One of the most important days in Bitcoin’s history is just around the corner – August 1st.
What should have been a straightforward change and network improvement, created a division between miners and developers.
Some are expecting a cryptocurrency D-Day and a new altcoin – Bitcoin Cash – while others stayed indifferent, thinking it’s not a big deal.
Regardless of your stand, you’re probably worried about your funds and disruption that may occur during the upgrade.
So the real question is how to protect your Bitcoins before the potential Bitcoin chain split?
What Will Happen to Bitcoin on August 1st
The talks about improving Bitcoin network have been circulating for years. However, this time, miners set a deadline of August 1st. The truth is, we don’t know yet what is going to happen and how is it going to affect the network.
There are two scenarios:
- Users will agree on the SegWit2x implementation and Bitcoin’s block size will gradually keep on increasing
- Bitcoin splits into two separate currencies – Bitcoin (BTC) and Bitcoin Cash (BCC)
Most exchanges have suspended Bitcoin trading for today and tomorrow until miners decide on the code implementation and the network stabilises itself. This means that for the next 24-48h you won’t be able to buy or sell Bitcoins.
If the first plan comes into life, not much will change at the beginning and you probably won’t even notice the change.
But if miners decide to go ahead with the hard fork solution, the new altcoin will be automatically generated – Bitcoin Cash.
Your main concern should be around the chain split because it can result in having two different tokens – BTC and BCC. If this happens then we will witness what happened to Ethereum last year.
How to Protect Your Bitcoins
There are few ways of protecting your funds and most of them have been released by the exchanges and wallets themselves.
Some exchanges, e.g. Coinbase, were very clear from the beginning that they won’t support Bitcoin Cash. Therefore, if you were thinking about investing in the new altcoin, you wouldn’t be able to do it on those particular exchanges.
The most important part of keeping cryptocoins safe are your keys: if you don’t control them, you are exposing yourself to theft and potential hacker attacks.
Here’s what you can do to protect your Bitcoins (and keys) in a case of a chain split:
Don’t keep your funds on an exchange
Keeping your coins on an exchange is never a good idea, but if you’re still not convinced – you must transfer them to a wallet.
While dealing with any cryptocurrency, you have an access to both keys:
- Public Key – it’s your wallet address, where you receive Bitcoins and can check the balance
- Private Key – used to prove an ownership of your Bitcoins; you can send Bitcoins from this address
When you store your Bitcoins on an exchange, you don’t have an access to your private keys. If you leave them on an exchange, you put your trust in a third party to keep them for you. So the exchange in a way claims to have your Bitcoin but you don’t have any proof of it.
To process all transactions on the blockchain can take a while, especially nowadays when the processing time is much longer. So the online exchange keeps users’ funds to have liquidity – they can process, buy, sell and transfer the funds internally, without having to rely on the blockchain.
So any time you use an online exchange, you’re entrusting a third party with your private keys. If there are major disruptions on the network on August 1st, especially during a chain split, you will lose control over your funds.
For all you know, you coins might get lost or might be automatically changed into a new altcoin – Bitcoin Cash.
Get a paper wallet
If you have a hardware/cold storage wallet then you don’t have to worry about your funds, Trezor or Ledger Nano will take care of them.
With them you not only have a control over your keys but your cryptocoins are stored offline, which increases the security level.
But if you’re reading this article a day before a potential chain split, it’s too late to get a hardware wallet.
What can save the day is… a paper wallet.
It’s a piece of paper that has both your public and private keys printed on it. They’re free and very easy to set up. All you need is an internet connection.
There are two secure services that generate paper wallets: BitcoinPaperWallet and BitAddress. You can either print out your keys or write them down and store securely.
If you’re going to an extent of creating a paper wallet, then don’t shy from being extremely secure and generate the keys offline. You can do it by downloading a javascript or a zip folder and generate it offline. Afterwards, remember to erase your cache memory and your paper wallet is set up.
You can transfer all the funds to the paper address and that will become your primary wallet, without sharing the keys with anybody else. To prevent losing a wallet or damaging it, either hide it in a secure place or create multiple copies.
Many services such as Blockchain or Coinbase will let you swipe or scan your paper wallet and transfer funds, so when the upgrade storm calms down, you can go back to using your preferred wallet.
What Can Happen If You Don’t Secure The Keys
There are a few scenarios that can happen if you don’t secure your keys and wallet:
- Your Bitcoin balance will stay the same, nothing will change and you will be able to use your Bitcoins as before.
- Your wallet will choose the wrong chain (either BTC or BCC) and your balance will become zero. That means you lost all your bitcoins.
- You wallet provider will give you an option to keep either one of the tokens or both of them. This way, you will be in control of whether you choose BTC or BCC or both.
As the old saying goes – better be safe than sorry. So don’t overestimate the security levels. Transferring your funds and getting a paper wallet won’t cost you anything and it will only take few minutes of your time.
In a case of the Bitcoin, chain split you have to stay calm and don’t be alarmed if the price drops. It’s likely that Bitcoin’s price will go down, especially if miners decide to go ahead with BCC.
Bitcoin Cash is already trading for over $200 and it’s likely to go up if the chain splits.
How are you going to protect your wallet? Let us know in the comments below!
