An Official Guide To The Best Bitcoin Wallets
Over the past decade, Bitcoin has managed to grow from an unknown virtual currency into becoming the dominant digital currency in the world. It has become a government-backed currency that proponents have argued has made digital currency safer, easier and more private for consumer use. With more consumers switching over to Bitcoin, it is vital for them to understand the options they have to choose from when looking for the best Bitcoin wallet.
The value of Bitcoin has steadily increased over the years, and many people have also realized it is a great investment opportunity as well. However, before placing any money into cryptocurrency such as Bitcoin, it is critical that investors understand the risks. Although Bitcoin has the potential to double in its value in a relatively short period of time, it can also lose its value to practically zero.
This means that you should never invest more in Bitcoin than you can afford to lose. You may not get your investment back. Once you have decided to move forward, there are a variety of bitcoin wallets that you can choose from to meet your needs.
Understanding What A Bitcoin Wallet Is
A bitcoin wallet is nothing more than a program that is used to send and receive bitcoins. Bitcoin wallets allow these transactions by interacting with the blockchain. The blockchain is bitcoin’s ledger, and these programs can be used on desktops, mobile devices, laptops and even as hardware.
Typically, bitcoin wallets work very similar to email. If you want to send someone an email, you will need to have a program to use. Bitcoins, like emails, also require you to use a specific address to send and receive an email.
The address you use is known as your bitcoin address. You can share this bitcoin address with anyone who is waiting to send you bitcoins. Bitcoin addresses always begin with the numbers ‘1’ or ‘3’.
You will also need a password. When creating your email address, you can choose your password. However, when you are creating a bitcoin account, the password is randomly selected by the wallet. The password is also known as your private key. This information must never be shared with anyone else.
What Is A Private Key?
As previously mentioned, a private key is merely a long string of letters and numbers that act as your password. It is this secret combination of numbers and letters that will give the wallet the capability to let the bitcoin network know you want to send your bitcoins to another location. Keep in mind that whoever discovers your private key will also have complete access to your Bitcoin.
This private key is also used to create your Bitcoin address. Even though your Bitcoin address will be generated from a private key, there is no way to know what the private key is by just looking at the address. The entire process is one way.
The core function of the wallet is to create and store the private key. In other terms, it can automate Bitcoin’s cryptography and blockchain communications for you.
For example, if you have your wallet on your phone, and your phone is stolen, you can download your wallet on another phone as long as you have your private key written down.
Tips For Choosing The Best Bitcoin Wallet
People use Bitcoin wallets for different purposes. Do you need a Bitcoin wallet to store a large amount of Bitcoin, or do you need a Bitcoin wallet to keep some change so you can buy a latte?
Wallets have various security levels, and with some wallets, you may have more security features and less convenience. You will have to decide the features that are more important to you. Some of the questions you may want to ask are:
- Do you want to pay for a wallet?
- How often will you use a wallet?
- Are you tech savvy?
- Will you be storing coins other than Bitcoin?
- Are you sharing the wallet with someone else?
- Do you value privacy or convenience?
- Do you want to carry the wallet with you?
Depending on your answers to the questions, you should have a list of wallets you are interested in using. You may even decide that you want more than one wallet. A hardware wallet can be used for large amounts of money, and a smaller, mobile wallet can be used to store spare change. This way, even if the mobile wallet is hacked or your phone breaks, you will not be out of a lot of money.
What Are The Different Types Of Bitcoin Wallets?
Several different types of wallets are available for you to store your coins. Cold storage wallets are considered to be the most secure wallets. They are not attached to the Internet so they can not get hacked from a remote location.
Examples of cold Bitcoin wallets include:
- Hardware wallets
- Paper wallets
Hardware wallets are physical wallets (devices) that will safely store your private key. Typically, they are flash or USB drives that can be connected to computers so you can interact with your Bitcoin wallet. They are built to protect your private key even if the computer you are using becomes infected. You can even use these hardware wallets on public computers and computers you do not trust.
If you want to send your Bitcoins to someone who is using a hardware wallet, you will need to get online and connect to a website that will control your wallet and allow the transfer of the coins.
Paper wallets are nothing more than pieces of paper that have seed or private key written on it. When your private key is kept on a piece of paper, only a person who has access to the document can steal your private key.
Unfortunately, paper wallets can be destroyed very easily. It is best to create several copies of the wallet so you can retrieve your private key even if one paper wallet is destroyed.
Also, keep in mind that if you have a paper wallet, you will still have to import the key so it can be used digitally.
