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Don’t let What Happened to Mt. Gox Bitcoiners Happen To You

mt gox collapseOver the past few weeks we all watched the complete collapse of the largest Bitcoin Exchange Mt. Gox. In just a bit we will get into the rumors and causes of this collapse, but for now I wanted to take this opportunity to share a few ways you can prevent this and keep bitcoins safe. As Bitcoin moves forward there will undoubtedly be threats to security, new exchanges, and current exchanges going out of business. The technology is so new that these bumps in the road are inevitable. I think the one thing Bitcoin has shown society as a whole this past week is that it will prevail despite what happens to individual companies in the market.

In its brief history we can point to several examples where the price of Bitcoin has gone into sharp decline due to outside force. Here is a quick history of events that caused steep declines in prices to bitcoin:
1. Late 2011 – The value of one bitcoin rapidly rose from about US$0.30 to US$32 before returning to US$2.
2. March 2013 – A technical glitch which caused the block chain to fork into two parts made core developers halt trading causing a rapid sell-off.
3. December 5, 2013 – The People’s Bank of China prohibited Chinese financial institutions from using bitcoin.
4. February 2014 – Mt. Gox halts trading and withdrawals from its exchange. Speculation swirls on the potential bankruptcy of the exchange.

The one thing in common with most of these sharp declines is that their was hackers that threatened the security of the currency itself or an exchange. During these times Bitcoin prevailed and was able to recover to its previous prices before the attacks.

Store Your Bitcoins Offline

The people that have lost the ability to withdraw their Bitcoins from Mt. Gox are in a really tough position. Right now they can trade their Mt. Gox coins on Bitcoin Builder, but prices of coin are currently trading at .08 to 1. People with their money tied up in Mt. Gox can only hope they will ever see their money again.

Keep Bitcoins Safe on A Cold Storage Wallet

Unfortunately, these people could have prevented this from ever happening to them by taking their bitcoins out of the exchange and storing them on an offline (cold wallet). Personally, I store all my Bitcoins on my Armory Wallet on a computer that is not connected to the internet. This keeps my Bitcoins much safer then storing them in an online wallet or exchange. Also, if I traded using Mt. Gox (which I never did) I would have had all my coins in my Armory wallet and not stored on the exchange itself.

Armory Wallet

armory wallet
Bitcoin Armory is widely recognized as the safest and most secure Bitcoin Wallet. Users have several options they can store their coin in their wallet on their computer, they can move their wallet to a removable USB drive, or they can store their coins on a piece of paper. The Armory Wallet is called a cold storage wallet, because it is not connected to the internet, thus greatly reducing the chances of your Bitcoins being hacked, stolen, or lost due to bad business.

Set-up Bitcoin Armory

Setting up Bitcoin Armory is no easy task. You want to find a computer you can use just for Bitcoin, and not need it to connect to the internet with on a daily basis. For most people this would be an older laptop computer that they no longer use for anything else. You will also need to install a copy of Bitcoin QT for the Armory Wallet.

Once you download Bitcoin Armory you will need an entire weekend to install it (on an older computer). Before the wallet can be used the entire block chain must be validated to make sure everything is running correctly on the wallet before proceeding to using it for transactions. This process is very heavy on your computers processor, because it must process every Bitcoin transaction that has ever happened. Hence, the longer you wait to set up your wallet the longer it will take for the wallet to process all the transactions (as more days pass).

Here are some quick tips:
– Make sure you make a random password of numbers, letters and symbols.
– Store this password in a safe place.
– Create a backup for this password and store it in another safe place.
– Let the Wallet Install and leave the computer alone until it is finished.
– To speed up the process see if you can download a copy of the block chain. YOur computer will still have to authenticate it, but you will shave hours off the process.

The Armory Wallet does not have a password recovery feature. If you lose your password you will lose your coin and you will never be able to recover it. I made printed out 2 copies of my wallet and have one stored in a safety lock box at home and another stored in a safety deposit box in the bank.

Other Cold Wallets & Methods

keep bitcoins safe
1. MultiBit
2. Hive
3. Dark Wallet
4. Physical Bitcoin – Minted Coins with fixed amount of Bitcoins stored on it.

Closing Thoughts

All of the above mentioned wallets are wallets that are meant for desktop computers. However, they offer features that allow you to store your Bitcoins on paper, flash drives or back-up devices. It is wise to store the majority of your coin in a cold wallet and keep only the amount you need to make trades or purchases in your desktop or online wallet. You can easily move your coins in and out of your cold storage wallet when you need more funds or want to take some funds and make them secure.

Bitcoin has limitless potential, which is why there are so many people who truly believe in the currency as a long-term stable currency used worldwide. Admittedly there are still many drawbacks to the currency as it is still so new. This uncertainty creates great opportunity for investors looking for a alternative investment. While the kinks are still being ironed out it is best to take extreme caution and store your Bitcoins offline where the chances of stolen coin becomes very very small.

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