Some savvy bitcoin investors have a solution to cyber-thieves and instability shaking online exchanges: they print out their virtual savings and hide them in the real world. The shuttering this week of bitcoin exchange Mt. Gox and fears that hundreds of millions of dollars worth of the virtual currency have been lost or stolen are pushing investors to tighten their security.
Touted by advocates as a new, digital type of money that could one day replace real-world cash, bitcoins can also be stored like traditional currencies, locked up in a safe, or hidden in a shoe box.
Enthusiasts around the world use online exchanges to conveniently buy and sell bitcoins but bitcoin savings can also be kept closer to home. Every virtual wallets used to hold bitcoins has a unique, private number. Recording that number on a piece of paper or a thumb drive, for instance, keeps a wallet's contents out of reach of anyone online, criminal or not.
Canadian mortgage broker and bitcoin enthusiast Chung Cheong writes out his secret number by hand and puts it in a safety deposit box. "The only way to ever access that address and those bitcoins is that piece of paper," said Cheong. "I pray that there isn't a big fire and the bank burns down. Because if that happens, I'm out of luck."
Jacob Dienelt helps run Lazzerbee, a company that lets people create novelty paper wallets containing small amounts of bitcoins as birthday gifts or for other special occasions. He said he keeps about three quarters of his own bitcoins locked away far from the Internet, with the rest on devices ready to trade. Locking away all bitcoins offline won't help the currency go mainstream, though, he said. "You have to be able to spend bitcoins," he said.
Bitcoin relies on a network of computers that solve complex mathematical problems as part of a process that verifies and permanently records the details of every bitcoin transaction that is made. Mt. Gox was once the largest bitcoin exchange, making its collapse particularly notable, but online robbery has been a persistent problem for the virtual currency, which began circulating in 2009.
Cyber criminals have infected hundreds of thousands of computers with a virus called "Pony" to steal bitcoins and other digital currencies, security firm Trustwave said this week. The apparent demise of Mt. Gox, along with a massive cyber attack against online exchanges earlier this month, is undoubtedly making people take a second look at where they store their virtual currencies, said Vinny Lingham, cofounder of Gyft, which sells retail gift cards and does much of its trade in bitcoins.
While storing bitcoins offline keeps them safe from the clutches of cyber-criminals, it creates the very real risk of break-ins and potentially violent robbery. Some people tear the pages containing their wallet numbers in half and store each part in a separate location, Lingham said.
Unsurprisingly, Lingham declined to say where Gyft keeps its bitcoins: "You can store them on paper, with your attorneys, on an SD card. But whatever your strategy is, it's irrelevant if you tell people what it is."