Bitcoin 101: Security of your Wallet – Part 6

For part six of the Bitcoin 101 Series, I want to go more in detail about Security and Wallets.

I started this series talking about Wallets because understanding Wallets and how they work is a good building block for explaining how bitcoin works. It is a fairly simple idea and everything explained after that can build on each person’s knowledge of wallets and the role they play in the bitcoin ecosystem.

I want to start by talking about an example I encountered recently:

A girl named Abby wanted… no… she NEEDED a wallet. She had heard about bitcoin and wanted to get started, but she didn’t yet fully understand a wallet. She got some help from her friend named Tom.  She talked to Tom and told him all about a trip she wanted to take and how she knew a bunch of people around the world that wanted to support her. All of her supporters wanted to send her bitcoin, but she didn’t have a wallet. Tom knew how to create a wallet so he gladly helped her out and they created a wallet together.  Once Abby had her wallet, she told everyone she knew about her brand new wallet.

A few days went by and Abby heard from so many people that were excited for her trip that was coming up. She went to look at her new wallet and – shockingly – her balance said:  BTC 0.00000

Abby was very confused. She knew people had sent her funds but the balance said zero?  How could this be?

The story goes similar to this:  Tom had a friend named Brian. Brian knew that Tom was setting up a wallet for Abby. Brian wasn’t very good friends with Abby but they lived in the same neighborhood and they both talked to each other every so often. The truth is that Brian wasn’t actually a very good guy. Brian had been in trouble before and he was always needing money. Somehow Brian had oversaw an email that Tom had received regarding Abby’s bitcoin wallet. Brian was able to use Abby’s password to her online hosted wallet and he logged in under her account and sent the bitcoin to a brand new wallet that no one else knew about. From that wallet he sent the full balance of bitcoins even further long to some more wallets that he was in control of. Before long, the trail was so long it was almost impossible for anyone to track down Abby’s original bitcoins.

The lesson here that Abby had to learn is that even though she trusts Tom, there are some people that Tom knows that aren’t very good people. They may seem helpful and friendly, but human nature tells us that if a person can take money and get away with it, then they might do that. You have to protect yourself.

Here are the two biggest items that you MUST protect if you want to keep your wallet secure:

(1) Password – if you sign up at a site like blockchain.com or coinbase.com or some other Online Hosted Wallet, then your password is going to be VITAL. The other password you will want to keep secure is your email password. If you lose your password on your hosted_wallet_account, you can request a password reset. They will send that to your email.

DO NOT SHOW or TELL ANYONE EITHER OF THOSE!  If you have to, start a new email address!

(2)  Bitcoin Wallet Private Key – every wallet has a public key and a private key. They mean exactly that:  Private and Public. The public key is the one that you give out to other people. That is how they send you money. Just like your email address is how people send you email. Your bitcoin public address is how people send you bitcoin. However, your private key should only be seen by you and only you.

If someone else should see either of these, your wallet is at risk of losing all of your bitcoin.

On a related note, since bitcoin is a decentralized network there are more and more applications being developed for bitcoin that revolve around the security being on the individual level. This is a change in shift from banks and other centralized institutions that have always had hosted servers sitting under their control. One of the big ways that the focus is shifting to users is by putting all of the responsibility about security on each bitcoin user. That is vital to understand:  wallet security is of the highest importance in the bitcoin ecosystem. This cannot be said enough. You can ask anyone familiar with bitcoin.

On final note:  if you want someone to show you how to create a wallet – then have them show you – but do not use that wallet. Go and make a brand new one… after you learn how… all by yourself. I highly recommend doing this by yourself. If you have anyone around you, then you could be putting your funds at risk. This is more than just trusting another person. There is no fallback like traditional financial systems. There will not be any help if someone else knows your private key or password. The funds will just be gone.

I hope that this helps you further understand Wallets and Security in the bitcoin world. Be sure to check out the other posts in the Bitcoin 101 Series and stay tuned next time when we dive even deeper into the world of bitcoin!

 

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www.coinbase.com/brockton

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