Everything Newcomers Need to Know to Get Started
Cryptocurrencies have been getting increasingly popular over the past few years and Bitcoin, the original crypto, is still leading the pack. More merchants accept Bitcoin, both online and in their stores, and more governments recognize it as a legitimate currency and offer regulatory frameworks for its use. Put simply, if any decentralized virtual currency is going to take off, chances are it will be this front runner.
Despite the fact that Bitcoin is the oldest form of cryptocurrency available, there are still some myths and misconceptions surrounding its use. This article will focus on Bitcoin wallets, in particular, in an effort to clarify what they are, how they work, and how consumers can get started using them. After all, there’s no way to take the plunge into the exciting world of Bitcoin if users don’t have anyplace to store their virtual money.
What is a Bitcoin Wallet?
Practically speaking, Bitcoin wallets operate as a place to store and access Bitcoin. Technically, Bitcoins aren’t stored anywhere, though. They work using blockchain technology, which means that each Bitcoin in existence has a private key and that number is altered every time it changes hands. The Bitcoin wallet facilitates these electronic transfers.
There are many different types of Bitcoin wallets, and each of them has a different set of advantages and disadvantages. More about that later, though. For now, let’s look at some of the factors influencing practical use.
How They’re Used
Whether a consumer has obtained some Bitcoin through direct purchase, a trade, mining, or a gift, he or she will need to have someplace to store it. When a Bitcoin is obtained, its original owner sends the private key associated with that particular Bitcoin to its buyer. If the private key sent over matches the public address for the Bitcoin, the buyer’s digital balance will increase while the seller’s balance will decrease by the same amount.
Types of Wallets
There are several different types of Bitcoin wallets. Each of them has its own set of pros and cons, and some consumers even opt for having more than one wallet in order to accommodate all of their uses of Bitcoin.
Ultimately, choosing the right wallet is primarily a matter of balancing security with convenience. However, personal preference can also play a large role in this important decision. Find out more about the different kinds of Bitcoin wallets and how they’re used below.
Also referred to as web-based wallets, or simply web wallets, online wallets are designed to be accessible from anywhere. This makes them extremely convenient, but it also influences their security.
Online wallets work by allowing a third-party company to store their customers’ private keys on an online server. Some link to mobile and desktop wallets, while others provide online-only access. Unfortunately, not all web wallet providers are equally reputable and not all of them provide adequate storage or security features.
Specialized web wallets also exist to facilitate the transfer of Bitcoin on a particular platform or exchange. One example of a reputable, specialized web wallet can be seen at xCoins.io. This platform offers web-based wallets for its users that allow them to store the Bitcoins they buy or borrow through the site. As noted in the introduction to this section, there’s no reason that consumers can’t have an xCoins wallet and, say, a desktop wallet or even a hardware wallet, as well.
As the name implies, mobile wallets are held on a consumer’s smartphone. This makes them incredibly convenient. Some mobile wallet apps even allow their users to take advantage of near-field communication in order to use their phones, themselves, as Bitcoin payment devices.
Most Bitcoin wallets actually store the Bitcoins blockchain ledgers, which constitutes an incredible amount of digital information. Mobile wallets, on the other hand, utilize what’s known as simplified payment verification (SPV) technology. This tech only verifies a small subset of each Bitcoin’s blockchain ledger, making it possible to figuratively carry enough Bitcoin in a mobile wallet to facilitate transactions.
One of the downsides of mobile wallets is that they offer arguably the least secure form of Bitcoin storage. Anyone who loses his or her phone can wind up losing control of a mobile wallet. Plus, mobile wallets are more prone to attack than their desktop counterparts.
Desktop wallets don’t use SPV. They store the Bitcoins’ private keys directly on a computer’s hard drive. Direct storage makes them much more secure than mobile wallets. There’s no need for relying on third-parties for data and it is much more difficult to lose, or to steal, a desktop computer than a mobile phone.
Desktop wallets do still require an internet connection, though. This still makes them inherently vulnerable to hackers. Plus, they’re not very convenient when it comes to daily use, so consumers who spend Bitcoin routinely at brick-and-mortar establishments typically need to have both desktop and mobile wallets if they want to go this route.
What desktop wallets are good for is small amounts of trading directly from the computer. Novice investors who aren’t interested in taking advantage of the increasing number of merchants who accept Bitcoin as a daily-use currency often choose desktop wallets.
Hardware wallets are the most secure type of Bitcoin wallet available. They allow users to store their private keys on secure devices, which are immune to the computer viruses that sometimes plague desktop and mobile wallet owners. Those who intend on using their wallets to store large amounts of Bitcoin should know that there are literally no verified examples of hackers stealing money successfully from this type of wallet.
It is important for those with security concerns to invest in a high-quality device manufactured by a trustworthy company. Put simply, some hardware wallets are definitely better than others. Try to find a device that features extra layers of security such as screens that can be used to verify wallet details.
Paper wallets have made the bottom of this list for a reason. They are not very convenient, nor do they offer exceptional security. Paper wallets are basically just printed documents that feature both a Bitcoin’s public address and its private key. More often than not, they are printed using QR-codes and designed for use in conjunction with a desktop or mobile wallet.
The primary advantage of paper wallets is that the Bitcoin keys stored on these wallets are basically immune to hackers since they aren’t stored digitally. Obviously, though, this does not eliminate the risk of theft, completely. Malware and spyware programs can still become problematic while consumers are generating their paper wallets and needless to say, their owners should make a point of keeping careful track of those pieces of paper.
Should someone lose a paper wallet, there will be no way for them to recover the Bitcoins that it represents. Most consumers who opt for this storage strategy have their paper wallets laminated or keep them in sealed plastic bags then store them in safes or deposit boxes.
There are a few ways that consumers can ensure that they are keeping their Bitcoins as safe as possible without sacrificing the convenience associated with mobile and web-based wallets. First, those who have invested any substantial amount of money into their Bitcoin holdings should consider using a cold storage option such as a hardware wallet for the majority of their funds. That way, they can still use web-based or mobile wallets without having to worry about risking their entire crypto fortunes.
No matter what type of wallet consumers choose, they should make a point of exercising extreme caution and double-checking all transactions. Once someone has authorized a transaction, the Bitcoins being transferred will disappear and will not typically be recoverable. Double-check email addresses and other forms of identifying information prior to sending anyone Bitcoins for any reason and make a point of using only well-known, reputable platforms for buying, selling, and trading cryptocurrencies.
Finally, anyone using a software wallet should make a point of downloading security software. There are three primary concerns. Malware can be used to scan a consumer’s computer and find the private keys that control their Bitcoins. These programs are downloadable viruses that can typically be caught by antivirus software.
Viruses known as trojans can also be a threat to Bitcoin holders. If this type of virus is downloaded to a computer, it can be used to encrypt the files on the hard drive and its creator can then use those files as a ransom to obtain Bitcoin keys. Make a point of keeping antivirus software up-to-date and storing large amounts of Bitcoins on a device that does not have access to the internet to avoid these kinds of problems.
The popularity of cryptocurrencies is constantly on the rise and Bitcoin will almost certainly continue to lead the pack when it comes to usability and investment value. Bitcoin wallets are necessary to store and spend Bitcoins. Choosing the right wallet requires taking both security and accessibility into account, so it’s often more practical to have several different types of data storage device available. No matter what type of wallet consumers choose, they should take adequate precautions against theft and loss to minimize their chances of getting scammed.