Bitcoin wallets, what are they and how do you use them?
Your wallet is where you keep your bitcoin. Strictly speaking it does not actually keep bitcoin but is simply a securely kept record of bitcoin you own and control.
There are two main types of bitcoin wallet, online or hot wallet and cold storage.
Hot wallet A hot wallet usually refers to a wallet you control in an account with an exchange. Also called an online wallet it is subject to increased risk of hacking if the exchange is not fully secure. Exchanges are prime targets of hackers who work to enter the website through a ‘back door’ and steal any assets they can find. Wallets do not contain actual bitcoins which are a digital currency but merely a record of the transactions and the balance of bitcoins owned by the wallet owner or controller. Several exchanges had had experience of being hacked so although an exchange wallet is fine for accepting bitcoin it is good practice to immediately transfer your record of ownership to a more secure wallet such as a hardware wallet.
The advantages of a hot wallet are:
- It’s free It is easy to set up
- Is fast and convenient to spend and receive bitcoin
Disadvantages of a hot wallet are:
- Not safe to store large amounts of bitcoin.
Cold Storage There are two cold storage wallets, a paper bitcoin wallet and a hardware bitcoin wallet.
A paper bitcoin wallet is created on your own computer. A hardware bitcoin wallet is rather like a USB you plug in to the computer to do transactions or check your balance.
Paper bitcoin wallet
Setting up your cold storage paper bitcoin wallet is not very difficult and affords you a more level of security than having your bitcoin in an exchange wallet. You can set up a paper wallet by going to https://tools.bitcoin.com/paper-wallet/ once you have set this up you need to save it to your computer by typing Ctrl+S and save the file as a complete package. You can then close the website and disconnect your computer from the internet temporarily. After you have disconnected your computer (It can be a soft disconnection, you don’t have to pull out the internet cable) simply open the file you saved and move your mouse around or type random characters into the box provided until it indicates 100 percent. This creates a random bitcoin address with a private and a public key fully offline. You then have your paper wallet.
The advantages of a paper wallet are:
- More secure than a hot wallet
- It is a free Hardware wallet
A hardware bitcoin wallet is probably the most secure type of wallet you can have. Each time you plug it in, it updates to the then current value of your bitcoin. Unless you are performing a transaction or expecting anyone to send you bitcoin you keep the hardware wallet off line. You only connect it to your computer and the internet during the times a transaction is taking place. During those times the value of your bitcoin will be updated according to the then current value of bitcoin. Ledger Nano S, KeepKey and Trezor are three of the most common hardware wallets you can get. To access your hardware wallet usually a 4 6 or 9 pin code is required. So even if your wallet is stolen no one can access your private key in your wallet and with an extra security secret back up code you set up when you first get your wallet, it is possible to load up a new hardware wallet with your private key and access to your bitcoin.
Advantages of a hardware bitcoin wallet:
- Very easy to store bitcoins
- Safe way to secure your bitcoins
- Easy to back up
- There are fewer margins for error than other wallets
- Convenient to carry around and use on any computer
Disadvantage of a hardware bitcoin wallet:
- They’re not free. You will likely pay anywhere between 65 and 150 US dollars for one.
Other wallets There are some other wallets of interest.
GreenAddress is a multi-signature Bitcoin wallet available on the web, desktop, Android, and iOS. GreenAddress is compatible with hardware wallets like TREZOR, Ledger Nano, and the HW.1. GreenBits is the native Android version of GreenAddress. Also a multi-signature wallet it supports hardware wallets like TREZOR and Ledger. “Multi-signature” in this context indicates the site requires a manual confirmation from you for your coins to be moved so provides more security.
Mobile Bitcoin Wallets
There is also a large selection of Android wallets. Apple banned Bitcoin wallets from the App Store in February 2014, but then rescinded that ban a couple of months later and now wallets for Apple devices are available with one of the most popular being Breadwallet. Breadwallet also recently released an Android wallet that offers control of private key, a very easy interface and passcode support. The most popular wallet for Android is called Mycelium. Easy to send and receive and very simple to back up. Airbiz is another easy to use wallet for both iPhone and Android and is very easy for people new to bitcoin. It also backs up automatically and so always has the current price and value of bitcoin. Bitcoin Wallet was the very first mobile Bitcoin wallet. Bitcoin Wallet is considered more secure than most mobile Bitcoin wallets, since it connects directly to the Bitcoin network. Bitcoin Wallet is great for bitcoin beginners as it has a very simple interface and is very easy to use.