Monthly Archives: February 2014

The Safest Way to Store Bitcoin and Other Crypto Coins

Bitcoin has made headlines a number of times for some quite spectacular heists and thefts.

Out of over a million existing Bitcoin wallets, approximately a thousand or less than 0.1% have lost funds. Apparently, these have all been “digital” or software wallets stored somewhere on personal computers running general-purpose operating systems (not any kind of “hardened”, specialised OS-es) or maybe even web wallets offered by some Bitcoin service websites. Most certainly, they have not been properly designed “cold storage” facilities which are much more secure.

Even most recent press articles themselves suggest that casualties are mostly from the area of “hot” storage:

Since bitcoins are stored as software files in “wallets,” or folders on websites, personal computers or smartphones, that makes them susceptible to loss and theft, failure or cracking. And because the digital money was designed to be difficult to trace, any looting is akin to a cash plunder, and harder to track compared with real money held in bank accounts.

Even with “insured” banks and “traceable” deposits, it is rather hard to get one’s money back when stolen as banks (or their insurers) usually insist on inferring at least some partial fault on the bank customer’s part to prevent full (and for the bank costly) compensation. Also, it isn’t really fun to fight for that measly compensation, if you get it at all, so why bother…

Bitcoin’s value, having increased from $12 to more than $1,000 in 2013, has made the Crypto currency an even more tempting target and worth extra protection efforts on the part of reasonably educated users.

 

Real Cash

It is difficult to measure the percentage of wallet casualties more accurately, since bitcoins were designed to be similar to cash. They are not anonymous in any way, but the fact that transactions are irreversible makes it hard to get coins back once they actually happen to be apprehended by dishonest parties.

Bitcoin’s potential to be “cash for the internet” or rather for all kinds of transactions online and off is growing with a fast increasing user base. Created in 2008 by an unknown programmer or group of programmers, the supply of Bitcoin is regulated by the software underlying the currency, which can only be created by solving complex puzzles embedded in Bitcoin’s code. The digital money is being used to buy everything from chocolates to digital cameras on the Web.

 

Paper Wallet

The best and most effective method to prevent theft is “cold storage,” or offline Bitcoins. Andreas Antonopoulos, a Bitcoin evangelist and security specialist, has created the Safe Paper Wallet project making kits available that let users print their log-in credentials on a piece of paper, which can then be kept in a safe-deposit box.

“I keep 99.9 percent of my bitcoins in my paper wallet,” Antonopoulos said. “You don’t walk around with your net worth in your purse.”

The exact way of creating safe paper wallets involves a few more ingredients but can be done by anyone with a printer, preferably a “dumb” printer, and some common sense. A selection of simple tools, some of them free, as well as ready-made solutions are available. The important part is to not buy pre-printed plastic cards or fancy engravings where the Private Key is pre-produced by a third party which runs totally contrary to the “trustless” system of a Crypto currency.

There is even “deep cold storage” of Bitcoin paper wallets in geographically spread locations available where wallets (or even a mere copy of paper wallets) can be de-centrally stored to both secure them offline as well as mitigate all other conceivable systemic, sovereign default, or even natural disaster risks.

Whether for Bitcoin or any other Crypto coin, the availability of offline paper wallet generators and a way to easily create a paper wallet or similar true “cold storage” solution are essential for even considering use of that coin.

Exchange-like services, on- and off-chain investments, as well as safe-keeping services — possibly integrating several kinds of Crypto coin services into one flexible and easy-to-use security as well as investment or Asset Protection solution — could be developed to solve these fundamental challenges and further develop mass adoption of Bitcoin.

Russia: Now Potentially the Most Bitcoin-Averse Place

Russia may turn out to be the most hostile place for Crypto currencies such as Bitcoin and others.

A far-reaching ban on Crypto currencies in Russia has been announced earlier today by the Russian central bank. While that ban may be one thing (and is being discussed throughout mainstream and special interest media anyway), there are some other other aspects to the Russian central bank’s statement worth mentioning for showing utter ignorance of overall monetary matters and facts.

The Central Bank of Russia claims that:

“Bitcoin is an independent currency which is not regulated by a government and therefore carries a high risk in devaluation.” [Emphasis ours]

Economic history shows that government-regulated paper — or fiat–currencies are the ones which have failed throughout all of human history. There is not one single exception since ancient Egypt. In light of Russia’s track record after 1990 alone, the central bank’s point on “devaluation risk” is truly hilarious. (It may be worth — or even fun — to note here that Russian currency has been devalued by a factor of 5,000,000,000,000,000 [fifty quadrillion, you read right] since the 1917 revolution.)

“Due to the anonymous nature of virtual currencies, (…)” the geniuses in both general technology and IT at the Russian central bank continue [that there are some percieved risks of yada-yada-yada].

The fact that Bitcoin is not anonymous at all defies the whole point and, therefore, even the argument about those feared risks: Bitcoin is not “anonymous” but in reality weakly pseudonymous, which is a very different thing.

