Bitcoins may not come in a physical form, but you still need a place to store them — someplace where only you can access them. That’s where a bitcoin wallet comes in. A bitcoin wallet is a software program that stores the record (aka private key) of every bitcoin you own. Bitcoin wallets come in many different forms, and it’s important to understand them — and how to keep them safe — before you even start buying bitcoins.
While all bitcoin wallets serve the same function, they come in different types that have various access options and levels of security. Generally speaking, the most easily accessible options are also the least secure ones (after all, easy access extends to both fraudsters and yourself).
A hardware wallet is one of the most secure options, and it’s a good choice for storing the bulk of your bitcoins. A hardware wallet is a physical piece of equipment designed specifically for storing bitcoins. Because hardware wallets can’t have additional software installed in them, you don’t have to worry about getting a malware infection that will allow a scammer to suck the bitcoins right out of your wallet. On the other hand, you must have access to the piece of equipment to use it, and you’ll definitely want to back up your wallet in case the hardware is lost or damaged.
Table of contents:
- 1 What is a Bitcoin Wallet?
- 2 What are the different types of Bitcoin Wallets?
- 3 The Best Bitcoin Wallets in Different Types
- 4 Additional types of wallets
- 5 Best Practices
What is a Bitcoin Wallet?
A “wallet” is basically the Bitcoin equivalent of a bank account. It allows you to receive bitcoins, store them, and then send them to others.
You can think of a wallet as your personal interface to the Bitcoin network, similar to how your online bank account is an interface to the regular monetary system.
Bitcoin wallets contain private keys; secret codes that allow you to spend your bitcoins.
In reality, it’s not bitcoins that need to be stored and secured, but the private keys that give you access to them.
A Bitcoin wallet is a program for sending and receiving bitcoins. A Bitcoin wallet does that by interacting with Bitcoin’s ledger, known as the blockchain. Bitcoin wallet programs are available for mobile phones, desktops, and even as a standalone piece of hardware (more on that later on).
Generally speaking, Bitcoin wallets are a bit similar to how email works. If you want to send and receive emails, you need some sort of a program to do so (e.g., Gmail, Outlook). Like emails, receiving Bitcoins requires a unique personal address. This unique address is called your Bitcoin address, and—just like your email address—you can share it with anyone who wants to send you bitcoins.
Bitcoin address example: 1BoatSLRHtKNngkdXEeobR76b53LETtpyT
(Bitcoin addresses always start with a “1” or “3”)
The final ingredient that’s missing is your password. With email, you choose your own password, while with Bitcoin, the wallet chooses it randomly for you. This password is called your private key and—similar to your email password—it should never be shared with anyone.
What is a private key?
A private key is just a very long string of numbers and letters that acts as the password to your bitcoins. It’s from this secret combination that your wallet derives the capability to tell the Bitcoin network you want to send your Bitcoins to another destination. The most important thing to remember is this: Whoever knows your private key has control over your bitcoins.
The private key is also used to generate your Bitcoin address. The process would look like this:
- You download a wallet program to your mobile phone or laptop.
- The program (also known as the client) randomly creates a private key.
- A Bitcoin address is created by running some sort of mathematical algorithm on your private key.
Even though the Bitcoin address is generated from the private key, there’s no way to figure out what the private key is just by examining a Bitcoin address. This is a one-way process.
A wallet’s core function is the creation, storage, and use of the private key. In other words, it automates Bitcoin’s complex cryptography and blockchain interactions for you. You could argue that the program itself isn’t that important—the only thing that matters is the private key.
For example, if you have a Bitcoin wallet on your phone and that phone gets stolen, but you’ve written down your private key on a piece of paper before that happened, you could just download a new Bitcoin wallet to a different phone, import the private key to that new wallet, and regain control of your bitcoins again.
Are Bitcoin wallets secure?
Wallets are secure to varying degrees. The level of security depends on the type of wallet you use (desktop, mobile, online, paper, hardware) and the service provider. A web server is an intrinsically riskier environment to keep your currency compared to offline. Online wallets can expose users to possible vulnerabilities in the wallet platform which can be exploited by hackers to steal your funds. Offline wallets, on the other hand, cannot be hacked because they simply aren’t connected to an online network and don’t rely on a third party for security.
