With the invention of Bitcoin and other cryptocurrencies, we can now be our own bank. The unfortunate part is that we may also be robbed like a bank, and it often occurs to those that practice poor security measures. Unlike traditional banks and fiat currencies, we do not receive protection from the federal government.
If you use a wallet application on your smartphone or computer, your cryptocurrencies are stored within a local file known as a “hot wallet”. Within this wallet file, often named wallet.dat, are two randomly generated strings that make up your public and private keys. The public key is shared with others in order to tell people where to send transfers. The private key is the password to your wallet and this is what thieves are after.
A cold wallet is disconnected from wallet applications and is often stored away from your internet-connected computers or devices. A cold wallet may still receive funds like a hot wallet but must be restored as a hot wallet in order to send funds. Combined with a solid cryptocurrency storage solution, these wallets are near impossible to crack remotely.
Hackers are always implementing creative ways to swipe hot wallets, both web-based or locally stored. For example, most modern viruses will scan your computer for wallet files and upload them to their remote servers. Skilled identity thieves may also use your information to finesse an exchange’s customer support to gain access to your wallet, as shown in the Coinbase account cracking demonstration.
A secure cryptocurrency storage solution is really the only means to avoid most theft scenarios. Let’s go over some of the proven methods of making our wallets impenetrable.
One of the most classic methods of cold storage is storing one’s private keys onto a piece of paper known as a “paper wallet”. Most of these paper wallets may have unique designs or patterns but your bitcoins are actually stored within a small QR code in the corner.
In order to claim your coins from a paper wallet, you may use a QR code scanning application on your smartphone to reveal the public and private keys. These keys may be imported into your wallet application so that you may once again make transactions.
Of course, this is like putting your entire bank account on a piece of paper, making it vulnerable to local thieves instead of hackers. This is why the latest paper wallet generators will implement BIP-38 password encryption so that your private keys are not in plain view.
Creative ways to hide the QR code within a paper wallet should also be taken to prevent localized theft. Creating paper wallets disguised as newspaper clippings or business is one idea. The wallet may also be split into multiple parts.
Mnemonic Recovery Phrase
A mnemonic recovery phrase, which some also refer to as brain wallets, converts your public and private keys into a memorable 12-word phrase. It is the only cryptocurrency cold storage method that won’t leave behind a digital or physical footprint. This phrase may then be entered into a compatible wallet application to be used as a hot wallet.
This is made possible due to the pairing with the BIP39 encryption standard, which has a list of 2048 words that may be paired with your key. In practice, it is equivalent of 128-bit encryption and is the same level of encryption of the official Bitcoin client.
It is possible to add another authentication level to a mnemonic phrase like an authentical password or a “13th word” to the phrase. Decoys of your 12-word phrase may also be created using the same combination of words but with a different authentication password.
Encrypted Storage Devices
There are countless methods of using a storage device to create an encrypted storage device to back up your cold wallets. From flash drives to tape drives, it is possible to keep your keys safe within any digital storage medium.
The most common solution is to create an encrypted flash drive since it is highly portable. Using an offline Linux environment, you may encrypt the entire device using the loop-AES encryption method and store your private keys within the device. Assuming you use a strong password, it is inconceivable that it can be decrypted by a hacker.
Since some hard drive manufacturers offer their own proprietary encryption methods, you may buy a hardware encrypted hard drive to store your cold wallet. Instead of encrypting the drive with your operating system, the internal controller will encrypt data with 256-bit AES keys.
Secure Drive Hardware Wallet
You’ve seen many hardware wallets on the market but Secure Drive has set the new standard for cryptocurrency cold storage. As it is pending a FIPS Level 3 certification, it is resistant to both physical and digital tampering as indicated by the FIPS 140 guidelines. It is also manufactured in the United States, assuring that there are no back-doors from a shady Chinese company.
It’s internal hardware encrypted hard drive cannot be cracked so easily by even the most skilled electrical engineers as it is tamper-proof. If someone attempts to hack the encryption chip, it will break apart upon disassembly. The information of the drive will also be entirely encrypted at rest so it would be futile for a criminal to attempt data recovery on the disk platter.
With a capacity of up to 8-Terabytes of storage, there is enough space for entire blockchain ledgers may be stored on the encrypted hard disk. Since some externally hosted blockchains can become corrupted, you will have the real deal on your hard drive.
Since you shouldn’t keep your high-value Bitcoin stash in one place, your Secure Drive is capable of replicating itself to an encrypted hard disk. It would be a wise idea to create copies and store them in safes or security deposit boxes.
The company behind Secure Drive has been involved with data security before Bitcoin even came to fruition. The other hardware wallet manufacturers are amateurs in comparison and do not produce air-tight products like SECUREDATA. You will not be disappointed after investing in your new Secure Drive KP or Secure Drive BT.