcoin address’ which can be a pseudonym (fake name). Although the transactions are publicly visible, no one knows the transactor’s identity. If a new address is created for each transaction, then it is practically anonymous.
— Tumi Wallace (@TumiWallace) November 21, 2017
7. Use a Virtual Private Network
Using a VPN is another way to improve the anonymity of your transactions. When you make Bitcoin transactions, they’re posted on the Blockchain unencrypted.
If any intruder is monitoring the network, they can find out where those transactions are originating from and link that Bitcoin address to your IP address to de-anonymize you.
— Sigmund (@CryptoTherapist) August 27, 2014
Arming yourself with VPN like PureVPN can protect your Bitcoin privacy by:
- Securing all the internet traffic from your computer or device with 256-bit encryption while you carry out transactions.
- Preventing government agencies, hackers, and ISPs from monitoring your wallet traffic so they can’t determine your transactions or balances.
Wrapping Things Up
Now that you know how to keep Bitcoins secure and anonymous, you may be wondering: Should I buy Bitcoin? As Bitcoin continues to surge, you probably are already itching to invest your funds. However, keeping in mind the instability of the digital currency, it all comes down to the risk you’re willing to take.
Most experts, though, advise to never invest more than you can actually afford to lose and we believe that’s the best course of action. What do you think? Please feel free to leave your thoughts in the comments section below, and we’d be more than happy to reply!