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.
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.
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.