Bitcoin for beginners

An overview of security and privacy

Security

On this page, we will explain some of the potential hazards to avoid. Although Bitcoin itself is very secure if it is used correctly, there are things you need to bare in mind to keep your money safe. Bitcoin lets you transfer money in a different way than you might be accustomed to. As such, you should take time to learn about security before using Bitcoin for any serious transaction. Bitcoin should be treated with the same level of care as the wallet in your pocket, or even more in some cases. Always remember that it is your responsibility to adopt good practices in order to protect your money.


Be careful with online services

Rule #1 of Bitcoin is that if you don't have control over the private keys, you don't have control over your bitcoins. You should be wary of any service designed to store your money online, as that service will usually control the private keys. Many exchanges and online wallet services have suffered from security breaches in the past. They are generally not secure enough to be used to store money like a bank. If you've heard stories about lost or stolen bitcoins, it was most likely as a result of someone inexperienced trusting a third party to look after their coins. Keep them in your own wallet where it's safe. Don't trust others to look after your money for you.


Keep backups of your wallets offline

As with all things stored electronically, it is important to make backups to prevent losses. An offline wallet, also referred to as cold storage, provides a higher level of security for savings. It involves storing a wallet in a secured place that is not connected to the network. When done properly, it can offer very good protection against computer vulnerabilities. Be sure to have more than one backup. Store backups on USB sticks, external hard drives, CDs, or other types of types of storage media that are not connected to the internet. In the past, people have lost large sums due to computer failures, or losing their smartphone with a wallet on there, because they didn't have a backup.


Don't keep large sums in one place

Because you can have multiple addresses and even multiple wallets, there's no need to put all your money in a single place. If you wouldn't keep a thousand dollars in your pocket, you might want to have the same consideration for your Bitcoin wallet. In general, it is good practice to keep only small amounts of bitcoins on your computer, smartphone, or server for everyday uses and to keep the remaining part of your funds in a safer environment.


Use paper wallets for extra security

A paper wallet is a mechanism for storing bitcoins offline as a physical document that can be secured like cash or anything else of real-world value. Paper wallets are generally created by printing a brand new public address and private key onto paper, and then sending bitcoins from a "live" wallet to the printed wallet's public address for safekeeping. If good security practices are followed, paper wallets are one of the safest ways to to store bitcoins.


Securing your wallet environment

Like in real life, your wallet must be secured. Be sure to protect your computer against viruses and other malware. If you often have issues with viruses affecting your computer, Bitcoin may not be a suitable payment platform for you. If you keep your wallet on your smartphone or other portable devices, be sure to use a secure passphrase to make sure no one can gain access if the device is lost or stolen.


Never forget your password

You should make sure you never forget the password to your address or your funds will be permanently lost. Unlike your bank, there are very limited password recovery options with Bitcoin. In fact, you should be able to remember your password even after many years without using it. If in doubt, you might want to keep a paper copy of your password in a locked, safe place.


Use a strong password

The longer a password is, the harder it is to break. Ideally you should aim for at least 16 characters long. Use a short series of words if one word isn't long enough. Any password that contains only letters or recognizable words could be considered weak and fairly easy to break. A strong password should also contain numbers and punctuation marks. The most secure passwords are those generated by programs designed specifically for that purpose. Strong passwords are usually harder to remember, so you should take care to remember them.


Keep your software up to date

Using the latest version of your Bitcoin software allows you to receive important stability and security fixes. Updates can prevent problems of various severity, include new useful features and help keep your wallet safe. Installing updates for all other software on your computer or smartphone is also important to keep your wallet environment safer.


Multi-signature to protect against theft

Bitcoin includes a multi-signature feature that allows a transaction to require the signature of more than one private key to be spent. It is currently only usable for technical users but a greater availability for this feature can be expected in the future. Multi-signature can, for example, allow an organization to give access to its treasury to its members while only allowing a withdrawal if 3 of 5 members sign the transaction. It can also allow future online wallets to share a multi-signature address with their users, so that a thief would need to compromise both your computer and the online wallet servers in order to steal your funds.


Other things to bare in mind

There are some important things you should know if you start using Bitcoin.


Consider your will and testament

If you die, your bitcoins can be lost forever if you don't have a backup plan for your peers and family. If the location of your wallets or your passwords are not known by anyone when you are gone, there is no hope that your funds will ever be recovered. Taking a bit of time on these matters can make a huge difference.


Bitcoin price is volatile

The price of a bitcoin can unpredictably increase or decrease over a short period of time due to its young economy, novel nature, and sometimes illiquid markets. Consequently, keeping your entire savings with Bitcoin is not recommended at this point. Bitcoin should be seen like a high risk asset, and you should not store money that you cannot afford to lose with Bitcoin. If you receive payments with Bitcoin, many service providers can convert them to your local currency at the time of the payment to negate the risk of any fluctuations in price.


Bitcoin payments are irreversible

Any transaction issued with Bitcoin cannot be reversed. They can only be refunded by the person receiving the funds, assuming they are willing to. That means you should take care to do business with people and organizations you know and trust, or who have an established reputation. For their part, businesses need to keep control of the payment requests they are displaying to their customers. Bitcoin can detect typos and usually won't let you send money to an invalid address by mistake. Additional services might exist in the future to provide more choice and protection for the consumer.


