Bitcoin wallet best practices
Source: Pat Litke and Joe Stewart
Dell SecureWorks Counter Threat Unit™ Threat Intelligence
Release Date: 27 January 2014
Introduction
Bitcoin is a digital currency and payment system introduced in 2009. It is a cryptocurrency, so-called because it uses cryptography to control the creation and transfer of money. When working with Bitcoin, wallet security is the name of the game. A Bitcoin wallet is a collection of private encryption keys that can unlock funds sent to their corresponding public keys, or Bitcoin addresses. Whoever controls the private key of a Bitcoin address can spend the funds it contains. Once funds are transferred (that is, signed over to another Bitcoin address), the original owner cannot retrieve them. Essentially, holders of Bitcoin act as their own bank. No one can seize funds without the private key, but no one can replace funds if the private key is lost or stolen.
Ultimate responsibility for the security of a large sum of Bitcoins may be intimidating, but transacting with Bitcoin does not need to be a daunting or risky task.
This analysis requires a basic understanding of the following concepts as they relate to Bitcoin:
The official Bitcoin glossary provides easy to understand definitions. Additional technical information, including answers to frequently asked questions, can be found on the Bitcoin wiki.
- Wallet fundamentals
- Real-world wallet loss
These two examples of poor security practices and subsequent ramifications illustrate some of the avoidable risks associated with cryptocurrencies such as Bitcoin. According to a news story, a laptop discarded in mid-2013 hosted a wallet containing approximately 7, 500 Bitcoins. Bitcoins weren’t valuable in 2009 when they were mined, so the wallet was not backed up. At present value, this user’s loss can be calculated in millions of dollars.
