CryptoCurrencies – Security, Mnemonic and 2FA

In my previous post, I wrote about the importance of owning your own keys instead of keeping your coins in an online wallet or on an exchange.  Owning your own keys brings with it the responsibility of keeping it safe and out of the hands of other people.  To do this it is important to have strong security in protecting your assets and investments.

There are mainly 3 items that come into play here:

  • Your password or sometimes called a passphrase.
  • Mnemonic words – these are between 12 and 24 randomly chosen words.
  • Two Factor Authentication (2FA)

Password / Passphrase

Most if not all wallets use a password or passphrase to give you access to your funds and more importantly to encrypt the wallet information when it stores it on your device.  It is important to have a strong password that you can remember.  I usually use some phrase that is fairly long, at least 20 characters and I include characters like “!@#$%^&*-_” in my passphrase.  If you scared that you will forget your password or passphrase then write it down on a piece of paper and store it safely in a safe.  Do not store it on some online storage like Dropbox and/or Google Drive.

Mnemonic or otherwise know as a seed

A mnemonic phrase, mnemonic recovery phrase or mnemonic seed is a list of words which store all the information needed to recover a Bitcoin wallet. Wallet software will typically generate a mnemonic backup phrase and instruct the user to write it down on paper.  Best is to make several copies of it and store it in different places.  Also good to laminate it since it might fade over time if not protected. If the user’s computer breaks or their hard drive becomes corrupted, they can download the same wallet software again and use the paper backup to get their bitcoins back.

Anybody else who discovers the phrase can steal the bitcoins, so it must be kept safe like jewels or cash. For example, it must not be typed into any website. Also do not ever store it somewhere on your computer or any online storage like Dropbox and/or Google Drive.

Two Factor Authentication (2FA)

Two-factor authentication (also known as 2FA) is a type (subset) of multi-factor authentication. It is a method of confirming a user’s claimed identity by utilizing a combination of two different factors: 1) something they know, 2) something they have, or 3) something they are.

A good example of two-factor authentication is the withdrawing of money from an ATM; only the correct combination of a bank card (something that the user possesses) and a PIN (personal identification number, something that the user knows) allows the transaction to be carried out.

The most common use is when one logs into a website with a Username and Password and are then presented with another screen requesting the user to enter a code.  One way is that this code is sent to the user’s registered email address or more commonly his cellphone via SMS.   Another way and the more preferable way is that the user uses a code that he gets from an application on his cellphone.  Google Authenticator is one such application but the one that I prefer is Authy.

Related Links:

    • Converting from and to fiat (ZAR/BTC & ZAR/ETH): Luno
    • Trading and converting of coins: Binance
    • Earn Bitcoin by answering messages and completing tasks: Earn.com 
    • Bitcoin mining contracts: Galaxy Mining 
    • Lifestyle Galaxy affiliated program and bigger mining contracts: Lifestyle Galaxy
    • Become a tester for Eventum (EVT) and earn ETH and EVT: Eventum 

Leave a Response