A bitcoin wallet is an app that stores your bitcoins and keeps them safe. You also use them to carry out transactions on the bitcoin network. People use bitcoin wallets to make purchases anywhere in the world. The purpose of these wallets is to protect your bitcoins from thieves or hackers. They also simplify the transaction process so that even novices can use bitcoin.
Heads up: This article was commissioned as a part of the Adam Rush Project. It was an experiment I did a few years ago to see if having books written by ghostwriters would be commercially viable. It wasn't. That said, the following article was written by someone else and not yet edited to my standards. I hope to find time to rewrite it myself in the future, but for now, read with caution.
Bitcoin wallets like BitPay make it easy to pay using bitcoins in shops and online stores. They can also give you access to bitcoin exchanges. Every bitcoin wallet has a unique receiving address that you can give to others. Anyone with your receiving address can send bitcoins to your wallet.
Bitcoin wallets technically don’t store bitcoins. You can think of a bitcoin wallet like a bank account. Modern banks don’t physically lock your money in a vault. It’s all numbers in their computer system. Similarly, bitcoins are just codes embedded in the blockchain system. The wallets store information for carrying out transactions. Wallets can also take the form of personal software on your computer. They can also be online services that manage bitcoins for many clients.
There are different types of bitcoin wallets, depending on the level of security you want. Some bitcoin wallets with less protection are useful as regular spending accounts. They are like the leather wallet you carry in your pocket. Other bitcoin wallets offer stringent, military-grade protections.
You can store bitcoins in several ways:
- In a software wallet kept on your computer hard drive.
- On an online, web-based platform.
- In a vault-based service that will keep your bitcoins protected offline.
- In “multi-sig” wallets that use several keys to keep your account protected.
Although these are some of the best ways to store your bitcoins, they do have vulnerabilities. If you store bitcoins on your computer hard drive, you have to back up your wallet from time to time. You will lose your bitcoins if your hard drive dies or becomes corrupt. Online web wallets offer several levels of security against hackers. Many of them provide multi-factor authentication. However, since they can be accessed from the internet, it is possible for a hacker to get into the account from anywhere in the world.
Anyone can establish a bitcoin wallet. You do not need to ask a bank for permission or get your credit checked. With a wallet, you can access your bitcoins using public and private keys. Public and private keys act as passwords. Public keys are for receiving bitcoins and it is safe for other people to know them. Private keys are for sending bitcoins. You need to keep private keys safe with backups and secure passwords because anyone who knows them can send money to other accounts. You can access your coins from different wallets if you have both the private and public keys of each.
Considerations in Choosing a Bitcoin Wallet
Operating System
There are several factors to consider when choosing a suitable bitcoin wallet. One is the type of computer platform through which you want to access the coins. Wallets can run on computers with almost any operating system. You can also keep bitcoin wallets on your Apple or Android phones. However, the most common platforms are cloud-based or web-based wallets. Those particular wallets are generally the least secure but the easiest to set up. Their main advantage is you can access them from almost any device connected to the internet.
Security
In general, wallets that run on computers offer more features and are more secure. Web-based wallets are more prone to hacking because they reside on the internet. If you get a web-based wallet, make sure it is well-known and has two-factor authentication.
Many bitcoin experts say mobile-based bitcoin wallets are the safest option because of the way phone processors segregate encrypted data. It makes it almost impossible to access the wallets without permission.
Amount of Funds Involved
If you want to keep a significant amount of money in your bitcoin wallet, security is the primary factor you should consider. In the United States, the federal government insures the banks. Unlike bank accounts, bitcoin wallets do not come with insurance. There is often no way to recover funds lost or stolen from your bitcoin account. Because of this, you should store large amounts of bitcoin in offline wallets. Offline bitcoin wallets are called cold wallets. Cold wallets are not linked to the internet, so they are impossible to hack into without physical access to the wallet. The most common practice is storing your bitcoin wallet on a USB drive in a bank safe deposit box. In fact, you should keep at least two USB drives stored in at least two secure locations (remember, if your wallet becomes lost or damaged, you may have no way of recovering your bitcoins).
How a Bitcoin Wallet Works
Bitcoins are not stored in wallets. Instead, wallets store the private keys. The private keys are digital security codes only known to your wallet and you. The private key also indicates that you own the public keys. A public key is a digital code that lets you send and receive bitcoins. The bitcoin wallet also functions as a personal transactions ledger. Your wallet safeguards your public and private keys. It enables you to make transactions and maintain your personal transactions ledger.
Which Bitcoin Wallet Should I Use?
In general, you should use the official wallet endorsed by your cryptocurrency. For bitcoin, the official bitcoin website has a page that compares all the wallets they endorse.
Depending on your preferences, there are several suitable wallets you can select from. Be careful to download bitcoin software only from links on the official bitcoin website. Some of the software available online are malware seeking to exploit unsuspecting individuals. Stay away from software that looks suspicious. You can always choose other software later when you become more proficient in bitcoin.
Here are a few popular bitcoin wallets:
- Electrum Bitcoin Wallet for desktop computers and Android
- BRD Wallet for iOS
- Mycelium for Android devices
- Jaxx lets you store and exchange several types of cryptocurrencies within your wallet. It is self-hosted and intuitive.
