5 quick security tips for bitcoin beginners
Are you new to bitcoin? Don’t sweat it. Bitcoin is brand-new technology in the grand scheme of things, and we’re all still learning about it.
The good news is if you’re here, you’re still an early adopter. The Internet was around for more than 20 years before it caught on in the 1990s. Bitcoin has a lot of room to grow as a decentralized, censorship-resistant store of value. Consider this article a basic primer for a safe trip down the rabbit hole.
Don’t spend bitcoin unless you really mean it
Okay, this first tip might sound a little crazy. Why would we ever suggest hesitating when it comes to bitcoin? The reality is there’s more to bitcoin than meets the eye.
First and foremost, there are no do-overs in bitcoin. On-chain bitcoin transactions are permanent. Once you broadcast a transaction to the network and it’s confirmed in a block, it’s locked in for all practical purposes. This means if you spend bitcoin to another address, it’s gone for good.
Bitcoin is irreversible and this cannot be understated. It’s also markedly different from the rest of our financial system. You can dispute credit card charges with your card provider. If your bank account gets hacked, your bank might reimburse you. Why they can do that is another story, but there is no customer support line for bitcoin. You’re responsible for your money.
Now, this isn’t meant to scare you. Just be careful when spending bitcoin. Always validate the address before you send your transactions. Even bitcoin OGs double-check addresses before spending. With great power comes great responsibility.
Keep track of your taxes
When you first start exploring bitcoin, it’s easy to fall in love with buying and selling it. The network runs 24 hours a day. For newcomers especially, the always-on nature of bitcoin can be addicting. Making purchases releases hormones in our brains, and an exchange app on your phone can feel like a video game that’s always waiting for you.
But trading bitcoin is more than a game. Like other investments, bitcoin transactions come with tax implications. And buying and selling bitcoin can result in you owing capital gains taxes. Always maintain proper documentation of your bitcoin transactions, including buys and sales on exchanges.
Take self-custody of your bitcoin
When you buy bitcoin on an exchange, you don’t really own the bitcoin. What you have is essentially an IOU – an entry on the exchange’s database — that isn’t redeemed until you withdraw your bitcoin onto your own address.
The reason for this lies in how bitcoin is designed. To spend bitcoin, you must have the private key for the address in question. If your bitcoin is held with a custodian or exchange, they hold the key so they’re responsible for protecting your bitcoin. Exchanges are attacked frequently because they have a lot of your bitcoin. As an individual, you’re far less likely to attract the same attention as an exchange.
Throughout bitcoin’s history, exchanges have struggled to keep bitcoin safe from attacks with several catastrophes over the years, and they continue to lose bitcoin to this day.
In short, don’t leave your bitcoin on an exchange.
Get started with self-custody now
With Casa, you can hold your bitcoin with institutional-grade security and the straight-forward experience of a simple app. We use multiple keys to protect bitcoin, so your bitcoin is susceptible to exchange hacks and other single points of failure. Learn more here.
Don’t tell everyone about your bitcoin
We get it: Bitcoin’s an exciting technology, and it’s fun to share that excitement with others. That said, there’s a difference between talking about money and bragging about how much you have.
We can attract negative attention when we flaunt our wealth or mention specifics about our holdings. Bad actors look for easy targets, and it’s far more convenient to target people with expensive taste and loose lips than the average person who may or may not have bitcoin.
Security begins with privacy. By keeping a low profile, you can drastically reduce the security threats to your bitcoin and in your everyday life.
Eliminate single points of failure
A smart security setup protects against single points of failure, instances where your bitcoin is consolidated in one place and vulnerable to attack.
Single points of failure are common in bitcoin because your bitcoin is dependent on how you store your key. An exchange can be a single point of failure if all your bitcoin is stored there. Similarly, a hardware wallet or seed phrase can be your undoing if they fall into the wrong hands.
Casa shields your bitcoin with multiple keys on different devices stored in different locations. You hold all your own keys, except for the Casa Recovery Key, which we safeguard on your behalf. That way, your bitcoin is still secure even if a key is lost or stolen. It’s the best protection against hacks, accidents, and other single points of failure.
We’ve all been beginners at some point with bitcoin. The important thing is to never have to start over again. Hold your keys with Casa today.
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Nick Foley