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How to secure your cryptocurrencies: Is the Blockchain safe?

The risk of owning cryptocurrencies

A cryptocurrency is decentralized, digital money that is created and transacted directly between people without the intervention of an external central bank. But we might wonder how secure such currencies are. Can’t they simply be copied and pasted in order to counterfeit them endlessly?

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The creator of Bitcoin, Satoshi Nakamoto, thought about this and a number of other security issues that virtual currencies can have. He determined a number of solutions that have proven to be very effective.

For example, there is a public ledger where transactions are stored permanently called the “blockchain”. Every single transaction is stored and cannot be changed in the future. And before the transaction is stored, it is verified by a process called “mining”.

There are millions of computers that use their combined resources to verify all transactions, taking some 10 minutes to be printed in the blockchain. Each block of the blockchain is connected with each other so that it creates a unique sequence of blocks which cannot be replicated. For the algorithm, the validity of the blockchain as a whole only makes sense if each individual block is valid.

So copying money (also commonly called “ second spending”) is not permitted, due to the millions of “miners” that verify each transaction. One incoherence in the blockchain would sound the alarm for the whole network.

Artificial scarcity

One interesting fact about cryptocurrencies is that they are also subject to artificial scarcity. Consider, for example, how the limited physical supply of gold stabilizes its price. In the case of bitcoins, there will be an eventual limited supply of 21 million bitcoins. Each time a new block is added to the blockchain, a number of bitcoins are released. The number depends on several mathematical factors, as well as the overall CPU and GPU power needed for the huge number of transactions. It is estimated that all 21 million Bitcoins will be in circulation by 2140.

The pseudo-anonymity of cryptocurrencies

However, if everything is so public how can it also be anonymous? In reality, it is pseudo-anonymous. The cryptocurrencies are stored in digital “wallets” that contain the cryptocurrencies. These wallet or wallets are linked to their owners through a private key, and each private key is associated with a public address.

This means, that if you really wanted to, you could find out who the real person behind a transaction is.

However, there are services and methods that offer complete anonymity (or, at least increased privacy). Cryptocurrencies like Zcash and Monero are known for their increased anonymity. Finding out the person behind a transaction is as hard as making a transaction completely private. The anonymity behind cryptocurrency transactions lies somewhat in the middle, providing a good compromise to all parties involved in the trading of goods and services with cryptocurrencies.

Safety

Another problem that derives from the digital nature of cryptocurrencies is the possibility of hacking. While the blockchain keeps the digital currency safe from hacking, your wallet can still be exposed to malicious software. As with your real wallet, the best way to keep your digital wallet safe is to have it in your pocket with you at all times.

How? You can buy cryptocurrencies from an exchange. This can be done by exchanging either your normal regulated money (also called fiat currency) or a different cryptocurrency for the currency that you want. If you have just purchased the coins for a short-term trade you can leave them inside the wallet of your trusted exchange, e.g. Coinbase. At Tradimo you can find a list of the most popular exchanges. Follow the usual recommendations, like strong passwords and two-factor-authentication, and your wallet should be secure.

But if you have bought your cryptocurrencies for the intention of a long-term investment, you should secure your purchase further and obtain the private key for your cryptocurrencies.

Don’t forget to create a backup. Still, more security can be provided by printing a paper wallet, which comes with a private authentication key or a hardware wallet like Ledger Wallet or KeepKey. The electrum Bitcoin wallet may be the best way to store your bitcoins. You just need a USB Stick to install the portable version of the wallet on. It is just as safe as other hardware wallets.The most practical way through may be to download an app for your smartphone or tablet, because it is easy to use and always available. Moreover, it is safer than your windows machine because most viruses and malicious software are directed towards windows.

Conclusion

To sum it up, you need to be the owner of both your private and public keys. If you don't control your private keys, you are not the owner of your coins, the exchange is the owner. If you ever had to write down 12 or 24 letters and to keep those as a backup then you control them. These letters are generating your private key. If you lose those letters or your private key, you will also lose your coins. There will be no way to get them back. In other words, cryptocurrencies are pretty safe, but as with all things of value, you should protect your digital money adequately and work with high-quality exchanges and solutions.

Opening a trading account

The details behind opening an account and trading will be covered in the next lessons. If meanwhile, you want to open an account with a broker feel free to do so. you can get yourself familiar with the terms and conditions, the interface and the overall services of the broker/s you choose. Remember you can start trading and practicing with a demo account.

At Tradimo we have partnered with the three most reputable brokers when it comes to cryptocurrencies. When you open an account from this page and deposit you will get offers exclusively for Tradimo learners.

Go ahead and explore!