Although online wallets have proven the most vulnerable and prone to hacking attacks, diligent security precautions need to be implemented and followed when using any wallet. Remember that no matter which wallet you use, losing your private keys will lead you to lose your money. Similarly, if your wallet gets hacked, or you send money to a scammer, there is no way to reclaim lost currency or reverse the transaction. You must take precautions and be very careful!
- Backup your wallet. Store only small amounts of currency for everyday use online, on your computer or mobile, keeping the vast majority of your funds in a high security environment. Cold or offline storage options for backup like Ledger Nano or paper or USB will protect you against computer failures and allow you to recover your wallet should it be lost or stolen. It will not, however, protect you against eager hackers. The reality is, if you choose to use an online wallet there are inherent risks that can’t always be protected against.
- Update software. Keep your software up to date so that you have the latest security enhancements available. You should regularly update not only your wallet software but also the software on your computer or mobile.
- Add extra security layers. The more layers of security, the better. Setting long and complex passwords and ensuring any withdrawal of funds requires a password is a start. Use wallets that have a good reputation and provide extra security layers like two-factor authentication and additional pin code requirements every time a wallet application gets opened. You may also want to consider a wallet that offers multisig transactions like Armory or Copay. A multisig or multi-signature wallet requires the permission of another user or users before a transaction can be made.
What are the different types of Bitcoin Wallets?
There are several types of wallets that provide different ways to store and access your digital currency. Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.
- Desktop: wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security however if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
- Online: wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking attacks and theft.
- Mobile: wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
- Hardware: wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy. Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
- Paper: wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward. Transferring Bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.
The Best Bitcoin Wallets in Different Types
Best Software Bitcoin Wallets
Software wallets are used to store your private key on your desktop. That can make one an inherently risky choice - what if you get a computer virus, or get hacked? Your information is exposed, and that hacker could potentially take your bitcoins from you. As a result, there’s work required on your end for keeping your computer as safe as possible, making antivirus and antimalware programs necessary.
It also helps that as opposed to hardware wallets, you generally don’t have to purchase a software bitcoin wallet; you just need to download it.
Here are some of the best software bitcoin wallets to look into:
- Security, bitcoin (and only bitcoin)
- Not as pretty as other options, a little intimidating for beginners, can’t store other cryptocurrencies
Electrum is a popular, free storage option in the bitcoin community, and is one of the most, if not the most, well-respected desktop storage apps out there. It’s been around since 2011 and is also available for mobile, though Apple (ticker: AAPL) iPhone users are out of luck – to date it’s only supported by Android.
Electrum gets high marks for its ease of use and user interface, which is always nice, but the real reason it’s the best bitcoin wallet for desktop is its safety and reliability. Like any desktop wallet that’s worth its salt, users get to control their private key; Electrum doesn’t know what it is. Since your private key, a long string of letters and numbers, gives you access to your bitcoin, you need to keep that, you know, private.
Many online wallets and online exchanges don’t give you ultimate control of your private key, adding an extra layer of risk. You have to both trust the counterparty is a good actor, and hope their servers don’t get hacked, as that could compromise the service or your information.
Electrum also boasts two-factor authentication, and supports hardware wallets and cold storage – techniques that are further detailed below.
- User-friendly interface, easy to use out of the box, support for multiple cryptocurrencies
- Riskier than a hardware wallet, no 2-factor authentication, no mobile app
Exodus is a free to use, desktop-only wallet crafted by JP Richardson and Daniel Castagnoli in mid-2015.
It is the world’s first multi-cryptocurrency desktop wallet.
Simply looking at Exodus.io, you can tell that the company is putting a lot of effort into creating a good user experience.
You can store your bitcoins without worry, as Exodus has no hosted servers or logs. At present, it supports cryptocurrencies like Bitcoin, Ethereum, Litecoin, Dogecoin, Dash, Golem, and Augur.
No registration or identity verification is needed to start using Exodus. But you certainly need to take a backup of your seed key!
If you want to access and spend your funds, you are required to set a password.
While taking a backup of your seed key, it also asks for your email id for sending you a one-click link recovery feature. You can always use this email link along with your password to restore your Exodus wallet.
However, one thing to remember while using Exodus is that you can only take a backup of the seed key when you have some balance in your wallet.
