How To Store and Spend Your Bitcoins Safely

By BitcoinExplorer Bitcoin, Wallet, Multisig, Cold storage

Over the past few years, storing your Bitcoins has become a major cause of concern and with a lot of malware with Bitcoin stealing capabilities flooding the internet, this has become an even bigger cause of concern. Mt. Gox, which was one of the leading Bitcoin exchanges suspended its operations in February 2014, and it claimed that over 850,000 bitcoins were missing, which had a value of around  $450 million at that time. All of this conveys that there should be a much advanced level of security in the Bitcoin ecosystem.

Now, a whole new range of exchanges and Bitcoin wallet services have come up which have state of the art features to prevent them from hacks and to ensure that their customers do not need to worry about their funds. A major boos to the crypto currency industry is that more and more investors are looking to invest in crypto currency related startups, and hence, with increased capital, the companies have increased their security infrastructure.

Mutlti-signature Storage

Popularly known as multisig, multi-signature storage allows the sender (the user) to require atleast more than one signature to confirm a transaction. Haven’t understood?

Well, basically this means that you will have a total of “x” number of private keys which can be used to sign a transaction. The wallet which you use should be setup to require a certain number of keys, say “y” to be signed for that transaction to be executed.

The motive behind this is to disable a single user from hacking or compromising a wallet, and hence the other keys also need to be signed. For example, you have a total of 4 private keys available, and you setup a requirement of at least two private keys to be signed. For every transaction, you need at least two out of the total four available keys to be signed for the transaction to be executed. This is by far, one of the most successful setups to prevent wallet compromises, as Bitcoin is not a service like paypal, where you can charge back. Once your Bitcoins are sent, you can never get them back.

Cold Storage

Cold storage is another popular alternative for companies and is one of the most widely used security solutions. Xapo is one of the leading cold storage managing companies, and it charges around 0.12 % of the total amount managed, which is quite suitable for exchanges or companies which process a large volume of crypto currencies. Coinbase, a popular and commendable company in the Bitcoin ecosystem stores 97% of its Bitcoins offline.

Cyber Insurance

Cyber insurance, put in simple terms means insurance against online mishaps, such as hacks, compromises, bugs etc. Coinbase was the first Bitcoin company to implement a cyber crime insurance policy. What does the insurance cover? Well, it covers mishaps such as internal theft, loss of funds due to software errors or glitches, hacks and also insurance for the Bitcoins stored on their servers.

Hardware Security Modules

Cold storage might be a viable solution, but extracting the funds can take up a lot of valuable time. CoinKite, a company cofounded by Rodolfa Novak launched a service wherein private keys were stored safely in Hardware security modules (HSM’s) which are indirectly connected to the internet. These keys are accessible through an API. This has been designed in such a manner, that there is no chance of malware running in the server. These are we are the major contemporary ways to store and spend your Bitcoins securely. Thanks to cryptocurrencies gaining popularity, many more security features are expected to be implemented soon.