How To Safely Store Your Bitcoins In A Digital Wallet
When you buy bitcoin you store them in a digital wallet. The only easy way to send and receive bitcoins is with a bitcoin wallet. There are several types of wallets including hardware wallet, software or desktop wallet, exchange or online wallet, mobile wallet, paper wallet and cold storage. See below for detailed info on each wallet type. Also, if you’re going to store any kind of wealth in bitcoins, you need a hardware wallet.
There are a wide range of options for bitcoin wallets on the market, and it’s extremely important to make the right choice in where to store your bitcoin.
Types of Bitcoin Wallets
Broadly speaking, there are four kinds of bitcoin wallets. A wallet is ‘hot’ if it’s online at all times. A ‘cold’ wallet (aka: cold storage) is when bitcoins are stored offline. These are:
- Exchange Wallets (Hot) aka: Online Wallets
- Desktop Wallets (Hot) aka: Software Wallets
- Mobile Wallets (Hot)
- Hardware Wallets (Cold)
Exchange wallets are wallet services offered bitcoin markets and exchanges to their customers. An Exchange wallet isn’t quite a personal wallet, as the exchange holds the private keys to your bitcoin. In effect, the exchange is holding your bitcoin on your behalf with an exchange wallet.
The danger of an exchange wallet is that it’s vulnerable along two lines: First, your trust in the exchange, and second, your reliance on their security. Any internal fraud on the part of an exchange or a hack from an outside party will most likely result in your losing your bitcoin.
Desktop hot wallets are wallets which store your bitcoins’ private keys on your desktop or laptop computer. Unlike with an exchange wallet, a desktop wallet means you have possession of your private keys. In the event that your computer is free of any malware and can’t be attacked via the internet, your bitcoin would be safe.
The issue is that it’s very difficult to guarantee that this is true at all times. Malware can infect a computer through a variety of ways, especially because you’re likely using this computer on a day-to-day basis for your personal computing needs. Generally, your computer will be hooked up to the internet, and desktop hot wallets are an attractive target for hackers
Mobile hot wallets are similar to desktop hot wallets, only the private keys are stored on your mobile phone rather than a computer. A mobile wallet is great in terms of accessibility and convenience it offers, but there’s a significant trade-off you’d make for that ease of use.
Mobile hot wallets are kind of a nightmare scenario when it comes to security. Everything said about desktop wallets being vulnerable to malware and hacks is true for mobile wallets, with the added risk of being tied to a fairly small phone you’re carrying with you at all times. Mobile phones are lost, stolen or broken with some degree of frequency, and if that happens your bitcoin is almost certainly lost.
The last type of wallet is a hardware wallet, which is in most ways the safest way to store your bitcoin. Hardware wallets are also known as Cold Storage wallets, and what differentiates them from the other types of wallets is that they are not always connected to the internet.
Bitcoin Wallet Review Info
Each bitcoin wallet review is performed first hand. I use both the Nano Ledger S and the Trezor and they both work great. Both have pros and cons, so check out the wallet reviews to see all of that data. The Ledger Blue has not been reviewed, because it’s yet to hit the shelves. Once it does, I’ll be purchasing one to review it like the other hardware wallets.
Guide for Beginners
A bitcoin wallet functions very much like an online bank account. The one main difference is you’re in control and must do all the sending, receiving and verifying that your bank does when it sends money on your behalf. Bitcoin has empowered people to take control of their money. This comes with responsibility to protect your money and keep it safe and secure using a combination of bitcoin wallets. Here are more tips on how to setup and use all the different kinds of bitcoin wallets.
Bitcoin wallets explained…
Hardware wallets are used to send, receive, and store bitcoin safely and securely. These wallets provide several layers of protection you can’t find with any other wallet. The best bitcoin wallet to have is a hardware wallet. A hardware wallet consists of a USB encryption device + a computer software wallet app. Once downloaded to your computer and setup the software wallet allows you to see, send and receive bitcoins. The encryption device must be plugged in and password entered before your software wallet app will open. You must verify your pin on the encryption device a second time when you send from your wallet. This keeps you safe from malware, hackers and other ways criminals will try to steal your bitcoins. I move all my bitcoins to hardware wallets to best protect my BTC holdings. Do yourself a favor and secure your bitcoin with a hardware wallet today.
- Ledger Nano S Review
- Trezor Review
- Ledger Blue – not currently available to order, will review at that time
Software wallets are apps that sit on your computer desktop. You open and close like other apps, only this is your personal online banking app. You’re the bank.
Many bitcoin exchange broker sites offer online or web wallets. When you buy, sell or trade bitcoins, you have them stored on the brokers site. This is your exchange web wallet.
A bitcoin wallet for your smart phone.
- Mycelium – I have read reviews on this but have not tested personally
Any bitcoin wallet that is connected to the internet and available to send and receive bitcoins at will.
Cold Wallet / Cold Storage
A bitcoin wallet on a computer that is only connected to the internet to send bitcoins to and from the cold wallet. This could be once a week for as long as it takes to move any of your bitcoins, then the computer is disconnected from the internet until next week for another brief moment.
This is when you right down your seed and store it in your fireproof safe. You can also print off your private keys and keep a copy in your safe as well. This is debatable as you only need your seed to recover bitcoins when a wallet if lost or destroyed. Your seed allows you to recreate your bitcoins in a software wallet if say your computer hard drive failed. No worries on losing your bitcoins if you have your seed saved.
Brain wallets are a bad idea if you don’t have a great memorable, unbreakable, unhackable password. There are many studies of people brute forcing passwords and stealing bitcoins from brain wallets.
How To Use A Bitcoin Wallet
When I first started hearing about bitcoin wallets, the concept of how they worked seems foreign to me. Because it was. But after using several, including the Nano S, Trezor, Electrum and many online / hot wallets, they are very similar to using online banking. You become the bank and setup your transfers and payments. You can decide if you want to send the money at a slower speed at a cheaper price or a faster transaction for more. Either way is still faster and cheaper than sending a wire transfer from a bank.
Which Bitcoin Wallet is the Best Fit For You?
How do you know which is the best bitcoin wallet for you? You need to ask yourself what are you trying to accomplish. See the list of available bitcoin wallets to understand the purpose of each type of wallet. Wallets are so important because they contain the addresses that are used to store your bitcoins. I don’t keep large amounts of bitcoin in online wallets, because I don’t find them as safe as the alternative. Hardware wallets halt any attempts to steal your bitcoins, by a hacker, malware or intruder. If you buy from a broker or trading platform they provide you with an online wallet. If you buy from a p2p market you need your own wallet.
- I myself use hardware wallets, software wallets, paper wallets, and cold storage.
Bitcoin wallet comparison table…coming soon
A bitcoin public address, also known as a public key, is like your email address for Paypal. You give someone this public address and they send you bitcoin to that address. This is all done using your wallet. The wallet actually stores the key pair to the public address, which is known as the private address.
A bitcoin private address, also known as a private key, is the second half of what makes up an entire bitcoin address. The public key + the private key makes a bitcoin. Anyone who has access or knows the private address is rightful owner to those bitcoins. That’s why it’s so important to keep your private addresses private. And why it’s so important to keep control of your private keys, which doesn’t happen if you have your bitcoins on an online wallet at an exchange. When you use software wallets and hardware wallets, you control your encrypted private keys. You can also export them to claim your bitcoin cash if you were a bitcoin owner before August 1, 2017.