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How To Stop Bitcoin Theft, Aviod The Mistakes of Bitfinex Users and Make Bitcoin Safer than Cash! 10 Aug 2016, midnight

Read time: 11 minutes


Bitfinex users have been told to expect to loose 36% of all their Bitcoin savings!

The Problem:

After the recent attack at Bitfinex, where nearly 70 Million USD was stoledn and the losses are to be spread across all Bitfinex users there is now a very common belief that there is no exchange secure enough to store Bitcoin!

The Question:

Can Bitcoin ever be as safe as Cash?

Although BitcoinMinersUK is not in the business of Bitcoin trading or storage of currency, many of our customers and subscribers have raised concerns and asked us questions about keeping their Bitcoins safe. We hope this article answers this problem.

Last week customers of Bitfinex who stored Bitcoins at the popular exchange were informed they will lose 36% of their savings following the cyber-attack. Bitfinex, who are based in Hong Kong, reported losses of up to ($65m) / £49m!

They have now made a controversial decision to spread the loss across all of the users, resulting in them losing 37% of their Bitcoins. A Bitcoin expert said the decision to "socialise" losses has serious implications for the digital currencies.

"Anyone who holds any asset at any exchange realises they're part of the insurance plan for others," stated Emin Gun Sirer at Cornell University.

In a statement on their website, Bitfinex asserted,

"We have decided to generalise losses across all accounts.” "Upon logging into the platform, customers will see that they have experienced a generalised loss percentage of 36 percent."

Further particulars of how the figure was reached will be published at a later date; the firm added.

Clients were also informed they would receive a "Bitfinex token" equivalent to their losses. The tokens eventually will be traded for repayment by Bitfinex or for shares in the parent company iFinex.

 In 2014, large Bitcoin exchange Mt Gox collapsed - leaving many out of pocket

Bitfinex admitted a total of 119,756 Bitcoins were stolen by hackers; which was not the first attack they suffered. In May 2015, 1,500 Bitcoins were robbed in a previous attack. Although I'm not in favour of storing Bitcoins with other companies, Bitcoin Miners UK finds Bitfinex's conduct rather commendable as they have been open and honest and are doing everything within their power to put things right for their customers. This cannot be said for the users of Mt Gox who lost 7 times the amount of Bitcoin (850,000 BTC) and were offered very little in the form of a solution. Although the decision is not going to be popular with everyone, I like the fact that Bitfinex does seem to be doing their best to resolve the issue, and don't believe it will be a straightforward process as there are not only many moral issues at stake with the "socialising" losses, there are also many legal ramifications as Hong Kong businesses differ to Mt Gox's Japanese system which is more similar to the bankruptcy system adopted by the US. This is early days for Bitfinex and there are many rough times ahead!

'Rough' times ahead

Subsequent news that Bitfinex suffered the considerable loss of Bitcoins, the price of the crypto-currency fell by more than 20%; though it has rebounded slightly since.

"It's going to be rough," Doctor Sirer stated. "I think we are going to see a move towards models with better-understood insurance." Professor Alan Woodward at the University of Surrey also advised that the "vast majority" of people hold Bitcoins in exchanges and online wallets.

"It's a bit like your bank account having money taken from it and then your bank writing to all customers saying it will spread the losses across all of them,"

ROUND UP

I am sympathetic to anyone who looses Bitcoin, however, to me and many other Bitcoiners, storing your Bitcoins or any crypto-currency in an exchange defeats the object of Bitcoin. Obviously, it may be necessary to keep some amount of funds in an online account, but to keep all your Bitcoins in one account is complete madness. No matter how many security features are put in place on an exchange, anyone keeping millions of dollars online is going to be an attractive target for many hackers.

I would strongly advise anyone to look into Bitcoin wallets, at the end of last year we published an article https://bitcoinminersuk.com/blog/best-bitcoin-wallets-2015/ and we strongly advise you read through it, our opinions on the wallets have not changed.

How to stop Bitcoin Theft.

Many people new to Bitcoin love the idea of it but get scared of the concept of their money being stolen, especially if they were to commit a large amount of their savings or use it for their businesses. To this, I would say there is nothing to worry about if you avoid the use of any exchanges and familiarise yourself with a good Bitcoin wallet.

Our Favourite Bitcoin Wallets

Desktop Bitcoin Wallets

Multibit – Pros: A fast user-friendly wallet. Cons: Privacy and Security could be better. Our Favorite Desktop Wallet Bitcoin Armory

Armory – Pros: Ultra secure, feature full. Cons: Difficult for newbies. We love both the above, but if you are storing a lot of Bitcoins or are very security conscious, then take the time to familiarise yourself with Armoury. We love all the features, especially the Multi-Signature, which is going to give you more than enough security.

Mobile Bitcoin Wallets

Blockchain – Pros: Most popular wallet today. Trusted. Cons: Lack of anonymity. MyCelium Bitcoin Wallet App MyCelium – Pros: Advanced Privacy and Security. Cons: Very few if any.

We mention the two above as they are both popular, however, we would say that there is nothing that compares to MyCelium on the mobile scene at the moment.

Online Bitcoin Wallets

BlockChain Bitcoin Wallet We aren’t too keen on Web-based wallets,but there are obvious advantages. Web-based Bitcoin wallets store your private keys online, on a computer composed by someone else and connect to the Internet. Many online services are available, and some can be linked to desktop and mobile wallets, replicating your addresses between the different devices that you own.

