Bitcoin Wallet Security Explained
Any guide to securing your bitcoin wallet needs to start with an examination of the types of wallet available as well as the advantages and disadvantages of each, with regard to the safety of your crypto capital.
The Main Bitcoin Wallet Security Risks
Bitcoin wallet security is a critical and complex issue because of the heightened dangers of criminal activity in the world of blockchain and cryptocurrencies. The anonymity and limited regulatory oversight of the crypto space as well as the vulnerabilities of smart contract systems makes instances of hacks and fraud a not unfamiliar occurrence, so you need to be vigilant.
Cryptocurrency Wallet Solutions
So, how can you store your coins securely and what makes one wallet safer than another?
The two main types of cryptocurrency wallet solutions are hardware wallets and web wallets. While in many respects, a hardware wallet offers the best security, this type of bitcoin wallet is not always the most appropriate for your specific needs.
Why do you need a hardware wallet? Put simply, the most secure wallet for cryptocurrency is one that cannot be hacked. A hardware wallet is not connected to the internet so it will always offer the safest home for your crypto capital. However keep in mind that if you only have a small sum of cryptocurrency to store, the expense of doing so with a hardware wallet, often around $200, may not make it worth the effort. Also, if you want rapid access to your funds, for the purpose of day trading for example, keeping them in a location that needs to be accessed physically could mean you lose out on a lucrative, short-term, crypto market opportunity.
When it comes to bitcoin wallet cyber security the main issue with web, or hot, wallets is that they are internet-based, so cannot be totally safe from being hacked. On the plus side, they are often completely free and much more convenient than a hardware wallet if you are making online crypto purchases, or trading and need your crypto at your fingertips.
Top Bitcoin Wallet Security Tips
Whichever type of wallet you choose there are always steps you can take to safeguard your savings. Here are some valuable tips for shielding your account:
Choose a wallet with two-factor authentication (2FA)
What is two-factor authentication (2FA)? Well, basically, it’s a way to provide a secondary level of protection to secure your Bitcoin, commonly using third-party software like Google Authenticator or a biometric verification method. If someone manages to guess or bypass your password, they would still be unable to access your crypto without the second mode of authentication.
Make sure to use a wallet with a multi-signature tool
A wallet with a multi-signature feature, requires all the transaction stakeholders to authenticate the transfer in advance. This provides added security since it is not enough to just gain access to the account – verification from all the parties involved in the transaction is necessary to transfer funds.
Back-up your data
Check the bitcoin address and keep it safe. Lose your address and you lose all your crypto. It’s a good idea to download a paper version of your wallet, with the private key and public address, or back up your data on a USB though obviously it MUST be stored securely. This will have the advantage that it will provide you with an un-hackable backup that will not be destroyed if your laptop or phone is destroyed or stolen.
Sign Transactions Offline
Offline transaction signing provides a great way to enhance security, as the transaction is created online, and then most of your crypto is held offline for approval and signing. It lengthens the process, since you need to go offline to save and sign your transactions, but this ensures that the bulk of your funds are not vulnerable to hacks, while there is no internet activity.
Choose a licensed wallet provider
If Bitcoin wallet security is a priority, then you should only store your funds with a licensed and regulated wallet. Here at ArbiSmart, for example, we are fully FIU licensed, which authorizes us to provide crypto financial services across the European Union. This has a huge impact on security and transparency, since regulatory compliance requires the implementation of tough data security protocols as well as strict fraud prevention and ID verification procedures. It also involves maintenance of sufficient operational capital, the separation of client and company accounts, as well as regular external auditing.
The Best Bitcoin Wallets
The best cryptocurrency web wallet 2021 will obviously be one that puts your security front and center. However, another important factor you may will wish to consider is profitability and therefore you may want to look for a licensed interest-bearing wallet. Instead of just leaving your crypto sitting idle in the hope that it will appreciate over time, with an interest-bearing wallet you are allowing the wallet provider to use your funds to generate profits and in return, you receive annual profits. At ArbiSmart, alongside our popular crypto arbitrage platform, we are launching our own EU licensed and regulated, interest-bearing wallet, which is on track for launch in Q4 2021. The wallet available to anyone with fiat or crypto capital, will offer interest of up to 45% a month, depending on the currency, the amount deposited, and the type of savings account chosen. You will be able to select a flexible account that allows for immediate withdrawals or higher- interest accounts that are locked for a pre-set time frame, with larger profits, the longer the closure on the account.
In this guide we have looked at the different factors that make for a secure Bitcoin wallet, from rigorous, digital security, to tough regulation, taking note that while safeguarding your savings you can also put them to work on your behalf.