How Not to Lose Your Bitcoin in 2017

Pamela Morgan
Dec 28, 2016 at 12:58 UTC
OPINION

Pamela Morgan is an entrepreneur, attorney, educator and CEO of Third Key Solutions, a key consulting and management company that is the culmination of her work advising bitcoin startups on security and estate planning.

In this CoinDesk 2016 in Review special feature, Morgan gives a high level overview of the best practices bitcoin owners, users and investors can use to secure their digital wealth in 2017.

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2017 is almost here and the bitcoin price is surging!

Are you surprised by how much your bitcoin is worth? Don't let that surprise turn to dismay by losing it. Now is the perfect time to take a few basic precautions to keep your cryptocurrency secure.

Here are 8 do-it-yourself tips to help you improve your security:

1. Backup today

You can never say it enough: back up your wallet. If you haven’t yet backed up your wallet, do it now.

Most hardware and software wallets use an industry standard backup protocol called BIP 39 that allows your wallet backup to be 12, 18, or 24 English words.

It's important to write the words down, on paper, in order, and securely store the backup somewhere safe from people, water and fire. If you don’t back up your wallet, you could well lose your bitcoin. Forever.

2. Check on your backups

If you have backed up your wallet, check on the backup locations.

The new year is a perfect time to check on your important papers, including your wallet backups. Can you still access them? Can you still read the words? Are they secure from fire, water and theft? If you've given the backups to someone else (lawyer, accountant), ask them to check their storage.

Do they still have them? Verify the location and security of your backups.

3. Set a calendar reminder

While we all know we should be checking our backups, wallets and estate plans regularly, it's hard to remember to do it.

Add a reminder to your calendar now, to check all these things again in three, six or at most 12 months.

4. Move money off your smartphone

With the increase in the bitcoin price, you might be shocked at how much money you've been carrying around on your smartphone.

Now is a great time to move your coins onto a hardware wallet or into cold storage. Hardware wallets are very easy to use, with user-friendly software components, and are considered one of the safest ways to store bitcoin.

While it's great to carry petty cash or spending money on your phone, never carry more bitcoin on your smartphone than you would carry as cash in your wallet.

5. Move your money off exchanges

If you have coins sitting on an exchange, move them out today to a wallet you control.

Most of the popular exchanges pool coins and while you have a "balance" showing on your account, you do not actually control the keys. If the exchange gets hacked you could lose your money. Remember that you only control the bitcoin if you control the keys: "not your keys, not your bitcoin".

6. Upgrade to two-factor authentication

Add two-factor authentication to your bitcoin-related accounts and to all other important online accounts. The best two-factor solution is a hardware token and you can buy one for just $20–$30.

Otherwise use a smartphone authentication app, such as Authy or Google Authenticator. SMS is not a very good two-factor solution, though it is still better than none at all.

7. Use a password manager

Humans are great at identifying patterns and that makes us terrible at randomness. Password best practices – choose a different random password for each site, never write them down – pose management problems.

For most people, the only way to accomplish this is to use a password manager – one which generates and stores your passwords securely on multiple devices. Popular managers include 1Password, LastPass, and the open source KeePass.

Many offer free basic services, with premium services costing less than $80 per year. They're easy to use and in just a couple of weeks you’ll never want to be without one again.

8. Plan for your family

If something happened to you tomorrow would your family be able to access your bitcoin? While this tip takes time to implement, it's worth it.

It shouldn’t take you more than an hour to make a plan and decide who you want to get what, write down instructions and tell your family about your plan.

Be sure to consult an attorney, to make sure your plan is consistent with local law and can’t be challenged in a court. If you have a will, trust, or other estate plan, let your attorney know that you have new assets that need to be included in your plan.

Getting your first bitcoin is becoming easier and easier, but keeping it safe from hackers, insolvent exchanges, and loss isn't as easy.

These 8 tips will help you bring in the new year with a renewed sense of confidence that you can safeguard the bitcoin that you have, especially now that it’s worth a lot more.

Have an opinion on blockchain in 2016? A prediction for 2017? Email editors@coindesk.com to learn how you can contribute to our series.

Keys image via Shutterstock

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