[Editors Note: The price rise of Bitcoin has got everyone in a frenzy. Do people wonder why the rally is happening? Hope reigns supreme for higher prices. “Meanwhile, one critical thing to remember is that during upswings, security should be at the top of everyone’s minds.”]
By Jamie Redman
During these crazy price spikes, people often keep their bitcoins on exchanges and online wallets such as Coinbase and Circle for fast profit-taking.
As the hardware wallet company Trezor points out via Twitter “With Bitcoin price UP, the appetite of online thieves grows!” and there is a direct correlation to this fact in 2013.
As the saying goes in Bitcoin-land:
“If you don’t possess your private keys you don’t own Bitcoin.”
In fact, we all remember when the price per BTC spiked up to $1,100 USD, and soon thereafter the infamous Mt. Gox exchange went under. Many even speculate that the exchange itself, with the use of the Willy and Markus Bots (robot software that places orders), made the price bubble up to the thousand dollar range.
Following the Mt Gox fiasco, during certain price ranges, other exchanges had also fallen to the wayside like the Moolah owned Mintpal. When users keep their money on an exchange or an online wallet system, they have absolutely no control over their funds if the service goes under.
When securing a wallet, there are some precautions everyone should take to protect their funds. If you are going to use an online wallet or an exchange, make sure you use two-factor authentication services like Clef or Google Authenticator.
Always backup your wallet and keep passwords safe and never use the same password you use for other accounts such as email.
When using an email address that is tethered to an online wallet system, make sure you also two-factor that specific email. Because it makes sense to lock both the front and back door of your house.
If you can encrypt your wallet, this is also a great precautionary method to take when securing a Bitcoin wallet.
The best practice during these times is using cold storage methods such as paper wallets, USB drives, or hardware wallets such as Trezor or Ledger. Using cold storage and holding private keys yourself minimizes the possibility of security breaches and the loss of bitcoins.
Other safeguards against theft would be using multi-signature features and remembering your seed or mnemonic phrase. Theses are just some of the most basic security precautions users can take to secure their funds.
Keeping large amounts on exchanges and online wallets is not safe and not recommended. Handing over your private keys to a third-party service provider reintroduces “trust” into the equation and is a sure way to part with your bitcoins if something happens.