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Bitcoin is cemented as a world currency and is growing at a rapid rate due to its decentralised system, increased legal acceptance across the world and is a safe harbour for investment where the dollar may decline. But how are you able to keep this digital currency safe from attackers? We look at the bitcoin wallets designed to keep your digital currency safe and off the grid.
When it comes to cash, we can simply draw it from the bank and keep it in a wallet. There are security concerns for that too just like there is storing bars of gold. But when it comes to cryptocurrencies and its most popular one, bitcoin, its high value makes it an opportune target for online security breaches.
What was once a question of could the bitcoin replace the dollar has now turned into when it will replace it. In a future where the currency exists in a digital form, it is time to start using wallets that are not on the digitally accessible street (internet) and are physical remote cold-storage wallets.
When I first heard about bitcoin a few years ago I was interested, but a sceptic. Now, as a crypto user, I am investing time and research into my own security measures to keep my money safe.
Before we look at the specifics of each bitcoin wallet, let’s take a look at what bitcoin wallets are.
A bitcoin wallet holds keys. These keys are long strings of randomly generated characters that represent your money. With your key you are able to spend your money which is recorded in bitcoin’s ledger.
A ledger is simply a book of accounts as to who owes how much. Generally, banks control ledgers, with bitcoin it is different. The bitcoin ledger is a shared public ledger. All confirmed bitcoin transactions are kept in that shared ledger.
When you use a key, it accesses the amount of bitcoins associated with the key on the shared ledger. This is where we use these keys, and why they must be protected. You can see how the ledger works in the diagram below.
Even though the entire blockchain ledger is secure with cryptography, the keys are a personal access that can be intercepted by thieves and hackers, so it makes sense to keep these keys in a separate hardware wallet, much like you would keep your bankcards in your pocket or handbag rather than in a publicly accessible environment.
Your private keys that access your bitcoins never leave the physical bitcoin wallet. You only use them when you are making a transaction with the keys that are stored on it. Once you are done you simply unplug the system.
The extra protection a lot of external wallets have is a push button that is required to make an actual transaction. This way if someone was to manage to access your wallet while it is connected to a computer, they would not be able to physically press the transaction button. This security is physical, as well as being a cold data security device.
Some other wallets also have a system whereby you have to enter a private pin just to access the keys. While it seems like this is over-the-top security, when it comes to cryptocurrency there is a lot of accessible money floating around.
There are a number of bitcoin wallets available online and range from software encrypted wallets to hardware wallets. The most secure type of wallet is an external cold wallet (we use cold because they are not connected to the internet).
Other forms of cold wallets can be ‘paper wallets’ which are essentially keys printed on paper. The problem with this is that it is just as safe as a credit card, it can still be stolen and used by thieves.
The first of the safe-keeping bitcoin wallets is the Trezor Bitcoin Safe, made by Satoshi Labs, which is a very trusted and highly secure little bitcoin wallet that will keep your keys safer than any computer could.
It is an offline transaction signing device and uses a small screen to visually see the transaction contents. On the interface of the device are two buttons which are for accepting or denying transactions. Easy right?
This device has been attacked in the past so vast improvements have been made to its security. It has been modelled by Trezor’s security teams to cover every single piece of data in this device with cryptography to ensure it is secure to the point where if anyone was to take this device they would not be able to hack their way into it.
If someone was to track movements on your computer they might be able to access what pin you use to access certain devices, but with Trezor’s bitcoin wallet the pin is randomised each time so that your pin number is unable to be stolen.
For users of multiple cryptocurrencies, this device stores all of the widely accepted forms of cryptocurrency such as: Bitcoin, Litecoin, DASH, Zcash, Bcash, Ethereum and ERC-20 Tokens.
While this bitcoin wallet is very suitable for the majority of users, it is not useful for people who are looking at running advanced operations that you would be able to do on a software wallet and it will not let you import private keys.
If you lose the device (which has been reported to happen quite a fair bit) then you are able to restore the wallet into another Trezor bitcoin wallet or other wallets.
The Ledger Nano S is a Bitcoin, Ethereum and Altcoin hardware wallet designed primarily for security but with a highly popular user interface.
Transactions made with this secure device are always displayed on the screen and are physically verified at the press of a button. The two buttons at the top of the device are backward and forward buttons to allow you to scroll through the menu.
For this device, you choose your pin on the actual device. It is not set up through a computer. To access the device you are always asked to use your pin, so it works quite well in that respect. For added security, the device also gives you a phrase and makes you remember a certain word out of that phrase.
The interface you use with the Ledger S Nano is one of the best and has a great, easy to use to way of essentially doing electronic banking with cryptocurrency. You use this software on your computer and only connect the bitcoin wallet when you need to make a transaction. As of yet, there is no application or package for a smartphone device, but this is soon to be done, no doubt.
The only downside to this is the user interface on the package for Ethereum management. But I have a feeling this might be fixed quite soon.
The Bitbox is a very new competitor to the bitcoin wallet range. It is also one of the cheapest and most minimalist devices on the market.
It has both Tor and Tails OS compatibility for private use and has iOS and Android usability.
I can’t say too much about this device as I haven’t used it personally. But from what others have said it is a great and simple device for most people, but if you are into multiple cryptocurrencies this might not be a valid option as does not cover for altcoins and is considered by many as a bitcoin-only device. Ethereum keys can also be used with this device.
The Bitbox has a different edge to it as it comes with a micro SD card which can have an entire backup of your Bitbox loaded onto it. Again, this is a backup in case you end up losing your bitcoin wallet.
For the majority of cryptocurrency users, the Ledger Nano S and the Trezor bitcoin wallets are the most trusted devices. As a cryptocurrency user myself I value the need to the security of not only my data and my computer in general but also the finances I have in cryptocurrency.
With Bitcoin and other cryptocurrencies growing as a major form of finance across the world, it makes sense that security issues need to be taken as a serious proactive approach. There is still a lot of anonymity with the security breaches that are able to occur around Bitcoin thefts and these are generally due to poor self-security management. A hardware Bitcoin wallet is the best step you can take toward that security.
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