How do I store bitcoins? And is this the first thing I need to consider? Before you purchase bitcoin, you’re going to need a place to store them. Bitcoin wallets store the private keys that you need to access a bitcoin address and spend your funds. They come in different forms, designed for different types of devices. You can even use paper storage. It is important to secure and back up your bitcoin wallet. Wallets can exist either on your computer or mobile device, on a physical storage gadget, or even on paper. In this post, we will be looking at the different types of bitcoin wallets.
Electronic wallets can either be downloaded as software or an internet service provided by a company hosting wallets on the cloud. By installing your own software wallet, you gain the security of being in control of your own bitcoins. Most wallet software has a relatively easy configuration, and many of them are free. However, they often require a fair amount of maintenance. This is because if you are not backing up your wallet regularly, you face the risk of losing all of your coins in the event that your computer gets stolen/corrupted. However, if you have more than one private key storage, this won’t be too much of a problem.
The original software wallet is the Bitcoin Core Protocol, the same program used to run the bitcoin network. People tend to look for alternatives to Bitcoin Core to store bitcoins. When you download the program, you also need to download the entire public ledger for bitcoin, which is over 145GB. Because of this, most wallets you will find online today are “light” wallets. To counteract needing 145gb of free space on your computer, these light wallets work by syncing you to the ledger as opposed to downloading it. An example of this would be Electrum. Electrum is a desktop-based SPV (Simplified Payment Verification) electronic wallet service that also offers cold-storage options to its users.
Cloud-based wallets are an option for those looking for convenience. With an online wallet, you are (usually) able to access your bitcoins from any device that connects to the internet so long as you have the right passwords. All online wallets are extremely easy to set up, and many of them come with desktop and mobile apps for easy access on the go. Some online wallets even offer offline storage for people who are concerned about the security of their coins. (this is an easy – but risky method to store bitcoins)
Though this might be a benefit for some, although it does come with disadvantages.
Keeping your private keys on a cloud service means you’re putting all of your trust in your host’s security measures. Plus, you have to trust that your host won’t run off with your coins, disappearing from the public while shutting down the site. Worse still, what would happen if their wallets are frozen or confiscated?
Often used as gifts, or simply for cold storage, paper wallets are very simple to use and create. People often use paper to store public and private keys of a bitcoin address, ideal for long-term storage. Paper wallets are impossible to hack as they are physical, and not connected to any network. The only way to lose your funds when using a paper wallet is for the paper to be lost, stolen or destroyed. Services such as WalletGenerator and BitcoinPaperWallet give people the ability to quickly generate and print a paper wallet. After sending an amount of BTC to that address, your paper wallet is ready to use.
A hardware wallet is a physical device that stores cryptocurrency such as the Ledger Nano S, similar to paper wallets. These devices occasionally connect to the internet in order to enact bitcoin transactions. Hardware wallets are one of the most secure options out there when it comes to keeping your bitcoins safe. As these devices spend most of their time offline, they are relatively impossible to hack. Your safest option to store bitcoins is a hardware wallet. Keeping your bitcoins offline keeps them out of the grasp of hackers. To add an extra layer of security to your hardware wallet, regularly back up your wallet.
— Obsidian Systems (@obsidian_llc) September 27, 2018
If managed well, all bitcoin wallets can be safe. The private keys stored in your wallet are the only way for anyone to access the balance and transaction logs tied to a bitcoin address. As long as no one has access to your private keys, your coins are safe. Of course, if safety and security are in your best interest, then selecting either a hardware or paper wallet will be your best option for securing your funds.
Many investors use a mix of different wallets for their different cryptocurrency-related needs. Some store bitcoins on one device and altcoins on another. Large amounts of bitcoin used for long-term holding is often stored on a hardware/paper wallet offline. Their spending balance used for liquidity and everyday purchases in bitcoin will usually be stored on an online wallet for ease of access on a mobile or laptop. Your choice of a wallet will vary depending on your needs, and how technical you’re willing to get.
Whichever option you may choose, please be vigilant. Do frequent backups, store your hardware/paper wallets in a safe location, and if you have a trusted person, give them access to your backup files so if you lose them, there will be a spare backup. It’s often a good idea to keep a paper storage for your wallet’s private address and store it somewhere safe. This will come in handy in the event that your hardware wallet goes missing and you need to access your wallet.
What do you think the best type of bitcoin wallet is? Do you have any favourite method to store bitcoins? If so, let us know why in the comments below! We look forward to hearing from you.
This article is intended to educate and should in no way be seen as investment advice or an enticement to use the ice3x.com platform. Bitcoin is highly volatile with big profit opportunities but you should also remember that you could lose part or all of your investment whenever you take part in any high risk investment. Bitcoin trading is not a regulated industry in South Africa, which in itself carries additional risks. IF YOU ARE NOT AN ASTUTE BITCOIN TRADER, SEEK INDEPENDENT FINANCIAL ADVICE BEFORE MAKING ANY INVESTMENTS.