One advantage is that you can access them from anywhere, regardless of the device you’re using. However, they also have a major disadvantage; unless implemented properly, they can put the organisation in control of the website in charge of your private keys – virtually taking your Bitcoins out of your control, which is a scary thought, especially for people with lots of Bitcoins!

Coinbase - An integrated Bitcoin/Wallet exchange, operates its online wallet worldwide. Users in the US and Europe can also buy Bitcoin through its exchange services.

Circle – Offers its users worldwide the option to send, store, receive and buy Bitcoins. At present only US citizens can link their bank accounts to deposit funds, but credit and debit cards can also be used in other countries.

Blockchain – Part of its major popularity is not just being long established on the Bitcoin scene, it also has a popular web-based wallet which works in unison with the mobile apps!

Strongcoin - Offers what it describes as a hybrid wallet, which encrypts your private address keys before sending them on to its servers.

Xapo - Aims to give you the convenience of a simple Bitcoin wallet, with the added security of a cold-storage vault.

Hardware Bitcoin Wallets

We are excited about hardware wallets, which are relatively new which explains why they are limited in numbers. These dedicated devices can hold private keys electronically and facilitate payments. Trezor Bitcoin wallet

Trezor hardware wallet – Our personal favourite at the moment, we plan to start selling these soon! Priced around $99 it's aimed at Bitcoin users who wish to store a substantial amount of Bitcoins, but do not want to rely on third-party storage services or difficult forms of cold storage.

Ledger USB wallet – Another great wallet, and very cheap (under $50), they have many new additions so check out their website.

KeepKey - Launched their hardware wallet in September 2015, which is priced at $239 a unit. This we found rather irritating, as the wallet software was originally a fork of Trezor's code. However, it is now at the same price as the Trezor and is more aesthetically pleasing. From what we see there is little between these hardware wallets, so we would suggest you look at them and choose on your own personal preference.

Paper Bitcoin Wallets

Bitcoin Paper Wallets The cheapest option and one of the most popular for keeping your Bitcoin safe is something called a paper wallet. There are many sites offering paper Bitcoin wallet services. They will generate a Bitcoin address for you, then create an image containing 2 QR codes. One QR code is the public address that you use to receive Bitcoin payments, the other QR code is for the private key, which can be used to spend the Bitcoins stored at that address.

Bitcoin Paper Wallet The benefits of a paper wallet (that is made correctly) are the private keys are not stored digitally anywhere, and therefore are not subject to the common cyber-attacks and there is also no issue of hardware failure. We are soon to make a tutorial on how to create a Paper Wallet.

Summary: Are Bitcoin wallets safe?

It depends on how you handle them; the private keys stored in your wallet are the only route to accessing the transaction data stored in the Bitcoin address. If you lose your keys, you lose your Bitcoins. So they are only safe in the sense that no-one else can gain access to them, or they don’t get lost.

Are Bitcoin wallets anonymous?

Are Bitcoin Wallets Private In one sense, Bitcoin is entirely anonymous; in another, it is completely transparent and traceable. Due to this, Bitcoin is often referred to as being pseudonymous. This then resulted in some companies surfacing with the objective of controversially tracking dubious transactions in order to attempt to 'police' the blockchain. To oppose this, ideas were developed in the Bitcoin community to further anonymity, such as stealth addresses, merge avoidance and coin mixing.

The alpha adaption of Dark Wallet – a crowdfunded Bitcoin wallet – was launched in May 2014. Created by Cody Wilson and Amir Taaki, Dark Wallet was formed to offer new tools for financial concealment, including a built in stealth wallet addresses and coin mixing. At present, the developers are imploring users to use the testnet with “play money” before risking real Bitcoins. Dark Wallet

Using services like Dark-Wallet basically, mean using Bitcoin can be as anonymous and private as you want it to be!

How can I secure my wallet?

There are many ways to make your Bitcoin wallet more secure:

Encrypt it

A sound way to protect your Bitcoins from being stolen or snooped at is to encrypt it using a strong password. This will make it difficult for people to access your wallet, but not impossible. If your computer is compromised by malware, hackers could log your keystrokes to expose your password. This is one reason we favour operating systems like Ubuntu, as the security is generally better than other operating systems and they are not targeted as much as more common OS’s like Windows.

Make a Backup

If your private keys are stored in one wallet and you mislay the wallet or it gets corrupted, you will end up losing your keys; backing up your wallet makes copies of your private keys, however, it's important to back up your entire wallet! Some Bitcoin addresses are used for storing change from transactions and may not be shown to you by default. Backup the whole wallet in different places, and keep them safe. You may be wise to encrypt the folders and/or storage medium for the wallets as well, for further security.

Use Multi Signature

The number of wallets and services supporting multi-signature transactions is on the up. Multi-sig addresses allow for multiple parties to partially seed an address using a public key. When someone wants to make a payment , they need the different people to sign their transaction in addition to themselves. The set amount of signatures required is agreed at the beginning when the address is created.

As multiple signatures are necessary before payments can be made, the signatures could come from, your business partner, significant other, or from a second device which you own, to add a second layer of security to prevent someone stealing your Bitcoins.

Going offline

If you are anxious to store your Bitcoin keys digitally, there is an alternative: Cold storage! Cold-storage wallets store private keys off-line so that they can't be stolen by someone else on the Internet.

We hope this has been helpful, if you have any questions, ideas or suggestions we would love to hear from you!



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