I like using this wallet because a pie-chart at the center shows your entire token portfolio in one glance. The UI is very nice.
Exodus is the first desktop wallet to have ShapeShift built in for exchanging cryptocurrencies.
And if you need help, you can get personal support from the founders via email.
It is available on Mac, Linux, and Windows.
Exodus is also attached to its own exchange that allows for the purchase of all these cryptocurrencies - over 85, according to its website. Its vision is an accessible one-stop shop for crypto for people who may be beginners.
Jaxx is the world’s leading multi-asset digital wallet which stores both bitcoins and altcoins.
It currently supports 13 crypto coins and is an ideal choice for multi-cryptocurrency users.
With an active development team working at lightning speed, it’s also very reliable. Altcoins such as Monero, Tether, Ripple, and many more are on their development roadmap.
Jaxx provides a seamless, frictionless, and easy to use UI. It takes no email verifications, no onboarding, and no usernames/passwords to start using Jaxx.
It is an HD wallet which comes with a seed backup key feature. The seed key helps you in controlling and restoring your crypto assets in case your device is damaged or lost.
You can export your private keys, and import bitcoins or altcoins from paper wallets.
Jaxx also has ShapeShift.io integration for currency exchange, which makes it a natural choice for multi-currency lovers.
It is available now on iOS mobile/tablet, Chrome & Firefox Extensions, and MAC/Linux desktop versions.
- Original Bitcoin client
- Provides better protection against fraud
- Requires large amounts of space and bandwidth
Bitcoin Core is the original BTC client and is available for Windows, Mac and Linux. Core is a ‘full node’ Bitcoin client, meaning that on first-run it will download the current version of the blockchain (currently around 160GB) by connecting to other nodes. It will then continue to download and process data about Bitcoin transactions.
One advantage of this is that it’s much more difficult to link a specific BTC payment address to your identity as Core downloads data about all Bitcoin transactions everywhere. This also protects you against certain types of fraud such as someone trying to spend the same BTC twice, or fooling you into believing you’ve received funds you haven’t actually got.
Core comes preconfigured to run through the Tor anonymizing network. This makes it very difficult for anyone to link sending or receiving BTC to your home IP address, ensuring your privacy. All this requires huge amounts of bandwidth – Core must be connected to the internet every day to stay in sync with the network.
On first launch, Core will create a wallet file (wallet.dat) containing your private keys. By default anyone can access it, but you can encrypt the wallet with a password if you wish.
- Multisig functionality, backed by a reputable company, mobile apps available
- Difficult to understand for beginners
Copay is a multisig wallet, which means you share your crypto funds with a group of people, like your family, friends, or coworkers. A shared-funds wallet is one of the most secure ways to send cryptocurrency and prevent fraud. For instance, to send Bitcoin from your Copay wallet, your entire group has to approve the transaction, just like how nodes verify each transaction of a cryptocurrency on their blockchain. Another one of Copay’s best features is that you can store multiple bitcoin wallets on your account, like a personal wallet and a business wallet. And since Copay’s software and server is open source, enterprise companies and cryptocurrency experts can also create their own version of the Copay wallet to gain full control of their crypto assets.
Compatible With: PC, Mac, and Linux
Best Hardware Bitcoin Wallets
Hardware wallets are among the safest types of bitcoin wallets out there. Once you’ve purchased them and the transfer has gone through, they are now safely stored in the hardware, and as long as it’s not connected to a computer, those bitcoins are safely stored offline. You just have to keep the hardware from getting stolen.
That kind of security can give you peace of mind, but it’s also going to cost you in a way that the software wallets won’t. If you want that safety for your bitcoins, plan on making them a long-term investment, and have the funds for one, a hardware wallet could be perfect for you.
These are the two finest brands for hardware bitcoin wallets: Ledger and Trezor.
Ledger and TREZOR are names that always come up when reviewing Bitcoin wallets.
The Ledger Nano S functions like any other hard wallet, with a few minor differences. For any Bitcoin fashionistas out there, the Ledger definitely wins in the style category.
Setting up the Ledger wallet is pretty simple. All you need is Chrome and a secure computer. Ledger comes with a PIN for added security. If the PIN is entered incorrectly three times, Ledger wipes itself clean.
