How to Secure Your Bitcoins

Bitcoin has garnished a lot of attention in the recent past but before you jump on the train educate yourself first. Bitcoin was developed to circumvent a lot of the centralized institutions, like banks, that continually show that when given power human nature is to take advantage of it. If we remove these insitutions we have to play the role they once did in our lives. In the banks case this role (at least part of it) is to secure our wealth. So, how do we secure our bit coins? While there are several options to secure bitcoins, one popular and very secure method is to create an offline wallet.

There are three primary attacks from hackers that we will try to avoid. First, hackers will try to steal access to your bitcoins by secretly downloading malware on your computer that finds your wallet.dat file and sends that file to them. Most bitcoin wallets give you the option to encrypt your wallet which will necessitate a password to spend your bitcoins. Unfortunately hackers could tell how much is in your wallet even if they can’t crack your password. But even worse is the second more advanced attack which is coupled with the first, where you download some malware that sends the wallet.dat file and also logs your key strokes or screen scrapes to find your encryption password then sends your password and wallet.dat file to them. A new type of attack shuts down access to your entire computer and holds your computer for ransom until your pay up. A common thread in all of these attacks in access to the internet to download these malware. So one security option is to remove your wallet.dat file from a device connected to the internet.

The first step is to create a Linux Live CD or USB. This creates a completely new un tampered environment to store your wallet, because who knows, you may already have the malware downloaded on your computer just waiting for more bitcoins in your wallet. Once you have this new Linux Live CD or USB go to the Bitcoin.org website and download a wallet for Linux. Create a few addresses for that wallet and write them down, this is what you’ll give to people for them to send you bitcoins. Now find the new wallet.dat file that was created. Anyone who has access to the file has access to all of your bitcoins in that wallet so protect this! Copy this file into a USB drive, or several, and encrypt them and place them in multiple locations or give them to people you trust.

Now you have your wallet.dat file, and your wealth, extremely secured. Since this wallet.dat file must stay offline to remain secure it’s wise to keep this wallet as a “savings account” and keep a smaller wallet online for convenience.

Finally I’ll leave you with a tip on encryption. It’s smart to follow a 2 factor authentication, also known as “have something, know something.” If you’re interested in security check out yubikey.com which is a small USB drive that will insert a strong password. This is your “have something.” Then add a unique password after your yubikey password. This is your “know something.” Good Luck.