A mobile Bitcoin wallet stores the private key on your mobile phone. Many consider these wallets to be the least secure of all wallets. Because phones frequently break, are stolen, or lost, it is best to have a two-factor authentication process on your mobile wallet. You should also password protect the wallet and create a backup for the private key.
On the other hand, mobile wallets are considered to be the most convenient for the average user’s mobile lifestyle. Nonetheless, it is not wise to store a large amount of Bitcoin in a mobile wallet, unless it is used along with a hardware wallet.
Hot wallets are any Bitcoin wallets that are connected to the Internet. It can be a wallet that is connected to a wallet that is installed on a computer connected to the Internet, a web service.
Hot wallets, although popular, they are not secure because access to the wallet can only be achieved through an Internet connection.
Desktop wallets are hot wallets that are stored on your computer. Your private key is safe as long as the computer is free of any security weaknesses and malware. These types of wallets are valuable targets for hackers.
Multisig wallets are best for those who want or need to share their wallets with other people. Also known as multi-signature wallets, bitcoins can only be sent if there are enough private keys.
For example, if each person has a private key to one wallet, and one person wants to withdraw coins only using their private key, the wallet will not make the transaction without all private keys present. On the other hand, if three people have private keys, and two people want to pay an expense, all of the private keys do not need to be present.
Coinbase is one of the simplest ways to get introduced into the world of Bitcoin. With this type of wallet, you will be able to hold and sell cryptocurrencies. You will also be able to connect Coinbase to a U.S. based bank account so you can quickly transfer money in or out of your Bitcoin wallet. Once you have these dollars, you can choose to transfer them into new ones or use them to purchase or sell more Bitcoin.
Currently, Coinbase supports:
- Bitcoin Cash
- Ethereum Classic
- Stellar Lumens
It is also speculated that other cryptocurrencies such as Ripple will soon be supported by Coinbase as well.
There are several advantages to using Coinbase. The wallet is easy to use, unfortunately, this ease of use is also offset with concerns regarding security. Before Coinbase, Mt. Gox was the dominant Bitcoin wallet, and when it was hacked, almost $500 million was lost in currency.
Coinbase took notice of the hacking incident and has stringent security measures in place. The security system is , so potential attacks are identified early. These measures also help to improve the users’ experience.
This is a desktop Bitcoin wallet option. It is a software wallet, and this means that all of your information will be stored in a group of files that are saved on your desktop or laptop. Currently, it is supported by the following operating systems:
- Mac OS X
Electrum does have the capability to work with a few physical wallets and does offer more flexibility than other software wallets that are only compatible with Trezor.
Perhaps, the most significant benefit is that you can begin storing your Bitcoin on your computer as soon as you install the software. However, you can also lose all of your files if the computer is stolen, damaged, corrupted or hacked. There is a very good chance you will lose all of your Bitcoin.
Electrum does offer a backup recovery option, and it also allows you to create cold storage where you can keep a handwritten or printed set of keys for your file.
If you are looking for the Bitcoin wallet with the best security, look no further than Trezor. Even though it is not considered a complete platform for buying and selling like Coinbase, it is a perfect option for storing Bitcoin.
This is a device that is physically attached to your computer, phone or tablet so you can access your Bitcoin. The wallet is compatible with different currencies, and it can also manage your passwords. It offers such features as two-factor authentication.
Users will have some protection against lost devices and passwords when using this wallet. However, it is essential to take the necessary steps to ensure that no one ever has access to your Bitcoin wallet. That is the point of using digital currency in the first place. This means you can rightly assume that if you ever need to recover your wallet, it will not be a simple process.
This Bitcoin wallet was initially introduced to the public as a free stock trading platform. Over time, the platform has extended into offering customer service and support for other types of investments including Bitcoin.
Not only is Robinhood a Bitcoin wallet, but it is also an exchange. It is similar to Coinbase in that everything is centralized in one convenient location. This is a mobile platform, and a web version has not yet been rolled out for investors.
However, there is one thing that has set Robinhood apart from other bitcoin wallets on the market, and that is its cost. It is free to use, and there are no commissions to either sell or buy on Bitcoin. There are some that argue it is not as safe to use because it is free, but if people use it for their stocks, people should feel safe using it for Bitcoin.
These are just some of the many available Bitcoin wallets. Decide if you need more security or convenience in a wallet and whether you will be sharing the wallet with someone else. It is important to research the pros and cons of each and choose the one that is best suited for your needs and budget.