Terrifying but not the end of the world. Ledger allows you to set up a recovery seed to retrieve your private keys if your device is lost or broken. This recovery seed is a set of words that must be put together in a certain order. Ledger allows you to recover all your lost bitcoins with your recovery seed so no need to break a sweat.
This Reddit user summed it up nicely: “I just got a Ledger Nano S and I love it. The biggest advantage is that your private key is stored completely offline and never exposed to your computer, so your chances of getting your wallet hacked are as close to zero as they come. If you lose it, you can restore your wallet to another device or another wallet entirely with the seed. It truly is an investment that could save you thousands down the line.”
Ledger rating: Overall, the Ledger wallet functions exactly as you’d want it to. It keeps your bitcoins safe, it’s easy to access—but only for you, and is forgiving if your house burns down.
TREZOR is a hardware wallet that holds your private keys offline, and allows you to sign transactions with your digital signature without having to connect to the Internet.
TREZOR is often hailed for simultaneously serving as an offline cold storage device and allowing you to spend your coins. It’s a pretty small, nifty device that you can carry around on a keychain. If you thought your Tamagotchi was cool, imagine a device that can potentially hold millions of dollars of Bitcoin in the palm of your hand.
Whenever you want to spend your bitcoins, you can do so through TREZOR’s limited USB connection. A limited USB connection acts like a computer mouse: the mouse communicates its location to the computer, but the computer can’t move the mouse. It’s a one-way connection. TREZOR can safely interact with computers that may be compromised or infected with malware. This is amazing for safely managing your bitcoins.
There are also no usernames or passwords for TREZOR accounts, so it’s very difficult to hack. Your TREZOR device is all you need. Unless someone has physical access to your device, there’s no way your account can be accessed.
In case you want to further nullify the risk of someone physically hacking into your device, TREZOR offers passphrase protection for Bitcoin access. This passphrase should be purely memorized and not written down anywhere.
Now, if you’ve got a group of telepathic ninjas after your bitcoins, you can use a blockchain-powered artificially intelligent android to protect you. (Just kidding, we’re not there yet.)
TREZOR Rating: Overall, I like the TREZOR a lot. It’s extremely secure and intuitive. The price is a bit higher than most wallets but the features, TREZOR team, and accessibility of the product justify it.
KeepKey is a sleek hardware wallet that works with the wallet software on your computer to help you generate your private key, securely store it, and verify your Bitcoin transactions. To provide you with the most secure private key, KeepKey generates one with its hardware-based random number generator, protects it with a pin code, and will only store it in the hardware itself.
KeepKey also gives you a backup key to recover your hardware wallet without compromising its private key, if it ever gets lost or stolen. Transacting Bitcoins on your KeepKey is just as secure as generating and storing your private key — you have to approve each of your transactions by punching in a pin code and pushing the wallet’s confirmation button.
Best Mobile & Online Bitcoin Wallets
Unless you’re mining bitcoins, you’re likely purchasing them from a bitcoin exchange. On occasion, some notable bitcoin exchanges will also create a wallet to make themselves an entire bitcoin experience - similar to what the aforementioned Exodus does.
Online wallets, though, bring you all the safety risks of a software wallet. Their strength lies more in their convenience, as most will also have a mobile wallet you can use. A safe, reliable mobile app can make buying bitcoin quick and simple.
Do your full research on bitcoin wallet apps just as you would any cryptocurrency-related app. Bitcoin scams run rampant, taking advantage of those who are curious but unknowledgeable. Google and Apple have done what they can to remove dangerous crypto-mining apps from their app stores, but you’ll need to do your part to mitigate the risk.
Here are some of the best mobile and online bitcoin wallets.
- Convenience, ease of use, storage of multiple coins and tokens
- Security risks
Coinbase is one of the easiest ways to buy, sell and hold cryptocurrencies, which earns it the first spot on this list. With Coinbase, you can connect to a U.S. bank account and easily transfer dollars in or out of your dollar wallet. You can use those dollars, or transfer in new ones, to buy and sell. In addition to Bitcoin, Coinbase currently supports Bitcoin Cash, Ethereum and Litecoin. There are constant rumors of additional currencies like Ripple getting support from Coinbase as well.
