Your cloud wallet is held by a third party on cloud servers. This means you trust the service provider to secure your funds. Of course, it is not the best way to keep your money since it remains exposed to theft. However, at times a cloud wallet is the most convenient.
With that said, your cloud wallet is best secured by 2-Factor authentication. This is because most security breaches occur due to stolen passwords, and the 2FA ensures your wallet is protected even when this happens.
What is 2FA for Bitcoin cloud wallets?
2FA essentially makes use of 2 of any of the following authentication methods:
- something only you know e.g. a password or a pin
- something you have e.g. a key, a phone, card or other electronic device
- something you are e.g. fingerprint, DNA, retina scan
How does 2FA work for your cloud wallet?
Every time you need to access your wallet, you are required to provide the 1st and 2nd authentication to proof you are who you say you are. However, you need to set these security features as requirements within your wallet in order to use them.
Typically, a password is required first and, in addition, a randomly generated secret code sent through your phone or email.
Also with this, in the event of a breach, you will receive instant notifications after which you can take preventive measures.
Examples of 2FA for your bitcoin cloud wallet
This is a smartphone application that generates a passcode that is valid for 30 seconds. When logging into your wallet, you will use your password (as factor 1) plus the one-time code as factor 2. This app is available for iPhone, Blackberry, Android and iPad.
Blockchain.info/wallet and localbitcoins.com use Google Authenticator for 2FA security.
In this method, a unique one-time code is generated by your wallet provider and sent to you via SMS when you make an attempt to login. The passcode is valid for a preset time during which you can use it alongside your password to access your wallet. No app is required, just a carrier line with a working signal.
Coinbase and CEX.io have SMS authentication
In conclusion, though not 100% secure, 2FA makes your wallet less prone to successful attacks and is an improvement on plain passwords.