With prices doubling to $18,000 in just the past month—and then dropping sharply—Bitcoin is drawing more attention than ever in its eight-year history.

The "cryptocurrency" carries some well-known risks—the price could drop precipitously, and scams have been reported. But there's also another, more technological danger: One crashed hard drive or online hacking incident can wipe out an owner's stash of Bitcoin, leaving them with essentially no recourse. 

That's because of some basic differences between Bitcoin and a conventional currency such as dollars or Euros. Bitcoin and other cryptocurrencies, such as Litecoin and Ethereum, are wholly digital forms of cash stored in so-called wallets. Like other files, Bitcoin wallets can be stored locally, say on a hard drive stuffed under a mattress, or in the cloud.

And like dollars, Bitcoin can be lost or stolen.

Just ask Rickey Payne, a customer service manager at Denver’s DataTech Labs data recovery firm. According to Payne, it’s not unusual these days for people to bring into his store dusty old, nonworking computer hard drives in a desperate attempt to recover Bitcoin.

“Either the drive just failed and they have a wallet on there, or they have a drive that’s been laying around for years and they suddenly remember they had some Bitcoin on it,” Payne says. Having a hard drive with Bitcoin fail is something like opening a leather wallet and discovering that your paper money has disintegrated—except that $20 bills haven't risen in value by 20,000 percent in four years.

Payne won't say how much Bitcoin DataTech Labs has recovered for customers, but he says he has helped quite a few people recover their digital money from the abyss. “There have been many awesome stories here,” he says.

The Threat of Online Hacking

Hard-drive crashes aren't the only threat facing a Bitcoin investor—hacking can be a problem, too.

Bitcoin exchanges are online services that lets people buy and sell Bitcoin (and similar cryptocurrencies) using a website or mobile app. They are primary gateway through which most consumers buy and sell Bitcoin. And, just like other online companies, they can be hacked. 

Just this week, a prominent South Korean exchange was forced to shut down after being raided by hackers. And longtime Bitcoin watchers can hardly forget the spectacular implosion of Mt. Gox, the first high-profile Bitcoin exchange, which ceased operation in 2014 after allegedly being hit by hackers.

The case of Mt. Gox is currently being litigated in Japan, where the exchange was based.

In the United States, Coinbase and Gemini are the two highest-profile Bitcoin exchanges. Coinbase started way back in 2013 (when Bitcoin was frequently used on black market sites such as the Silk Road) while Gemini was started by Cameron and Tyler Winklevoss—the twins who are perhaps best known for suing Mark Zuckerberg over the creation of Facebook. (The Winklevoss brothers are now Bitcoin billionaires.)

The FDIC insures U.S. dollar deposits on these exchanges up to $250,000, just like the deposits in a conventional consumer bank. However, the FDIC does not insure Bitcoin held on the exchanges. 

Both exchanges take measures to protect Bitcoin deposits. For instance, they claim to store only small percentage of cryptocurrencies online at any one time, with the vast majority being held in offline cold storage, out of reach of any potential hacker. 

The Physical Wallet

Nevertheless, some industry insiders say that, while exchanges are useful for buying and selling Bitcoin, they may not be a great place to store them.

“We do not hold Bitcoin on exchanges,” says Matt Galligan, the co-founder and CEO of a San Francisco startup called Picks & Shovels that helps traders buy and sell cryptocurrencies. Allow an exchange to hold the "private keys" associated with your Bitcoin and "you are at the mercy of someone else no matter how you look at it,” he says.

John Biggs, a former editor at TechCrunch who lauched a Bitcoin company several years ago, says that Bitcoin should be treated more like a physical asset than a conventional currency.

“Yeah, maybe we have to assume some risk when it comes to this kind of stuff, but if you want to be serious about it and take care of your own assets then you need to treat it like a bar of gold," he says. "It’s not like you take a bar of gold and just give it to your banker. You instead say, ‘I want to put it in a special box.’”

Both Galligan and Biggs recommend that Bitcoin owners use something called a hardware wallet. These devices resemble USB thumb drives, cost around $100, and are typically viewed as the gold standard when it comes to securely storing your Bitcoin. A recovery process is also available in case you physically misplace the wallet.

“The point of these devices is to prevent a scalable software attack that can take down an exchange and suck down all the money in it,” says Josh Datko, a security researcher who demonstrated a security flaw in a popular brand of hardware wallet at the DefCon computer security conference last summer. If your Bitcoin is in a physical wallet, they can't go up in smoke if the exchange is compromised.

But, of course, none of these measures can save you if Bitcoin values suddenly plummet. Because even the most secure hardware isn't bubble-proof.