All Financial Wisdom

Is it safe to use Bitcoins or is there always a risk of stealing purses from crypto-coins?

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Bitcoin and the crypto-currencies, especially as far as Blockchain is concerned, have brought about a new technological and economic paradigm to our socioeconomies. But from the moment of its birth, the truth is that the history of crypto-currencies has been punctuated by a continuous trickle of cases of massive thefts of digital currencies.

Is there a safe and reliable way to store our virtual currency tokens in such a way that we can not suffer any theft? This is the main question that is drawn in the minds of many people who are approaching for the first time (and not so first) the world of crypto-currencies.

Given its special importance for an ecosystem in which trust is the basic characteristic that keeps the wheel of the crypto-economy spinning, we are going to try to answer this question today with all the options that are currently on the table, and discuss the advantages, disadvantages and…mechanisms that can be employed to keep your Bitcoins from the hands of some unscrupulous cyber-criminal.

Point number one: total computer security is an unattainable

We must start this article today by first warning that total computer security is, in its current conception, an unattainable ideal today. There is always going to be a security hole not patched in time, or an employee who makes some mistake and infects your computer by leaving open an attack vector for cyber-criminals, or a zero-day exploit that has not yet been discovered by the manufacturer and that is used to enter your computer… No software is 100% safe, first for human errors, and second because nothing can be designed to remain reliable under future conditions that are still unknown today.

That is why, from the moment you buy your first Bitcoin, you must be fully aware it can always be stolen if someone puts enough effort into it. But similarly, they can also steal your physical wallet. Or they can enter your home and open your safe. Or raid your bank office and open your safe deposit box etc…

Unfortunately, all these other scenarios are also possible, and we must assume that insurance will never be on the physical or virtual plane. The only difference that Bitcoin makes in this respect is that, due to its virtual nature, the possibilities of remote theft increase considerably, with which we are exposed in the cyber-sphere to any group of cyber-criminals who can steal our wallet peacefully from a dark room full of screens on the other side of the globe. With that in mind, we present the different options available to store crypto-coins starting with the least safe, and ending with those that offer a higher level of security (at least in theory).

First option: keep your tokens in the intermediary on which you make your purchase-sales

The first step to be able to buy (or later sell) with fiat Bitcoins or other digital currency is to open an account and register with an intermediary of crypto-currencies. There are a few accessible through the Internet or applications, and their relative importance and negotiated volumes vary depending on multiple variables such as the boom in a certain country of the use of the crypto-economy, or how each country is regulating (or prohibiting) the use of digital currencies.

These brokers of crypto-currencies, obviously offer you a wallet to which they can make money/crypto currency transfers. Once you have dollars in your wallet, you can easily make the purchase of Bitcoins, Ethers, or whatever you prefer, and store them in the corresponding wallet offered by the intermediary for each one of those crypto-coins.

But using the virtual portfolios offered by these intermediaries as the usual repository of their tokens is usually a bad practice. It is not that they are less sure by definition than other options, they do not have to be so since their security depends more on how their developments are implemented, and these can be obviously better than those of other specific wallets. But the fact is that the risk comes rather from what most digital coin holders do: they usually leave them deposited in these same wallets of the intermediate ones.

The second option: a specialized wallet

The second option is that, once you have purchased your tokens, and have them in your broker’s wallet, quickly transfer your crypto-coins to a specialized wallet. As we said before, these specialized wallets do not have to be safer in principle by design than those of intermediaries, but the truth is that there are some very good options among them, with very good functionality, security and at another level, and above all, something further away from the circuits usually attacked in a massive way by groups of organized cyber criminals. In general, these specialized wallets also offer you the possibility of having several different portfolios within the same application to store different crypto-currencies.

The logical sequence of movements would be that you can use an intermediation platform to buy any of the most popular cypto-currencies, which are the most frequently traded on these platforms. You can then take them to your wallet compatible with Shapeshift, for example, and then change them back to your preferred virtual currency among most of the more than 800 currently listed in CoinMarketCap.

Finally, speaking of specialized portfolios, we can not fail to mention that some of the options available in the market incorporate the HD wallet technology, which adds an important added security feature, beyond simple password access. With this technology, a new address will be created, associated with a master seed that serves as a base to create 12 random words, which you must guard like a gold in cloth (because in fact, it is).

You should not reveal this seed to anyone except to recover the specialized portfolio to which they belong, provided that you have requested it yourself, and from the official application: distrust especially when they ask for them by mail and with a link attached where to enter them.

The best option is to refrain from electronic formats, which are always susceptible to being hacked, and save the seeds printed on paper in a safe place. And be aware that losing this seed can make you lose all your Bitcoins, because without them, there is hardly any chance of recovering your portfolio with your Bitcoins inside.

see part 2…

 

 

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