Securing Your Bitcoin for Dummies

An unfortunate predicament for newcomers to Bitcoin is most do not hold PhD’s in cryptography or computer science. The idea of being responsible for the security of a technically intimidating and poorly understood asset is terrifying. Too often individuals defer this challenge and choose to leave their coins on exchanges as “surely they know how to better secure these things”. Here I will summarize what newcomers need to know, why securing your own bitcoin is important and the easiest ways for a newcomer to secure their bitcoin & take personal responsibility for their assets.


 

No More “Forgot Password?” Button

Bitcoin’s greatest strength comes from the fact that it is censorship-resistant. If you own the private keys (bitcoin speak for password) to your bitcoins you can send them to whomever you want whenever you want. You alone control your wallet (bitcoin speak for account) and no organization, business, bank or government can stop you.

Historically for many a password has always been something you can easily recover by clicking the “Forgot Password?” button, right? This has been an option with online accounts because the service providers (Google, Facebook, PokemonGO, etc.) have record of your password. You don’t always think about it this way but you are trusting them with your account access and information.

This is not the case with Bitcoin. In Bitcoin you have the option to own your own private keys (password) giving you sole control and responsibility of maintaining access to your funds. A scary but empowering new possibility.

Why Securing Your Own Private Keys is Important

The recent hack of crypto-currency exchange Bitfinex of nearly 120,000 bitcoin (worth over $60 million at the time of the hack) has brought the issue of security back into mainstream discussion; an issue the industry is all too familiar with as displayed by the following tweet:

It is important to note these instances were never a hack on the bitcoin network itself. Rather they were instances where 3rd party service providers were robbed. (akin to your local bank branch being held up). When this occurs it is typically the customers of the exchanges (you) that end up holding the bag with no recourse. Imagine if your bank was robbed and they told you; “Sorry, we got robbed and it was your money. Nothing we can do!” This is what has happened time and time again to the customers of Bitcoin exchanges.

hack

If you own Bitcoin there are literally scary ghost hackers in hoodies trying to rob you.

Ultimately, the takeaway for a newcomer should be this; Bitcoin has value. If something has value people will likely try and steal it — especially if it can be stolen easily and with little risk. Bitcoin exchanges have shown they get robbed pretty regularly (at least one major hack per year) and when they do their customers lose there money.

If you don’t want to end up like these people you should learn the simple ways to secure your own Bitcoin that also don’t involve becoming a master cryptographer. Here I share the easiest & most secure known options for newcomers.

Important Tip Before You Read On

  • Creating Backups of Your Wallets: Each of the options below encourages you to create “backups” of your private keys. This is a good idea. Create backups and store them in a secure location(s)

Easiest Ways to Secure Your Own Bitcoin

  1. Phone a Friend: First and foremost if you have a friend or know an expert in the space get their support in navigating your options. Ask them questions.
  2. Buy a Hardware Wallet: Think of a hardware wallet like a really secure USB drive. They come with fairly simple instructions that will walk you through setup. You need to treat these as you would a wallet full of cash or a brick of gold. If someone physically steals them they can now control the funds stored on them. Here are the websites of two reputable brands:
  3. Print a Paper Wallet: Think of paper wallets as a unique account with it’s very own password printed out on a sheet of paper. Generate a new one, print it out, send bitcoin to it, and store it in a secure & safe place. Here’s a trusted site: Bitcoin Paper Wallet. You can take this to the next level by buying a device called Mycelium Entropy which will generate secure paper wallets offline and allow you to easily print them on a offline print. Link here: https://mycelium.com/mycelium-entropy.html
  4. Create a Coinbase Multi-Sig Vault: A little more complex then the previous options but Coinbase’s instructions walk you through the process of setting up a secure “vault” that only you can access. If you have 2 secure e-mail addresses this shouldn’t be too hard to learn to do yourself. Here’s a link: Coinbase Multi-Sig Vault

Getting More Secure

The Bitcoin protocol and its peripheral service providers continue to innovate and increase the ease of security over time. This list will get you started for now but if you find yourself getting more into Bitcoin you should make it your own priority to stay on top of the trends in security. If owning your own keys is still something you are not comfortable with be sure to investigate a service provider that has insurance. I believe Coinbase and Xapo currently offer more secure “vault” storage that provides this.

The Monetization of Centralized Bitcoin Services

The Bitcoin industry continues to pick up steam as startups gather round after round of Venture Capital funding. To date over $317 million has been raised by startup companies in the space. The lions share of funds have gone to the biggest players that focus on universal bitcoin services (Coinbase, Circle), wallet services (Blockchain, Xapo), exchanges (Kraken, Bitstamp), mining (KNC Miner), API developers (Chain, Gem); the list goes on… Despite the tremendous amount of investment most companies are currently offering their services at little to no cost whatsoever… this has left many asking themselves; “how will these organizations eventually monetize their business?”

This conundrum is further instigated by Jeremy Allaire, CEO of Circle, who was quoted earlier this month by Xconomy.com stating:

“If you go on social media sites like Reddit, there are a lot of users speculating. But right now, possible business models are not things that we’re going to talk about, or have really given that much thought to.” – Jeremy Allaire

When the first unpaid mobile applications (non-bitcoin) were released for smartphones in the late 2000’s many consumers were equally as dumbfounded. How will these developers pay for their costs let alone make a profit? In the era of multi-billion dollar mobile acquisitions (WhatsApp: $19 billion, Instagram: $1 billion) it has become clear that the value of any application is access to the user-base and their information. In many ways the era of bitcoin related services is not much different.

When considering centralized startups in the bitcoin industry one thing is clear – it is a race for the user-base where quarterly earnings are not of any concern for the time-being. As exposure and adoption grows it is not hard to imagine an increasingly competitive landscape where free may not be cheap enough. To help understand the “state of monetization” for these organizations I’ve provided a table below (click to enlarge) to summarize the current and speculative methods of monetization. It should be recognized that many of these service providers are in direct competition that could lead to a battle of attrition or a windfall of mergers and acquisitions. Additionally, I would encourage viewers to please leave comments and help build this table as you view.

A summary of major bitcoin startups. For each the existing revenue streams have been defined as well as speculations on potential future methods of monetization.

A summary of major bitcoin startups. For each the existing revenue streams have been defined as well as speculations on potential future methods of monetization.