While the big upside of Coinbase is ease of use, that is offset with some worries about security. Mt. Gox was at one point the dominant platform for Bitcoin and other currencies. That is until it was hacked and lost nearly half a billion dollars in user currency. But Coinbase did learn from Mt. Gox’s loss, and has very firm security in place and regularly updates and improves the entire user experience.
- Simple to use, established company, available for mobile and web
- Not as secure as offline wallets, some users have recorded complaints about customer support
One of the most popular web-based wallets available, Blockchain.info is based in Luxembourg and was launched in 2011. It offers iOS, Android and web wallets for bitcoin holders, providing fast and convenient access to your BTC across a range of devices.
On its website, Blockchain.info claims to have provided more than 23 million wallets and been used for more than 100 million transactions. It also has a reputation for being easy to use and allowing wallet holders to send and receive bitcoin with a minimum of fuss. Everything you need is easy to find from the main user interface.
To secure your account, the website takes you through several steps, including:
- Verifying your email
- Backing up your recovery phrase
- Linking your mobile number
- Setting up 2-factor authentication
- Blocking Tor requests
However, despite these features, it’s worth remembering that online wallets simply don’t provide the same level of security as hardware wallets, so storing large amounts of bitcoin may be better done offline. Some users have also reported complaints about the wallet’s customer support, so make sure you’re aware of this potential drawback before signing up.
Mycelium is a mobile-only Bitcoin wallet, with Android and iPhone versions available. Mycelium is known for being a bit more complicated to use than some other Bitcoin wallets. But advanced users should be just fine navigating the experience.
There is no Web or desktop interface but as many people now use their phone as their primary computer, that may not be a reason to be scared off from trying it out. It is very secure, allows for anonymity and keeps your Bitcoin in your pocket or bag pretty much everywhere you go.
- Security, open source, also available on mobile
- Bitcoin only, not ideal for beginners
GreenAddress is another popular option for bitcoin holders that value security and privacy but don’t want the expense of a hardware wallet. The most important features of GreenAddress are its security inclusions, such as 2-factor authentication and multi-signature functionality. It’s a deterministic wallet, and GreenAddress maintains that it never stores its users’ private keys, not even when they’re encrypted.
Your funds are secured with your private key and GreenAddress’ private key. However, this means you need to get third-party approval before making any payments, which has been a source of some criticism from the bitcoin community.
There are also other wallets available that are easier for first-time users to understand, and multi-currency holders should be aware that this wallet currently supports bitcoin only.
GreenAddress can be accessed through a Google Chrome app, while there are also iOS and Android apps available for mobile use.
Best Paper Bitcoin Wallets
A paper wallet is exactly what it sounds like. It is all the information you need to buy, sell and store bitcoin on a single piece of paper. Scan the QR code on the paper for an online or mobile wallet, and you’ve made your purchase without needing to store your info on a potentially dangerous server.
Any danger here comes from you; make sure you don’t lose it, lest it fall into the wrong hands. Beyond that, however, paper wallets allow for cold (offline) storage in a way that other wallets simply do not. It doesn’t require connecting anything to a computer or mobile device. If you’re looking for the most security you can find in a bitcoin wallet, it’s hard to get safer than this.
The Best Ways To Store Bitcoin
|Name Of Wallet||Types Of Wallet||Rating|
|Ledger Nano S||Hardware Wallet||9/10|
It’s important to store Bitcoin away from an exchange. If you don’t do this, you risk losing all of your coins in an instant.
Luckily, you have many online and offline wallet options available to you.
I hope this detailed article on the different types of Bitcoin wallets – including software, hardware, and desktop wallets – will help you in making the right choice for yourself.
Do let me know which bitcoin or altcoin wallet you are using in the comments section below.
Additional types of wallets
Multisig stands for multisignature, a wallet that allows sending bitcoins, only with the approval of enough private keys, out of a set of predefined keys. Let me explain:
To clarify, let’s say that Alice, Bob, and Charlie all want to open a business together and invest some of their Bitcoins, but none of them actually wants only one person to have the private keys to the money. So they each get one key and use a multisig wallet that requires two out of three of those keys. This way, none of them can run away with the money alone, but they also don’t need all three of them to pay expenses.
For example, if Alice wants to run away with the money, she can’t because she only has one key. But if Bob is missing and Alice and Charlie want to pay an expense, they can do it with their two keys.
