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How to protect your bitcoin

Cryptocurrencies are very hot in the news especially in the last months. This is due to the fact that these „currencies“ gone up in value drastically, especially in the last six months. The Bitcoin, the digital currencies based on blockchain technology, has made an huge increase beginning after July last year with 1 Bitcoin being worth over 20.000 USD around Christmas. Even tough it is now starting to drop drastically – as of this writing it has lost almost 50 % of its value and is currently being traded around 11.500 USD – it is worth a lot of money. Compared tot he being of 2017 it has gone up by 1342 %, a raise that you will definitely not see in the normal Wall Street or other stock exchanges. People who have bought some bitcoins on April, 4th in 2011 for example have become a millionaire just with time passing by. A guy who has bought 100 Bitcoins that year for less than 10 USD (9,96) has now 1 Million 150.000 USD. A normal guy who didnt invest in 100 bitcoins but just in 10, still has now cryptocoin with value of 115.000 USD as of this writing (more or less, since the volatility is very high in this market). But that is still a lot of money.

That´s why many people in the last months have tried to find and recover their bitcoins they have purchased out of fun a couple of years ago. However the Deputy Head of Technology of the London-based British newspaper The Telegraph stated already two years ago that many bitcoins from the total amount that were mined until that year were already lost. According to an estimation of NVDIA engineer John Ratcliff almost 30 % of all bitcoins created from the introduction of bitcoin in 2009 until 2014 were so-called „Zombie coins“. These coins he is refering to are bitcoins that are not used for at least 1,5 years. If you would take that estimate in regards to the 13,7 Million bitcoins that were unlocked until the middle of 2014, a total of 4,11 Million bitcoins were not used for more than one and a half years. The guess is that a lot of these unused bitcoins are gone for good. There are many stories about people who remember that they had bitcoins but lost their storage media. One guy from Newport wanted to pay the city to find his discarded HDD with his private key of 7500 bitcoins on a waste recycling center or another guy, who mined 10 bitcoins in 2010, put his bitcoins on an USB stick and forgot about it. When he found out that price had gone up, he was not able to find the stick anymore. And the list goes on and on and on…

 

With so many bitcoins probabl vanished or lost – How to protect your digital coins?

While we discuss in the next article on this subject to be published next week on how to recover lost bitcoins, it is important first to make sure that a data loss with bitcoins will never happen to you easily. (Since we don´t want to be sued, keep in mind that these are only suggestions without any guarantee that these will be 100 % failure proof advice.)

Simply put, currently there are two possible ways to „possess“ bitcoins. The traditional way is to really have a bitcoin as a generated code in a so called bitcoin wallet. This is the way most people think of a „real“ bitcoin. However since a couple of years, you can „possess“ a bitcoin by using a bitcoin trading websites. These trading sites differ drastically in their legal structure. Some of these platforms just are handling trades of real bitcoins (and other cryptocurrencies) between private individuals.

Some are structured as a bank and you can create an account inside this online financial institution and buy and sell bitcoins here. In reality you never see your bitcoin and you do not really possess a real bitcoin or parts of it. In this case you cannot take your bitcoin and make a purchase in a store witch accepts bitcoin payments or buying illegal goods on the internet. These sites or banks are just for traders.

This means that keeping your bitcoins safe has a lot to do with what do you want your bitcoin for: Using them as a digital currency to pay goods and services or as a way to make quick and easy money by speculating.

For those traders among the readers here, the best advise is to open an account on a secure and reliable bitcoin trading plattform, which operates almost like a bank. They will try to take sure of your digital money is safe and no bitcoins getting lost because of hardware failure or hackers trying to steal them.

Remember that this already happened when the MtGox  bitcoin exchange became  bankrupt in 2014 following many hacking attacks beginning in 2011 and a total loss of 744 408 bitcoins – then 400 Million USD, now worth 8 Billion, 560 Million and 692000 USD.  Andi s still happening: A slovenian bitcoin exchange called „Nicehash“ was hacked in early december of 2017 losing 4700 bitcoins. And this list goes on and on, too! So it is very important that if you decide on using a bitcoin trading bank choose the right and secure one!!!

When you really need your bitcoin as a real digital currency, then here apply the same rules as with every other digital file: Make several digital copies (aka backups) of your bitcoin wallet („wallet.dat“) on various storage media. For example you can make a backup of your wallet on an external hard disk drive, an USB stick or burn it on DVD. If you have a tape based backup system available, you can use that, too, since you could wait for another 50 years and still recover that bitcoin wallet. Another possibility is to backup your wallet in the cloud on one of the various cloud service providers. But remember to make sure that nobody is able to access your file since we are talking money here.

Another idea is to print out your bitcoin wallet. There is the possibility to create a so-called paper wallet. It consists of a public and a private key for each of your bitcoin adresses. The private key is always assigned to a bitcoin adress. The wallet is – as the name suggests – like a basket were the private and public keys are stored in and is also refered to as „client software“ for bitcoins. If you don’t back up your private key and you lose it, you can no longer access your bitcoin wallet to spend funds.

However you could print out the private key or the whole bitcoin wallet as a paper version and put this piece of paper in a fire-proof safe. This might be the safest variant to keep your bitcoins safe and secure. Here you have to keep in mind, that you need to purchase and use good paper (and more expensive) for the print out, otherwise the ink will vanish after a couple of years. But this is another – and not a digital – topic…

 

Picture copyright: Tim Reckmann / pixelio.de

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