WHY YOUR DIGITAL WALLET BELONGS ON YOUR FINGER

Andrew Hurle writes:

Two weeks ago, Charlie Shrem got hacked and robbed, Bitcoin-style.

Criminals got into a brokerage account used by his transaction services company, Bitinstant, and emptied more than $12,000 worth of the digital currency. Banks can sometimes reel back online transactions and recover the money when it gets stolen by hackers, but Bitcoins don’t work that way. Bitcoins are the digital equivalent of cash, and they can be traded instantly and anonymously. So once they’re gone, they’re gone for good.

Shrem’s hackers made off with a big pile of Bitcoins, but there was a much larger pile — about one-third of Shrem’s total Bitcoin savings — that they couldn’t touch. That’s the pile he keeps on his finger.

About a month ago, Shrem bought a brand new netbook online (from Bitcoinstore, naturally). Without plugging it into the internet, he installed a program called Vanitygen, which generated both a Bitcoin address (a cryptic set of numbers and letters that people could use to give Shrem Bitcoins) and a private key (a longer, cryptic set of numbers and letters needed to give Shrem’s Bitcoins to anyone else).

Then Shrem asked his father, a jeweler, engrave the private key on a ring. Yes, a physical ring he could slip onto his finger. “I took the key, and I literally called my father and said it to him over the phone,” Shrem remembers. “He wrote it down on a piece of paper. In his factory here in New York City, he has a jewelry engraver. He took a piece of silver, and he engraved it into a ring.”

Well, he engraved most of it into the ring. To add a little extra security, Shrem had his father leave out one of the digits from the private key. That’s stored in Shrem’s head — and only his head.

You see, Shrem — like many other Bitcoin traders — doesn’t trust digital copies of this most digital of currencies. “Even if all of your assets are in Bitcoins, you have to diversify them,” he says. “Twenty percent you should keep on your computer. The rest should be kept in cold storage.”

Cold storage can mean an encrypted USB drive, a computer that is not connected to the internet, a piece of paper, or some other physical medium. Shrem puts his on a ring, but other Bitcoiners are using paper — or even physical coins.

Yes, there’s irony here. Storing the keys to a digital currency on good old-fashioned paper or physical coins seems so very odd at first, but if you’re determined to put your money in Bitcoins, it makes sense.

To read the complete article, see: Ring of Bitcoins: Why Your Digital Wallet Belongs On Your Finger (www.wired.com/wiredenterprise/2013/03/bitcoin-ring/)

To visit CoinDesk.com, see: www.coindesk.com

To read the earlier E-Sylum article, see: MORE PHYSICAL BITCOINS (www.coinbooks.org/esylum_v16n52a18.html)

Wayne Homren, Editor

	NBS (coinbooks.org) Web