When you receive US dollars from someone, there is a risk that the money could be counterfeit. The same can be said about Bitcoins. Keys and addresses can be counterfeit or people can trick you into making an exchange that doesn’t exist. To make matters worse, your wallets and keys could become compromised. It is not like banks because banks have insurance, but if something happens to your Bitcoins, they are gone because a transaction cannot be traced back through the block chain.

As a way to help with these problems, the Bitcoin system uses confirmations. Coins are not considered confirmed for 100 blocks and some clients wait until the 120th block. This allows time for system to recognize change in the block chain and act accordingly. To help with password and key security, some Bitcoin clients offer two-factor authentication as an additional layer of security. That makes a transaction valid only if signed by two different keys. For added protection of your keys, youmay chose back up wallet files on something like a USB drive or just use paper wallets.

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