Instant transactions are less secure

A Bitcoin transaction is usually deployed within a few seconds and begins to be confirmed in the following 10 minutes. During that time, a transaction can be considered authentic but still reversible. Dishonest users could try to cheat. If you can't wait for a confirmation, asking for a small transaction fee or using a detection system for unsafe transactions can increase security. For larger amounts like 1000 US$, it makes sense to wait for 6 confirmations or more. Each confirmation exponentially decreases the risk of a reversed transaction.


Bitcoin is still experimental

Bitcoin is an experimental new currency that is in active development. Although it becomes less experimental as usage grows, you should keep in mind that Bitcoin is a new invention that is exploring ideas that have never been attempted before. As such, its future cannot be predicted by anyone.


Government taxes and regulations

Bitcoin is not an official currency. That said, most jurisdictions still require you to pay income, sales, payroll, and capital gains taxes on anything that has value, including bitcoins. It is your responsibility to ensure that you adhere to tax and other legal or regulatory mandates issued by your government and/or local municipalities.


Privacy

Bitcoin is often perceived as an anonymous payment network. But in reality, Bitcoin is probably the most transparent payment network in the world. All Bitcoin transactions are stored publicly and permanently on the network, which means anyone can see the balance and transactions of any Bitcoin address. Bitcoin can provide acceptable levels of privacy when used correctly. The identity of the user behind an address remains unknown until information is revealed during a purchase or in other circumstances. Always remember that it is your responsibility to adopt good practices in order to protect your privacy.


Understanding Bitcoin traceability

Bitcoin works with an unprecedented level of transparency that most people are not used to dealing with. All Bitcoin transactions are public, traceable, and permanently stored in the Bitcoin network. Bitcoin addresses are the only information used to define where bitcoins are allocated and where they are sent. These addresses are created privately by each user's wallets. However, once addresses are used, they become tainted by the history of all transactions they are involved with. Anyone can see the balance and all transactions of any address. Since users usually have to reveal their identity in order to receive services or goods, Bitcoin addresses cannot remain fully anonymous. For these reasons, Bitcoin addresses should only be used once for such transactions.


Use new addresses to receive payments

To protect your privacy, you should use a new Bitcoin address each time your receive a new payment. Additionally, you can use multiple wallets for different purposes. Doing so allows to isolate each of your transactions in such a way that it is not possible to associate them all together. People who send you money cannot see what other Bitcoin addresses you own and what you do with them. This is probably the most important advice you should keep in mind.


Use change addresses when you send payments

You can use a Bitcoin client like Bitcoin-Qt that makes it difficult to track your transactions by creating a new change address each time you send a payment. For example, if you receive 5 BTC on address A, and you later send 2 BTC to address B, the remaining change must be sent back to you. Some Bitcoin clients are designed to send the change to a new address C in such a way that it becomes difficult to know if you own Bitcoin address B or C.


Be careful with public spaces

Unless your intention is to receive public donations or payments with full transparency, publishing a Bitcoin address on any public space such as a website or social network is not a good idea when it comes to privacy. If you choose to do so, always remember that if you move any funds with this address to one of your other addresses, they will be publicly tainted by the history of your public address. Additionally, you might also want to be careful not to publish information about your transactions and purchases that could allow someone to identify your Bitcoin addresses.


Your IP address can be logged

Because the Bitcoin network is a peer-to-peer network, it is possible to listen for transactions' relays and log their IP addresses. Full node clients relay all users' transactions just like their own. This means that finding the source of any particular transaction can be difficult and any Bitcoin node can be mistaken as the source of a transaction when they are not. You might want to consider hiding your computer's IP address with a tool like Tor so that it cannot be logged.


Limitations of mixing services

Some online services called mixing services offer to mix traceability between users by receiving and sending back the same amount using independent Bitcoin addresses. It is important to note that the legality of using such services might vary and be subjected to different rules in each jurisdiction. Such services also require you to trust the individuals running them not to lose or steal your funds and not to keep a log of your requests. Even though mixing services can break traceability for small amounts, it becomes increasingly difficult to do the same for larger transactions.


Future improvements

Many improvements can be expected in the future to improve privacy. For instance, some efforts are ongoing with the payment messages API to avoid tainting multiple addresses together during a payment. Bitcoin-Qt change addresses might be implemented in other wallets over time. Graphical user interfaces might be improved to provide user friendly payment request features and discourage addresses reuse. Various work and research is also being done to develop other potential extended privacy features like being able to join random users' transactions together.


Next section ➜ Getting Bitcoin


Key Points

Private keys are private
Do not share your private keys or other people can spend your bitcoins.

Exchanges are not banks
Don't trust others to keep your bitcoins safe. It's your responsibility.

Don't forget your passwords
If you don't think you'll remember them, write them down and keep them somewhere locked, safe and secure.

Make backups
If your computer dies, or you keep it on your phone and lose it, you won't get those coins back unless you have a backup.

Store coins offline
There is a chance that any computer connected to the internet may be vulnerable. Large sums should be stored offline.

Be alert to scams
Never transfer money to a website or individual unless you know they can be trusted, or if it's a small amount and you don't mind gambling.



Bitcoin Price

The average price of a bitcoin in US Dollars ($) is currently:




Latest News

For the latest news, events and updates, follow us on Facebook: