Why the digital currency may be more secure in analog form
By Quentin Fottrell
Last Update:11:09 AM ET Feb 26, 2014
Bitcoin was created to provide an anonymous, digital currency free from government control or physical existence. But after the implosion of bitcoin exchange Mt. Gox, and the apparent obliteration of millions of dollars of investor money, some crypto-currency experts say (ironically) that it may not be safe to store the digital money digitally. Bitcoin is most secure, they contend, after those ones and zeros are turned into paper.
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“Opening a bitcoin account on an online exchange is like opening a brokerage account in Zimbabwe,” says Alex Daley, chief technology investment strategist for Casey Research, a global independent finance research company based in Stowe, Vt. Many investors on online exchanges—like the now-defunct Mt. Gox—took several months to pay up on trades, he says. “Mt. Gox is not the first site to suffer problems and certainly won’t be the last,” he says.
But even the biggest bitcoin fans recommend a real wallet or physical safe. “Printing off the private key from your bitcoin, putting it into a paper form and sticking it in your hip pocket or house wall safe is one way to make sure it’s safe,” says Andrew “Flip” Filipowski, chairman and CEO of SilkRoad Equity, a cloud-based human capital management software company. “Keep your bitcoin offline,” Daley adds. He too suggests keeping the bitcoin private key—a secret number that allows bitcoins to be spent—on a thumb drive and advises against keeping a copy online: “If a site is hacked and your bitcoin is stolen, the chance of recovery is effectively nil.”
Some companies are even offering offline “cold storage” services, which also keeps the secret key in a physical location like a safe. Elliptic, a bitcoin cold storage company based in London, has had a bump in interest since the disappearance of Mt. Gox. The company charges a 2% annual fee. “We keep them offline in a bank vault,” he says. “We’re giving people the same kind of protection they get in a bank account,” says Tom Robinson, who co-founded the company last October.
Unlike a bank, Elliptic is not regulated by the financial services industry, but it’s insured against theft. “Building trust is our biggest challenge,” he says, “but we’re slowly doing that.”
Filipowski says picking a digital wallet is like picking a bank. “You could find a wallet that you have more confidence in,” he says. Several companies this week issued a on Mt. Gox: “As with any new industry, there are certain bad actors that need to be weeded out, and that is what we are seeing today.” The signees included Fred Ehrsam and Brian Armstrong, founders of Coinbase, a digital wallet and exchange; Jeremy Allaire, CEO of Circle Internet Financial, a bitcoin-focused technology startup; and Nicolas Cary, CEO of Blockchain, a digital exchange and wallet.
Not everyone is showing such confidence in bitcoin or bitcoin wallets, however. Google Wallet doesn’t accept bitcoin. And Blockchain—the last bitcoin wallet available on iOS—was dropped by Apple from its App Store earlier this week after two years and 120,000 downloads. In a statement reacting to , Blockchain said, “By removing the Blockchain app, the only bitcoin wallet application on the App store, Apple has eliminated competition using their monopolistic position in the market in a heavy handed manner.” Apple did not respond to requests for comment.
Blockchain requires a password of at least 10 characters to ensure that even if the database is compromised, customers’ digital wallets will remain secure. “A password 10 characters in length will take over 1,000 years to decrypt,” according to the site. But the company also warns: “Forgotten passwords are unrecoverable and will result in loss of all of your bitcoins.” (It only stores encrypted keys.) Michael Terpin, co-founder at BitAngels, angel investor in bitcoin and digital currency companies, uses Blockchain. “I have enough bitcoin that I’d be upset if I lost them,” he says.
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