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digital wallet security

Contributor(s): Ivy Wigmore

Digital wallet security is the area of concern surrounding the special considerations of software that stores digital currencies.

Digital wallets are used for transactions involving both conventional and digital currencies, but because the latter work differently, they require different safeguards – or at least variations on traditional security measures.

Cryptocurrencies such as Bitcoin use encryption to secure unit generation and transactions. However, there are a number of risks involved with storing cryptocurrencies in digital wallets.  Bitcoin exchanges have been attacked and had funds stolen. Furthermore, as the prevalence and value of the cryptocurrency have risen, so have the malware programs designed to attack digital wallets.

In some ways, a digital wallet is similar to a physical one with cash in it – if it’s lost or illegally accessed, the money is most likely gone. One user literally threw away the equivalent of $4.6 million when he disposed of a computer, forgetting that it had 7,500 Bitcoins stored on it. The best practice is to maintain one digital wallet for everyday use and keep only a limited amount of funds in it at any given time. Another digital wallet with the majority of your currency should be kept offline and stored in a secure location.

This was last updated in December 2015

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