Multisig doesn’t have to be only two out of three—it can be almost any combination. For example, a couple wants a shared account and decides that they can spend the money only if both of them agree; or a Company’s board of directors allows payments only by vote of a majority.
Multisig is often used for escrow services, in which two parties decide on a transaction that requires two out of three keys. If the seller and buyer don’t agree, a trusted third party will arbitrate and release the funds.
Some wallets, often referred to as full nodes, hold a full copy of the blockchain in order to validate each and every transaction. Unlike full nodes, SPV (simplified payment verification) wallets (aka lite or thin wallets) don’t hold a full copy of the blockchain. SPV wallets rely on the full nodes to which they are connected in order to validate transactions.
SPV wallets are faster and consume less disk space than their counterparts. Since the blockchain today is becoming increasingly big, many wallets offer an SPV solution for limited-capacity devices such as mobile phones, tablets, and desktops.
Brain wallets are just a way to create a private key out of a predetermined text or set of words. So instead of getting a randomly generated seed or private key, you can decide for yourself on a passphrase and use some basic algorithms to generate a private key from that passphrase. Here’s a short video explanation:
However, brain wallets have a significant disadvantage by having a higher probability of being hacked. This is because people are usually very predictable in what they use as passwords or supposedly random text, and hackers have a way of knowing that.
To prove this point, some tests have been done where simple passwords have been used for brain wallets and deposited with funds. The results? The funds have been quickly stolen. Additionally, one Bitcoin user lost four bitcoins from his wallet after using a brain wallet private key generated from an unknown Afrikaans poem.
This proves that even if you think you’ve found an obscure text for a passphrase, you’re still in danger of being hacked.
Now you know about all of the wallet types that are out there. Bear in mind that some wallets will fulfill more than one criteria. For example, you can have a mobile SPV wallet that also has a multisig feature.
Control your private keys.
Services like Coinbase and Circle offer “Bitcoin wallets”, but in reality control your private keys. It’s best to use a wallet where you control your private keys. This is the only way to have full control of your funds and not have to rely on third parties for security.
Protect your privacy.
Each time you request blockchain data from a wallet, the server may be able to view your IP address and connect this to the address data requested. Each wallet handles data requests differently. If privacy is important to you, use a wallet that downloads the whole blockchain like Bitcoin Core or Armory. Tor can be used with other wallets to shield your IP address, but this doesn’t prevent a server from tying a group of addresses to one identity. For more information, check out the Open Bitcoin Privacy Project for wallet rankings based on privacy.
Don’t reuse addresses.
Most Bitcoin wallets today automatically create a new address for each transaction. Since all Bitcoin transactions are public, address reuse makes it easy for others to group transactions and understand which payments are connected to one identity.
Use different wallets for different sums of money.
Just like you don’t walk around with your savings account as cash, there are different Bitcoin wallets that should be used depending on how much money is being stored or transferred. Secure wallets like paper wallets or hardware wallets can be used as “savings” wallets, while mobile, web, and desktop wallets should be treated like your spending wallet.
Create multiple secure backups.
Users should create multiple backups of their wallets. Backups should be kept in separate physical locations in the case of fire or water damage. Paper wallets can be laminated or written in metal for extra protection.
Bitcoin Wallet Frequently Asked Questions
Bitcoin wallets. What are they?
Bitcoin Wallets let us send, receive and store Bitcoin amounts all the way down to the Satoshi unit.
Wallets secure funds by guarding our private keys. These private keys act as the proof of ownership for our Bitcoins. As such, a Bitcoin wallet is like a key to your safe deposit box on the Blockchain.
What is a private key?
Private keys emerged as a way to communicate securely through insecure communication channels.
Historically, before the advent of public key cryptography, the greatest cryptographic weakness was the inability to communicate the ‘key’ that makes sense of encrypted messages. As a solution, the use of two keys (public and private) entered the picture.
It’s a nifty little trick.
Keys come in pairs. The public key is used to encrypt the message whereas the private key decrypts the message. The only person with the private key is you. Everyone else is free to have your public key. As a result, everyone can send you encrypted messages without having to agree on a key beforehand. They simply use your public key and you untangle the gibberish by using your private key.
Why should I care about private keys?