Those who do not know more about it should refrain from commenting on it, period.

Bitcoin is, in fact, the most accessible pile of data on any sort of financial transaction a government could ever get or want. Maybe that is one reason why Bitcoin is not popular for illegal, let alone terrorist, use. Crypto currencies can be made more private by certain additional measures and careful use, the same as with cash or certain ways of making bank transfers, but these measures go beyond the ability of most people and are not normally applied by Crypto coin users.

A Satoshi-Like Figure: This Time Under a Viking Helmet?

Iceland launching Auroracoin, a private Crypto currency

Iceland has been in the news on several topics over the last few years: from being a model on how to bankrupt US dollar-style paper currencies and the overall country behind it to granting WikiLeaks asylum to how an apparent “recovery” after financial collapse can turn out fake — these are just a few examples of the news items around Iceland.

Here comes another one though: the creation of a nation-wide — though apparently privately proposed and run — Crypto currency for the entire Icelandic population, called Auroracoin.

Icelandic auroracoins to start on 25 March 2014

The new Crypto coin has been proposed by Baldur Friggjar Óðinsson, a name that could turn out to be another pseudonym just like Satoshi Nakamoto, and will start operation on 25 March 2014. Every Icelander, or about 330,000 persons, will receive AUC 31.8 for free at launch time. Eligibility will be checked against a national database of Fødelsenummror (or “birth numbers”, a Scandinavian-style register of — actually quite dehumanising — personal number keys assigned upon birth certificate issuance). Even Óðinsson himself points out that he recognises the ‘unfortunate fact” of there being such a nasty bureaucrat register but tries to make the best of it by using it for fairly spreading the new Auroracoin currency among eligible initial participants.

Óðinsson’s approach is a remarkable attempt to help lifting Iceland out of its financial mess and failed recovery. As the plan appears to be based on private initiative rather than government policy, the view of the government is not known. Good reason for using a pseudonym indeed.

Developers are encouraged to build tools facilitating the use of auroracoins, and Crypto coin exchanges have been called upon to include Auroracoin with other Crypto coins traded.

auroracion Iceland nationwide Crypto currency

Of All Places: The Post Office “Facilitating” Bitcoin?

uspsAndBitcoin

The USPS (United States Postal Service) is struggling to keep their fading industrial-age business alive. In a series of papers on the future of postal services in the U. S. (and around the world), postal bureaucrats as well as UPU (Universal Postal Union) functionaries laid out a number of plans to revive their dying business and to find ways of maintaining their prerequisite costly network of branches. Including all kinds of Bitcoin-related services is one of these many proposals.

The postal bureaucrats seem to acknowledge the fact that Bitcoin technology has enormous potential. Looking for any straws to cling to, these representatives of a drowning business are now even willing to go as far as adopting something like Crypto currency which, in fact, is totally against their nature (of not working, making coffee breaks, and overcharge customers for lousy services based on having a monopoly). What they entirely fail to understand is the fact that Bitcoin is already doing very well without the “help” of the geniuses at the post office and that a peer-to-peer situation has little room (nor need) for state-to-state or country-to-country style relations. Representatives of the post seem to think that they can jump onto the Bitcoin bandwagon, a symbol of first-movers into a new technology helping us to finally break free from anachronistic power structures and limitations, by giving us yet another of their more-of-the-same “solutions”.

One might be forgiven having doubts about about postal workers’ ability to live up to the standards usual in the Bitcoin world. Bitcoin is an inherently free-market phenomenon, just like the overall internet. The mentality of a state-run enterprise is right on the other end of the scale. As the old saying goes, “In socialism everything works like the Post Office”.

Bitcoin Security a Primary Concern for Many

Bitcoin Security is a pre-requisite for mass adoption of Bitcoin and all other Crypto coins.

In their continuous quest for “exciting” stories that “sell”, the mass media have, once again, done a good job of spreading mis-information — this time about Crypto coins (like Bitcoin and others). The media’s superficial coverage “breaks” sensational stories of some poor dummy losing hundreds of thousands in Bitcoin by dumping their old computer or others “finding” a fortune in Crpyto coins in a Yard Sale. All these news items suggest that Crypto coins must be terrible when it comes to security: if you can find them, you can lose them, hence overall insecure, right?

Wrong.

There is little doubt among the better-informed that Crypto coins are secure from a technical point of view. As usual with all kinds of IT (and other) security issues, the risks stem from inadequate use by every-day users. And while this may hamper mass-adoption in some ways, it is something that can and needs to be overcome by providing the tools needed for even “dumb users” to handle their Crypto coins securely.

“Being Ones Own Bank” (as Blockchain.info put it), while offering huge advantages, also has a few downsides — and that is security or the lack of it…

The overall “Bitcoin Security” field, therefore, needs to be worked in order to reduce the risks by prudent and as simple as possible means for everyone.

It will help the overall Bitcoin space by fostering mass adoption of this great technology in real life.