To trade using the world’s best-known cryptocurrency, you must have a Bitcoin wallet. There are different types of wallets: hardware, software, browser-based… When asked which wallet is best, no one is able to provide a universal answer. It all depends on individual preferences, and the type and frequency of transactions. Find out what to consider when choosing a Bitcoin wallet.
A wide range of Bitcoin wallets on the market
A Bitcoin wallet is necessary to carry out financial operations using this cryptocurrency. The funds must be stored somewhere to be able to use them. A cryptocurrency wallet performs the same function as a bank account: it allows you to send and receive money. In other words, it is an interface created for accessing the Bitcoin network. It can come in the form of a mobile application (Android or iOS-compatible), such as Electrum, a website, or a physical device.
A wide range of wallets on the market allows everyone to choose the model most suited to their Individual needs. Let’s find out what the market has to offer and what to pay attention to when choosing your own wallet.
The Bitcoin wallet: Private and public keys
Two keys are assigned to each cryptocurrency wallet: a Private and public key. Your private key should not be known to anyone but yourself (unless you want to give someone access to your funds). You can share your public key as much as you like – it will allow other users to send Bitcoins to your wallet.
Characteristically, private keys do not guard any virtual “coins” (or information, to be more precise) that could be obtained in a way other than by sharing the key. They determine the execution of all transactions. Below, we will discuss the different types of Bitcoin wallets.
Types of Bitcoin wallets
Bitcoin wallets can be divided into 3 separate categories: Software, paper, and hardware based. The classification can also be based on the criterion of purpose. From this point of view, we highlight hot wallets for everyday use and cold wallets for long-term savings. Each of these types has its pros and cons, which we will discuss in detail. Each represents a greater or lesser compromise between safety and convenience of use.
For the sake of clarity, it is worth mentioning at this point that we cannot identify a stock exchange account as a wallet. Such an account allows for transfers using Bitcoin and other cryptocurrencies, but only within the exchange’s platform. Moreover, it does not include all the features offered by a Bitcoin wallet. The recently popular Bitcoin banks are also not considered wallets. Rather, they are a tool which controls private keys and the Bitcoins assigned to them. We will talk more about Bitcoin banks in our upcoming articles. Here, we will focus primarily on the functioning of cryptocurrency wallets.
Hardware wallets, i.e. the safest way to store Bitcoins?
A hardware wallet is a physical electronic device which allows you to store Bitcoins and other cryptocurrencies. This type of wallet provides The highest security, as it protects your funds from possible theft by masking private keys for any device connected to the Internet. Therefore, when using hardware wallets, you do not have to worry about data leakage, even if the equipment is connected to a malicious computer. Even the most advanced viruses are powerless against the security features of the Bitcoin hardware wallet. To be able to take full advantage of all the features of the hardware wallet, you need to connect it to your computer, phone, or tablet.
It would seem that the digital nature of Bitcoins and other cryptocurrencies seems to pose a risk of hackers tracing the software content of the wallet. However, since, as we have already mentioned, you need a private key to access the funds in your wallet, there is no such risk. Hackers do not stand a chance as the key is generated and stored Offline, which means that no one except you will have access to it. To access the funds, hackers would have to steal the device on which you store them. However, you can always protect yourself with an additional PIN.
Are you afraid that all your funds will be lost if you lose or damage your wallet? To protect yourself from such incidents, remember to create a backup code.
The hardware Bitcoin wallet is an option for those who value security. This type of equipment is the optimal solution to prevent possible theft. Hardware wallets are recommended especially for users who own a large number of Bitcoins. They enable seamless backup, their configuration is incredibly simple, even for complete novices. Nothing prevents you from using multiple different hardware wallets to maximize security.
However, hardware wallets, unlike free applications, come at a bitcoin price – and it is not one of the lowest. This is quite an expense; however, one must invest in security. Among the hardware wallets, the Ledger Nano X and TREZOR T models are the most popular choices.
If you do not use cryptocurrencies often, and you do not have a lot of money, your hardware wallet may prove to be An unnecessary expense due to its price. After all, free online wallets or software wallets also offer a certain level of security. A hardware wallet is a better option for those who use cryptocurrencies frequently, including for investment purposes.
Online wallets
At the other end, in terms of security, online wallets are available. They are the least secure form of storing virtual money, however – they are The most convenient. An online wallet can be accessed through any device connected to the Internet. The low level of security results from practically zero control over private keys.
Software wallets: how to use them?
A cryptocurrency wallet can also come in the form of a specific application that can be downloaded to your computer or phone, running on Android or iOS. This is a great alternative to online wallets, allowing you to store Bitcoins safely. An unquestionable advantage of software wallets is the way they store private keys: they are stored in the memory of the device on which the application is installed. The disadvantage of this solution is the risk of losing important data and funds stored in the wallet in case of damage or theft of your device. To protect yourself from these risks, it is best to create a backup and save it on some secure medium, e.g. a USB flash drive. Applications such as Exodus or Electrum allow you to store the funds in your wallet relatively safely. They are also characterized by low failure rate, intuitive interface, and ease of use.
The paper wallet: safe Bitcoin storage
As strange as it may seem, you can create a Bitcoin wallet using only paper and a printer. This simply involves printing out the active public key and all the private keys in use. Beforehand, however, you need to download a special script from the network to generate your Bitcoin wallet. Once you have downloaded the relevant files, you have to disconnect your computer from the network, check it for any malware and generate the keys. These are random combinations of letters and numbers, which you can then print out. The paper wallets provide a high level of security, although they are not very convenient as they require you to manually enter the key to complete a transaction each time. Remember to later erase the print file containing the keys on your computer.