At the end of the day, all of this can go over your head without much danger. Just remember that it’s good to know what you’re dealing with. Bitcoin wallets make use of a fundamental cryptographic principle that we use for things ranging from httpss for websites or sending anonymous tips to Wikileaks. Most importantly, by understanding private keys you’ll have a much easier familiarizing yourself with Cold Storage wallets.
Are Bitcoin wallets anonymous?
Kind of, but not really. Wallets are pseudonymous. While wallets aren’t tied to the actual identity of a user, all transactions are stored publicly and permanently on the blockchain. Your name or personal street address won’t be there, but data like your wallet address could be traced to your identity in a number of ways. While there are efforts underway to make anonymity and privacy easier to achieve, there are obvious downsides to full anonymity.
What is a Bitcoin address?
A Bitcoin address is like an account number, just better. The address denotes which wallet the coins should be sent to. Like a bank account number, where the difference lies in the wallets having multiple addresses. These can be customized by including payment request information such as an amount and a date of expiration.
What should I know about addresses?
Bitcoin wallet addresses are case sensitive, usually have 34 characters of numbers and lowercase letters, start with either a 1 or a 3, and never use 0, O, l and I to make every character in the address as clear as possible. That’s a lot to take in. But don’t worry. What they consist of is largely irrelevant to you. Just know they’re a string of characters that denote a destination on the Bitcoin Blockchain.
How do I generate a Bitcoin address for my wallet?
How to generate a new Bitcoin Address varies between wallets. Some manage your addresses for you. Others give you full control. As with many other Bitcoin technologies, the option to dirty your own hands is always open.
If you do end up taking the easier route, just press a button to generate a new address for your wallet.
Some wallets, like Electrum, allow you choose in how many blocks your transaction should be confirmed. The faster you want your payment to go through, the more you will have to pay miners for confirming your activity. We find here another difference between Bitcoin wallets and Bank accounts. Given the right wallet, the control and oversight that we have over our transactions is far more extensive than that of the traditional banking system.
How do I fund a Bitcoin Wallet?
First, acquire some Bitcoins. Go through an exchange in your country, ask an acquaintance to share.
Some wallets, particularly online ones, also let you buy coins. Keep in mind that these come with larger exchange margins which are best left alone.
Are Bitcoins safe?
Is Bitcoin a safe way to store value digitally? Are we wise to save our coins on our computer? It’s true that online wallets are necessarily more dangerous than offline wallets. However, even offline wallets can be breached, meaning that security in the Bitcoin world depends largely on following good practices. Just like you would avoid flailing your bills about in a dangerous place, you should make sure to keep your passwords and keys as safe as possible.
How do I secure my Wallet?
- Secure your computer
- Restrict unsupervised access. Set a strong password and close all ports and maintain a strict firewall.
- Frequently change address. Use a different address for every transaction.
- Multiple Signatures (Multi-sig). Multiple private keys to deter breaches.
Where are Bitcoins stored?
Bitcoins simply consist of a string of data. That’s why they can be stored anywhere. You could paint Bitcoin on a wall with your blood. Nobody does that though. Hopefully.
Instead, we store BTC on computers because we need them handy to trade. After all, we need to be connected to the internet to send value from one wallet to another over the Blockchain.
How do I open a Bitcoin account?
To some readers this might seem like a weird question. Truth is, people coming from a financial or business background are likely to expect Bitcoin to be a direct alternative to our current financial system. This is not the case.
You don’t need a Bitcoin account. There is no such thing really. You just need a wallet. The only accounts you might encounter are online wallets that are separated into various accounts via a user system.
How do I know which wallet is best for me?
Let’s be honest. It’s unreasonable to expect anyone else to make this decision for you. After all, your preference depends entirely on your personality and needs. So just be honest with yourself.
Frankly, you shouldn’t need anything complicated if you’re using the wallet for simple internet expenses or as a way to save money.
If, however, you’re planning to run a Bitcoin centered business make sure to use advanced wallets that support automated mass payments.
Any common mistakes to be careful of?
First of all, don’t rest your money in an exchange wallet. Keep your coins in an environment where you have complete control.
Secondly, don’t keep all of your coins in one place. You’ll be crushed if you lose access to a wallet with all of your funds.
Thirdly, double check the target address. Bitcoin transactions cannot be reversed, so don’t lose your coins forever to a stranger!
