You have bought your first Bitcoin units, but you want to make sure that nothing untoward happens to them. What’s the best way to secure your hard-earned money?
First and foremost, make sure that you encrypt your wallet using an adequate password. Ideally, it should be something different than the usual suspects, such as “123password” or “Pa55word”. Also, ensure that you do remember your password or keep a safe reminder of it somewhere; locking yourself out of your wallet will make it extremely difficult to recover the password unless it’s an online wallet hosted by a third party service provider.
If you are using a local Bitcoin wallet stored on your device (that is, as opposed to an online wallet), it is important that you make one or more backups of your wallet. In actual fact, the backup will simply be a copy of your private key, which is used to access your Bitcoins which are stored on the blockchain. You don’t want to be the person who misplaces his or her hard-drive and lose your Bitcoins irrevocably!
Limit online storage or on exchanges
When you store your Bitcoins online, you have the advantage of being able to reset your password in case you were to forget it. However, this comes at the added risk of being more susceptible to hacking attacks which unfortunately occur from time to time on exchanges and online wallet service providers. Storing the larger chunk of your Bitcoins locally reduces the change of a successful hacking effort; let’s not forget what happened in the Mt. Gox incident.
If you do not plan to actively use all of your Bitcoins, it would actually be wiser to not only store them offline, but to cut off any online communication with your wallet. Effectively, you can put your Bitcoins in “cold storage” either by disconnecting the device on which they are stored or put them in what is known as a paper wallet. You can easily restore your Bitcoins from your paper wallet onto an online device by scanning the QR Code printed on the paper wallet.
Different addresses for each transaction
Using a unique address for each Bitcoin transaction minimises the risk of being tracked and thus ensures greater protection of your privacy.