How to Secure Your Bitcoins

1. Why secure your Bitcoin yourself?

One of the main revolutions made possible by Bitcoin is that it lets you store your assets yourself. You can become financially sovereign today by creating an independent Bitcoin wallet. However, being independent of banks is not enough… You must also be independent of exchanges!

When you keep your bitcoins on an exchange, you entrust it with securing your assets. This is quite convenient at first, but it is not a sustainable long-term solution. It means depending on a trusted third party and recreating the limitations of the traditional financial world.

By entrusting your bitcoins to Binance, you risk the company going bankrupt or being hacked. This has happened to many platforms. The most emblematic case was the hack and bankruptcy of MtGox in 2014. The platform had 744,408 bitcoins stolen that it held on behalf of its customers.

The advantage of holding your bitcoins yourself is that you are responsible for your own security. We buy bitcoins to become free, and we do not want to depend on someone else to secure them.

When you hold your own private keys, no state or bank has power over your bitcoins. You can send them to anyone on Earth in a few minutes, for a few cents, in a censorship-resistant and irreversible way.

2. How can you secure your coins off exchanges? (Secure & censorship-resistant)

There are two types of cryptocurrency wallets: cold wallets and hot wallets.

A) Cold wallets:

Cold wallets are the most secure wallets. They are called cold because they are disconnected from the internet. They secure your private keys on a small hardware device shaped like a USB stick. This small device contains highly secure chips. It generates your secret codes and stores them in a tamper-resistant way.

Thanks to it, a hacker could not steal your funds remotely. Even if your computer were infected with the worst viruses, your funds would remain inaccessible.

Cold wallets are also protected against physical attacks. A hacker holding one would not be able to steal your funds. The smart cards inside these hardware devices are, in principle, tamper-proof.

The best-known hardware wallets are Ledger and Tresor which are compatible with most cryptocurrencies. More experienced Bitcoiners generally opt for the Coldcard, which is Bitcoin-only and includes more advanced features. It is air-gapped, so it does not need to be connected to your computer with a cable.

What happens if your wallet breaks or is lost?

Regardless of the model you choose, your funds will remain safe. The private keys stored on the device can always be restored on a new device. To do this, you must keep safe a list of 24 words created when you set up your device.

B) Hot wallets

Hot wallets are software and apps that you download to your computer or phone. They are free and very convenient, but less secure than physical wallets.

Because they are connected to the internet, a hacker could infect your computer and steal your funds. Some of the best-known options include BlueWallet and Samourai Wallet for Bitcoin, and MetaMask for altcoins.

Cold and hot wallets are above all complementary. If you handle small amounts, you can start with a mobile app. However, once you exceed $3k, it becomes worthwhile to get a hardware wallet.

Unlike a bank that would charge you every year to hold your shares, you only pay once for your hardware wallet. It is a good investment.

The Hidden Feature of Your Hardware Wallet: The Passphrase

Here we use Ledger as an example, but this feature is available on many other hardware wallets.

When setting up your Ledger, it generates a sequence of 24 words. These let you restore your cryptocurrency wallets if your device is lost or stolen. You must keep this sequence of 24 words secret and store it somewhere secure.

This system nevertheless has one weakness: a thief who gets hold of your 24-word sequence could restore your wallet.

That is where the hidden “Passphrase” feature, also called the “25th word,” comes in. This little-known feature lets you create a new, hidden wallet on your Ledger.

Your wallet combines your 24 words with a phrase of your choice to create a second, hidden wallet.

This technique is very practical because it lets you store the 24 words and the passphrase in separate places. For example, you could keep your 24 words at home and ask a family member to store your passphrase at their home. A burglar who found either one would not be able to access your funds. 

This also offers some protection against extortion. If an armed person enters your home and demands that you unlock your wallet and send them the funds, you can unlock the decoy wallet. Your Ledger can be configured with two different PINs that unlock two different interfaces. Simply keep a few cryptocurrencies in the less secure wallet (24 words) and hold most of your funds in the more secure one (24 words + passphrase).

This method is fairly easy to set up and is supported by many wallets. Here are some resources to help you:

• The tutorial from the Découvre Bitcoin about the passphrase.
• Ledger’s guide to setting up the passphrase.

Engrave Your 24 Words in Steel:

Your 24-word phrase is the most secret thing you possess. It lets you restore your funds.

It is important to keep it safe on a medium disconnected from the internet to prevent any leak. Most Bitcoiners write it on a piece of paper and hide it carefully.

If you start accumulating large amounts of cryptocurrency, I recommend engraving it on a metal medium. This will allow your backup to withstand fire, water, and the passage of time.

• For example, there are Cryptosteel steel capsules (99 €).
• You can also easily make your own with a bolt, washers, and a nut (<40 €).

Watch the video by Découvre Bitcoin about protecting your 24 words.

What are the Different Levels of Security?

Here is a completely subjective estimate of the measures to take depending on the amounts to secure. Adapt them to your needs and preferences, and do not hesitate to move up a level if you have trouble sleeping at night! ?

• From €0 to €100: on your exchange (very easy).
• From €0 to €5k: a cold wallet on your phone or computer to manage your bitcoins yourself (easy and free).
• From €3k: buy a cold wallet : Ledger, Tresor (easy).
• From €15k: set up a passphrase on your Ledger to increase your security (medium difficulty).
• From €30k: engrave your keywords in steel.
• Over €150k: set up a multisignature wallet with several hardware wallets (advanced difficulty).

The Main Security Mistakes :

Do not make things too complicated !

The best level of security is the one you understand. Use common sense and take things step by step. Do not move all your funds to a solution you do not fully understand or control.

Even if you have a hardware wallet and your secret codes buried in the garden, you must be able to move your funds easily when needed. The highest security levels can be difficult to use day to day, and you do not need the same level of security for €20 as for €1 million.

• Complexity is the enemy of security.

You are your own worst security enemy !

It is much easier to get your funds by manipulating you than by hacking your wallet. Most cryptocurrency thefts happen because people willingly grant access to their money.

This can take several forms:

• Some hackers impersonate trusted organizations to ask for your secret codes. NEVER GIVE OUT YOUR 24 OR 12 WORDS. UNDER ANY CIRCUMSTANCES. If someone asks for your private key or recovery phrase, close the page—it is a scam. Example of a hack: the PancakeSwap protocol’s website was hacked. Visitors saw a message asking for their recovery phrase. Everyone who fell for it lost their funds instantly.
• Fake cryptocurrency websites and apps: some malicious actors copy project websites perfectly to trick you into sending your funds to the wrong place. Be careful about the apps you download on Android, and check the URLs of websites you visit. Legitimate projects will never contact you on Telegram to ask you to invest.
• Do not join pump-and-dump groups. Group administrators often use you to sell off their holdings of shitcoins.