The supporters of bitcoin say though that it is far too early to count out bitcoins and other digital currencies just yet. They also state that new bitcoin exchanges and other startup companies that are working to make bitcoin mainstream are manned by known financial experts and veteran venture capitalists. In fact, many advocates of bitcoin are still holding up hope that it can eventually become the digital currency of the future and will steer clear of intervention and control of governments.
Desktop wallets are a predominantly safe and convenient way to send and receive Bitcoins, but if you plan on making a large purchase of Bitcoins which you intend to be a long-term investment, you should further secure your Bitcoins by placing them in “Deep Cold Storage.” Any time you place your Bitcoins in a wallet that is not connected to the internet, such as on a flash drive or on a desktop wallet that is not connected to the internet, you are technically placing them in cold storage. Deep cold storage takes the process a step further, virtually ensuring that your Bitcoins can never be stolen as long as you place them in a secure place. To put your Bitcoins in deep cold storage, you should send them to a wallet that is located on a portable hard drive. Once they are placed on the hard drive and you have encrypted the wallet, disconnect the hard drive from your other computer and store it in a secure location, such as a secure fireproof safe (the level of security necessary should match the amount of money you have invested on the hard drive) or a safe deposit box at a local bank or security firm. The only way that a thief would be able to steal Bitcoins that are in deep cold storage would be to both obtain the hard drive the Bitcoins are located on and somehow figure out your secure password that you used to encrypt the files. Most reputable Bitcoin exchanges store at least 80% of their Bitcoins in deep cold storage so that they will not go bankrupt if hackers gain access to their website.
11/13/13 Less than one week after Bitcoin hit new highs, it has continued its parabolic rise, seemingly with nothing in its path. Sold on an exchange unlike the stock market in which traders can manipulate the prices via reverse trades, the Bitcoin exchanges are set off of actual purchases and sales. Therefore, the price cannot be manipulated or controlled except via massive institutional buying or selling. Regardless, there are still only a certain amount of coins in existence. Today the price sits at $378 US dollars per coin.
When you create an account on a Bitcoin exchange such as Coinbase, the website will automatically create an online wallet for you, which will look similar to the one pictured below To purchase Bitcoins, you will have to deposit money into this account, which can usually be done via an electronic bank transfer, a money order, or a credit card purchase. After exchanging your money for Bitcoins, the Bitcoins will appear in your online wallet. While they are in your wallet, you can use them to purchase products online, easily sell them back to the exchange if the price increases (and make a profit!), or you can transfer them to a wallet on another online exchange such as Cryptsy, where you can trade them to other people for alternative cryptocurrencies such as Litecoin, Quark, or Darkcoin. Moreover, while the Bitcoins are in your online wallet, you can access them from any computer with internet access, which makes it very easy and convenient to access your funds.
Mt. Gox had already lost its place as the leading Bitcoin exchange before the murky chain of events that led the Tokyo-based site to shut down. An apparently leaked internal document indicates that the site may have been the victim of a major theft, in which perhaps more than $300 million worth of Bitcoin “disappeared” from the exchange’s accounts. I put “disappeared” in quotes because, of course, Bitcoin has no physical manifestation.
Because of the ease and convenience of online wallets, many people choose to leave their Bitcoins there. Unfortunately, online wallets are the least secure places to store your Bitcoins. Because they are stored on the internet, you could lose your Bitcoins forever if a hacker infiltrated the website and gained access to user wallets. This happened to consumers who stored Bitcoins in wallets on the popular Bitcoin exchange Mt. Gox, which filed bankruptcy after losing $450 million in Bitcoins, which it claims were stolen. Because this particular exchange did not store enough coins offline in cold storage (which will be discussed in detail later), most Mt. Gox clients will only receive a fraction of their investment back, if they receive any at all.
That’s not all; you can buy digital currency from a private broker too. You can enter into an exchange with the broker to get bitcoins but this comes with some drawbacks. The exchange is going to be anonymous. You don’t even know any real details about the broker except for his wallet number but you still have to transfer funds in order to make the exchange happen. There is a risk of getting ripped off if the bitcoin exchanges disappear. That will make you lose your bitcoins too.