Are Bitcoin Wallets Secure?
Bitcoin wallets and cryptocurrencies are constructed to ensure the security of your coins. However, the level of protection depends on the wallet. Security is the most critical factor in choosing a bitcoin wallet. Keep your passwords and usernames safe and use best practices. Some of them include:
- Using cold-storage wallets when storing a significant amount of coins.
- Employing Google Authenticator to add layers of protection.
- Encrypting the wallet.
- Using only officially endorsed wallets.
- Using multi-signature transactions.
It is also smart to encrypt and backup both your wallet and the private keys. You can do this on a disc or a thumb drive. It is important because if you misplace your keys or wallet, you also lose all the currency in it. But in general, refrain from keeping more money in your digital wallet than you would keep in your actual one.
Are Bitcoin Wallets Anonymous?
Bitcoin wallets are often referred to as being anonymous. While the owners of the bitcoins can remain anonymous, the transactions are public. The blockchain stores a record of all bitcoin transactions, allowing people to trace them.
Types of Wallets
Once you buy bitcoins, you will have to store them. For that, you need to have a Bitcoin wallet. Many of them are available on the market. These wallets are similar to apps like PayTM, RuPay, or PayPal. Wallets are available for every type of usage—some are for daily use, while others come equipped with military-grade security.
The five popular ways to store a bitcoin wallet are:
- On the hard disc drive of your computer
- Using a phone or mobile-based app
- On a web-based service that protects your wallet
- In a hardware wallet
- On a paper wallet
The type of wallet you choose depends on how you plan to use your bitcoins. Some wallets offer more than one variety, such as wallets with both desktop and web-based apps.
Below is a brief description of the major wallet types.
Desktop wallet
A desktop wallet is a software that runs on your computer and doesn’t need access to the internet.
Mobile wallet
A wallet which runs as an app on your phone.
Web-based wallet
Your data is stored on a server and you can use a web browser to access this type of wallet.
Hardware wallet
This is a hardware device with the sole purpose of storing your bitcoins. It includes USB devices. You can connect these devices to the internet to make transactions. After you complete your transactions, you can disconnect from the internet. Because hardware wallets are not always on the internet, they are more secure.
Paper wallet
This wallet allows you to print out an exclusive QR code for both private and public keys. It allows you to not only send but also receive digital assets using physical paper. It lets you refrain entirely from storing digital data related to your cryptocurrency.
How to Use Your Bitcoins
After reading all this, you might be eager to get started. The fastest and easiest way to get started is by setting up an account with Coinbase. Coinbase is the largest and most popular bitcoin exchange in the United States. It is a web-based platform so it may not be appropriate for managing large amounts of money, but it is ideal for beginners. Simply go to their website and follow the directions to get started.
Sending Bitcoins
Sending bitcoins is easy. All you have to do is copy and paste a recipient’s bitcoin address, select an amount, and click “send.” If you’re using your phone, it’s even easier because you can often enter the bitcoin address using your phone’s camera (QR code). Paying with bitcoin is unlike using credit cards because it gives you complete control of the transaction.
The transactions are irreversible. It’s like sending an email. Once you send it, you can’t take it back.
Don’t panic if it takes a few minutes to go through and for the recipient to receive your payment. The process can take up to ten minutes for confirmation, depending on the type of wallet used and the network. Some services even require six confirmations, requiring up to an hour to complete the transaction.
Making Payments
One convenient aspect of paying with bitcoin is that you don’t need to give out much personal information. All you need to give is your address link, the bitcoin address of the recipient, and the amount you want to send.
If both you and the recipient have a similar wallet, the payment process is as simple as signing into your account and confirming your order. The merchant will receive a notification of your payment.
Most merchants accepting bitcoin payment will offer a QR code with the payment amount and bitcoin address embedded. QR codes make it easy to pay with bitcoin from your smartphone. Just scan the code, and it automatically fills out the bitcoin recipient address and the payment amount.
Receiving Bitcoins
To receive bitcoins:
- Select a distinct receiving address as provided by your wallet.
- Give the receiving address to the person sending payment.
- Wait for confirmation of payment. The transaction confirmation time can vary depending on the wallets used and the network.
Where to Spend Bitcoin
As cryptocurrencies gain popularity, an increasing number of places are accepting them as a form of payment.
- The most straightforward and rewarding method of spending bitcoins is by paying forward. You can use it to tip bloggers or donate to causes such as the Wikimedia Foundation.
- You can use bitcoin to buy many products online. One well-known online retailer that accepts bitcoin is Overstock.com.
- Services like eGifter and Gyft let you buy gift cards using bitcoins.
- Steam and Microsoft accept bitcoin for games.
- You can use bitcoin with travel services such as Expedia, CheapAir, and Ships & Trips Travel.
- Bitify is a marketplace similar to eBay.
- For those that have an Amazon account, Purse.io is available to buy and sell items.
Summary
- Bitcoin wallets securely store codes allowing you to access your bitcoins.
- Choose a wallet according to the device you want to use it on and the level of security you need.
- Coinbase is the easiest place to get started.
- Learn how to make transactions using your bitcoin wallet.