4 Easy Ways to Avoid Losing Your Bitcoin
by Emma Newbery | Updated July 21, 2021 - First published on April 26, 2021
Here are some tips to keep your Bitcoin secure.
There are many exciting things about the world of cryptocurrency. Some believe that blockchain has created a digital gold rush. Others are more cautious. But one thing's for sure: Bitcoin is becoming more mainstream. It's estimated that over 100 million people worldwide now own cryptocurrency. And that means new investors need to know how to protect their Bitcoin. Here are four easy steps you can take.
1. Be aware of the risks
One challenge for Bitcoin investors is they have more responsibility for their own security than with other investments.
If your money is in a bank account, that account is protected in ways you may take for granted. If it's hacked, or the bank fails, FDIC insurance covers you up to $250,000. If you lose your password, you can reset it. If you buy something with your credit card, you may qualify for additional purchase protection.
But when you invest in crypto, you don't have those built-in protections. You will have to take care of all of those things yourself.
2. Get a wallet
By design, Bitcoin itself is hard to hack. The vulnerability is where you store and trade your coins. You control your cryptocurrency through public keys and private keys. And in the same way you wouldn't give anyone the PIN number to your bank account, you don't want to give away control of your keys. A crypto wallet is where you can store your keys and protect them from hackers.
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Rather than leave your crypto on the exchange where you bought it, it makes sense to move it into a crypto wallet that you control. Depending on how much you need to store and how secure you want it to be, you can choose a hot wallet or a cold wallet.
A hot wallet
Hot wallets are connected to the internet. That makes them less secure, but it means your currency is more accessible if you want to spend or trade it. Look for a wallet that has a good reputation for security. And check out the site's credentials before you download anything.
Ideally, your hot wallet should be open source and have two-factor authentication. If the code is open-source, it means there are more people testing and fixing any vulnerabilities. And remember, you can spread your money across more than one wallet if you want to.
A cold wallet
Cold wallets are more secure because they are kept offline. You'll get a piece of hardware that's about the size of a USB and costs between $50 and $150. It's a good idea to buy it from the manufacturer. Then you just have to set up a password and a recovery seed -- often a set of random words. Your recovery seed is essential. If there's a technical glitch or you lose your wallet, that's what you'll use to reclaim your Bitcoin.
Don't store your seed on your computer. Make at least one physical copy and put it somewhere safe. Some people keep their recovery seed in a bank safe deposit box. One final thought: Make sure your next of kin knows how to find it. If you pass away, that's how they will access your cryptocurrency.
3. Use a reputable exchange
If you want to buy or sell Bitcoin, at some point, you're likely to need an exchange or brokerage. Crypto exchanges have fallen victim to some high profile hacks over the years. Perhaps the most famous was Mt. Gox in 2014. At that point, about 70% of the world's Bitcoin transactions went through the exchange. Over 850,000 Bitcoins (worth about $450 million) were stolen. Just 200,000 have been recovered.
Put security high up on your list when you're choosing where to trade. Our list of top crypto exchanges is a good place to start. Look for one that hasn't been hacked, and check out what insurance provisions it has in place. See what percentage of its reserves are kept offline in cold storage, and whether it has a bug bounty program in place to reward ethical hackers who identify vulnerabilities early.
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4. Develop good internet habits
Nobody wants to lose their Bitcoin because there's malware on their computer or because they use the same password for every account. It's not ideal if a hacker gets hold of one of your passwords, but it's a lot worse if that one password lets them access all of your accounts. Consider using a password manager, and try to use long passwords with a mix of numbers, letters, and characters.
Also, be aware of the risk of phishing. Rather than clicking on a link you receive by email, type the correct URL directly into your browser. Make sure your antivirus and anti-malware programs are up to date. And if your crypto wallet has a back up function, try to use it.
Bitcoin is already a volatile and risky investment. These extra steps won't eliminate risk completely. But they could make you and your Bitcoin less vulnerable to crypto hackers.
About the Author
We're firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
Emma Newbery owns Bitcoin. The Motley Fool owns shares of and recommends Bitcoin.