Last of all, use trusted online wallets (if at all). Don’t just trust anyone with your money. Make sure that the online wallet provider has a reputation of upholding the highest possible security standards.
Security Risks with Hardware Wallets
Hardware wallets are more secure than any other software wallet, like one that runs on your Android or iOS device, or desktop. However, hardware wallets have some unique security risks to be aware of.
Tampering of the Device
We always recommend to order directly from the hardware seller. This is because someone can buy a hardware wallet, tamper with it, and sell it used. They could program it to steal any bitcoins or add a back door.
Most hardware wallets add some special kind of tape on the packaging to try to make any tampering more noticeable. This is another reason we recommend only ordering from the hardware wallet company, and not from a website like eBay.
Bad Random Number Generator
Bitcoin private keys are based on cryptography. Random number generators, also called RNGs, are used to create the private keys that secure bitcoins.
If the random number generator is not random enough, that means someone else can recreate the private key of the hardware wallet easier. This attack has happened in the past with blockchain.info, a web wallet. Over 300 BTC were lost because blockchain.info did not use good RNG, so a hacker was able to generate the private keys again and steal coins.
One way to help prevent this is to use the hardware wallet’s custom 25th word. TREZOR, for example, allows you to add a 25th word to the 24 word seed. This means that you can technically add your own RNG to the computer generated RNG to ensure your private key will be truly based on good RNG.
What happens if the hardware wallet company goes out of business?
All hardware wallets listed above work with other wallets. So, if the hardware wallet company goes out of business you will still be able to use your wallet with a different wallet like Electrum.
Let’s say you use TREZOR with TREZOR’s myTREZOR wallet. TREZOR goes out of business and no longer supports myTREZOR wallet and it gets shut down.
You could, in just a few minutes, download Electrum on your computer. Once installed, you’d setup your TREZOR and all of your transaction history and balance would get imported and be exactly the same. This is because Electrum will use the same 24-word seed you generated with TREZOR on setup.
Which wallets can be used for each device?
Ledger Nano S, KeepKey and TREZOR all work with:
- Mycelium (Android version only)
- Electrum for Mac, Windows and Linux
- Multibit HD
Do these hardware wallets work for Ethereum?
Yes, all of these wallets work with Ethereum, Litecoin and many other coins.
TREZOR and Ledger both have blog posts explaining their integrations with various Ethereum wallets.
The hardware wallet tells me to write down the 24 word seed on paper.
Should I take a picture of the seed with my phone as a backup?
NO, NO, and NO!
The seeds generated by hardware wallets are meant to be written down only. By taking a picture of your seed with an internet connected phone, you put your entire wallet on a device that is connected to the internet and easier for hackers to get into. Please do not do this!
Why do the hardware wallets have buttons?
The buttons are used to confirm transactions. In order to send a transaction, you must physically press or hold buttons on the devices. This is a security feature. If a hacker were to access the hardware wallet somehow, the hacker still would not be able to send a TX without physical access to the buttons. Read more about this in TREZOR’s security philosophy.
Do hardware wallets work with Coinbase?
One of the most frequent questions we get asked is how Coinbase works with hardware wallets.
It’s a trick question!
Coinbase does not work directly with hardware wallet. You should, however, send bitcoins from Coinbase directly to your hardware wallet once you buy. Never store bitcoins on Coinbase or any other exchange for long periods of time.
Too many people in the past have lost money from hacks like Bitfinex and Mt. Gox.
So, yes, use a hardware wallet in conjunction with Coinbase. Buy on Coinbase, then send to hardware wallet.
Also, what we said above goes for ALL exchanges. Use Bitstamp? Cool! Once you buy bitcoins on Stamp, send the coins to your hardware wallet. The same goes for Kraken, Poloniex, or any other exchange or service that holds your coins!
What other kinds of wallets can I use?
Other wallet types are hot wallets. This means they are wallets run on an internet connected computer.
Android wallets, iOS wallets and desktop wallets are all examples of this.
How many backups of my seed should I create?
We recommend keeping at least two backups of your seed in multiple locations.
You can also laminate your seed to protect against water damage or any other damage.
Keeping your seeds in fire proof safes can help protect in the event that the storage location is burned down.
Another option is to put your seed into metal manually using stamps, or using cryptosteel.
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