The Bitcoin wallet: hot and cold wallets
Bitcoin wallets can also be divided according to their purpose.
The so-called hot wallets are an ideal choice for users who make frequent payments and do not store large amounts in them. The equivalent of such a wallet in real life is a purse: you do not carry all your assets in it. Hot wallets work on your computer, phone, and tablet, as long as the device is connected to the network, and they generate private keys online. Therefore, we cannot consider this method of storing Bitcoins as fully secure.
Cold wallets, on the other hand, work Offline. They are characterized by a high level of security, but for obvious reasons they are less convenient in everyday use. Cold wallets are a perfect “safe box” for Bitcoins and other cryptocurrencies.
The Bitcoin wallet: what to consider when choosing?
There are several factors that should always be taken into account when choosing a Bitcoin wallet. On the basis of these factors, we will be able to determine whether or not a given wallet will meet our expectations. Below we will list and briefly describe each of them.
First of all, you should know what you expect from your wallet. Are you looking for a secure medium that will ensure no one unauthorized will copy its contents? Or perhaps you would prefer a wallet which will allow you to perform transfers quickly and effectively? In the first case, the best solution would be a hardware wallet. There are many models on the market worth recommending, e.g. Ledger Nano S, Ledger Nano X or Trezor products. The hardware wallet provides the highest level of security, making it ideal For investors and those who are looking for a “safe box” to store Bitcoins.
However, a browser wallet is better suited for making transfers, and paying for products and services. This is the simplest solution of all, although undoubtedly the least secure. If you use a hardware wallet to store Bitcoins, nothing stands in the way of making your life easier by setting up an additional browser wallet. You do not have to keep large sums of money on it – all you need to do is store enough funds in order to carry out your current transactions efficiently.
When choosing your Bitcoin wallet, you primarily need to consider the level of private key protection. Key passwords are An absolute standard. A good Bitcoin wallet also gives you the possibility of data encryption and multi-step authentication.
It is also equally important that the wallet contains an Open-source license. Why? Because it allows users to check whether the source code is correct and does not contain errors that would expose keys and passwords.
We mention the pricing at the very end, as it is an individual matter how much money you are willing to spend on your Bitcoin wallet. The browser versions are free, but hardware wallets come at a price.
If you are hesitant about which model to choose, have a look at Specialized online forums and see what users have to say about various cryptocurrency wallets.
How to send Bitcoins?
Let’s assume that you are the owner of a restaurant and accept BTC payments. Your customer wants to pay by using a cryptocurrency, which means that the transaction will be executed within the Bitcoin system. You provide all your customers with a public address or a QR code so they can pay in digital currency. Let us assume that the price for a meal is 0.10 BTC. The customer uses a dedicated application that enables the storing, sending, and receiving of Bitcoins, e.g. using Electrum. There are two fields on the screen: the target public key and The number of Bitcoins that will be transferred from the customer’s account to yours. The field containing the key should also contain an icon that resembles a QR code.
Using our smartphone’s camera, we will be able to scan the code, which will exclude the need to enter the address (and these addresses look like this:
5Cdid1KFAaytwczBwBtt7cwXYCpvK8hPFK). The QR code avoids tedious typing of the entire string. Using the application, the key will be filled in automatically if the QR code is scanned correctly.
The next step we will have to take as customers is to enter a certain number of Bitcoins to be transferred – in our case we have 0.10 BTC to send. Next, just click the “send” button. The customer’s mobile wallet creates a transaction in which 0.10 BTC is assigned to the holder of the destination address.
How to avoid theft?
The Bitcoin system is equipped with advanced cryptographic technology, which thanks to numerous security measures, protects users’ resources. It is said that the weakest link here is the human being, as it is sometimes due to human errors that money is stolen. Regardless of which wallet you choose, remember some basic rules that both beginners and Experienced users should follow.
Your funds will only be safe if you generate your private key in a secure (Offline) environment and guard it very safely. Do not share your private key with anyone unless you have absolute trust in someone. The exception to this rule is payments of small amounts for which the risk of loss is acceptable.
For even greater security, create private key backups. They will protect your Bitcoins from possible events such as disk failure or data loss. It is best to have more than one backup and store at least one backup in another place so that you do not lose all your data in case of a fire, burglary etc.
For Additional security, encode your wallet as well, so that you don’t lose Bitcoins if the physical medium is stolen. Be sure to check the opinions of other Internet users on browser wallets! There are many websites that only “pretend” to be wallets. The creators of these sites extract data from users, including their private key number, and then rob them of their funds. Therefore, before registering, remember to check what Internet users have to say about a given service.
By following the above recommendations, you will minimize the risk of data theft and loss due to technical failure.
SUMMARY
You already know what a Bitcoin wallet is, how to use it and how to protect yourself against possible theft. Of all the wallets described above, hardware wallets such as Ledger Nano S are the safest (Ledger is a tycoon in the industry, all of its wallets hold the standard). If you are wondering which wallet to choose, define your expectations first. For those who use Bitcoin occasionally, wallets in the form of applications, e.g. Electrum, may be a good solution. For infrequent transactions, you do not need to use special devices such as the Ledger Nano S.
All you need is a hot software wallet, installed on your computer or smartphone. Electrum and many other applications of this type work on Android as well as on iOS. In case of extensive investments on the bitcoin exchange, hardware cryptocurrency wallets will prove to be a better choice. The high price may discourage some people from making a purchase, but you have to spend money for a high level of security. The least demanding Bitcoin users use solely browser wallets. Such a wallet allows you to transfer funds quickly but should not be a substitute to a bank account.