Blockchain technology is secure and private by design. After a block stores ledger information, that block closes to further changes unless millions of distributed users authenticate the change. That’s highly improbable, so once data is added, you can consider it permanent. The inability to change is a good thing – unless the information stored is incorrect. Then you’re in trouble.
You open a point of vulnerability whenever you connect with the blockchain to add new information. When you set up cryptocurrency accounts, you set up several passwords and authentication keys. If a hacker can steal this information from you, then they can pretend to be you. The fraud process is more complex but similar to someone stealing your email password and sending out emails in your name. The recipients of those emails will think it is a legitimate email from you.
Wallets are designed to reduce this risk. A wallet is an application or device that stores your private keys so that you can buy, sell, and trade Bitcoin or other cryptocurrencies. A cryptocurrency wallet doesn’t hold your currency like a real-life wallet. Instead, it stores and protects the keys that allow you to access your funds. Another metaphor for a crypto wallet is a savings passbook. These passbooks have gone by the wayside, but you may remember when you couldn’t withdraw money from (or even put it in) unless you handed the bank teller the physical passbook. But if your brother “borrowed” your passbook, he could clean out your account. Similarly, you cannot access your cryptocurrency without a wallet.
There are many wallets on the market with a range of options. For long-term investing, the primary concern is security closely followed by the time it takes to access your funds. The best cryptocurrency wallet that we have found is BitGo. While many wallets only use two, the BitGo Wallet generates three electronic keys to maximize security. Users need two of the three keys to open your wallet. BitGo stores one of the keys. Kingdom Trust (a custodian BitGo is acquiring) stores the second key. This key is protected by Fort Knox-level security measures including biological scanners and servers that are not connected to the Internet. Finally, the third key is stored at a high-security data recovery center in case one of the other keys is lost or damaged.
A pay to script hash (P2SH) sends transactions to an alternate address instead of your public key hash. The recipient shows a matching script to complete the transaction. P2SH allows you to transfer cryptocurrency without knowing the recipient’s security protocols. It works in reverse, too, so your security protocols are invisible to trading partners. This high level of security is one of the primary reasons we think BitGo is the best cryptocurrency wallet for retirement investments.
The BitGo wallet protects your privacy. Blockchain technology requires vigilant procedures to prevent the exposure of your transactions and balances. Wallets that only use one address for all of your activities make it easy to reveal financial data accidentally. Bitcoin Improvement Proposal 32 (BIP 32) specifies how to derive multiple cryptographic keys so that transactions stay private without asking users to keep track of several keys. When you make a transaction, BitGo alters your wallet address so that anyone looking will think it’s a new account.
Our cryptocurrency specialists are always available to help you navigate the emerging field of digital money. We are excited about this new world and love to talk about it. If you want to discuss the best cryptocurrency wallet – or anything else – we are here to answer questions and share accurate information without sales pressure.
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