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Bitcoin is a digital currency that is not backed by any government or banks. Your Bitcoin wallet contains your money. The way you store and use your Bitcoin wallet will depend on what type of device you have, but the basics are the same for all wallets.
The goal of this article is to provide an overview of Bitcoin wallets that includes how they work, how to get one, and how to use it securely.
How does a Bitcoin wallet work?
Bitcoin is a decentralized global currency. It is not regulated or controlled by any one organization or government entity, and it can be used to transfer money between countries or purchase goods and services. Bitcoin transactions are recorded in a public ledger, called the blockchain, which can be viewed by anyone. Users can also purchase bitcoins at an exchange using various currencies and then store them in a digital wallet.
The private key allows the owner of the wallet to use the cryptocurrency on that address (in this case bitcoin) for transaction processing over the blockchain to make payments for goods and services from merchants who accept bitcoin as payment. In other words, the wallet is like a bank account that the owner controls. The private key is extremely important to maintaining control of the wallet because it is what allows access to it (and thus access to the cryptocurrency stored in it).
How do I get a bitcoin wallet?
There are many types of bitcoin wallets for people who want to join the Bitcoin revolution. A good place to start is at Blockchain.info because they have instructions on how to download and use their wallet alongside reviews from users and their own support services. In addition, there are no fees or charges for using their wallet, which gives Blockchain an advantage over sites that charge fees or transactions fees.
Another option is to download the mobile bitcoin wallet for Android or iPhone. One of the advantages of this wallet is that it can run on any smartphone and does not require a constant internet connection to operate. However, mobile wallets are not as secure as computer wallets because they are less secure than using a physical device. (See the section called “What are the risks?” for more information.)
What types of Bitcoin Wallet are there?
There are different types of wallets that people can use to store and use their bitcoins. There are:
Online Bitcoin wallet: Also referred to as web wallets.
These are the most convenient type of wallets because they enable users to easily make payments by simply logging in from any internet-connected device. Online Bitcoin Wallets also provide merchants with an easy way to accept bitcoin payments from customers because they can be used with mobile devices like smartphones and tablets as well as computers. However, this convenience comes with a risk of being compromised by hackers who can access your wallet remotely. (See the section called “What are the risks?” for more information.
Hardware Bitcoin wallets: These are physical devices that connect to a computer via a USB port.
They are often used to store large amounts of bitcoin offline. Hardware devices have the advantage of being fully secure as they are always offline and cannot be hacked remotely. This means that even if someone did manage to steal your hardware device, they wouldn’t be able to access it without having possession of your physical device. However, one disadvantage is that hardware wallets do not provide users with an easy way to make payments online or from smartphones and tablets because they still require the use of a computer (which must be turned on and connected to the internet).
Desktop Bitcoin wallet: Also referred to as a software wallet.
These are programs that run on computers, and they contain the key to your bitcoin wallet. Desktop wallets do not require the use of the internet, and they can be used by people who don’t have a smartphone or tablet with them when making payments with bitcoins. However, desktop wallets don’t provide users with an easy way to access their bitcoin funds online from anywhere in the world. They also require a computer that is turned on and connected to the internet for transactions to occur.
Paper Bitcoin wallet: Also referred to as offline wallets.
These are printed documents where the private keys (the codes that allow access to the wallet) are written down in them before being placed into a secure location offline (such as a safe). If someone did manage to steal your paper wallet, they would not be able to access it without having possession of the printed paper. However, one disadvantage is that it’s more convenient for a thief to make a copy of your paper wallet than if they had your private key (because there is no need for the thief to have possession of your physical device).
What are the risks?
- Make sure you use your Bitcoin wallet properly and securely with full knowledge of how your private key works; there is no security without control.
- If you have lost access to your Bitcoin wallet, you will lose access to any cryptocurrency stored in that wallet (this includes bitcoins).
- There is no limit to the amount of bitcoins you can purchase or own, but there are limits on how much bitcoin a user can send and receive.
- Remember that there is no way to recover your bitcoins, so it is critical that you keep your private keys in a secure place. If someone else gets a hold of your private key, they can access and spend all of your bitcoin and there is nothing that anyone can do to stop them.
- The value of bitcoin fluctuates regularly and dramatically. Consider buying small amounts that you are comfortable losing in case the value drops.
- Bitcoin is only pseudo-anonymous; users have no choice but to identify themselves if they want to transact with merchants. If users do not want their transaction history to be tracked, then they should use a different payment method.
- If you lose your private key, then your bitcoins will be inaccessible forever (any digital wallet that does not control its private key cannot be said to be in control of its contents).
For more information on how to set up your Blockchain Wallet, read the Bitcoin Blockchain entry on wallets, read more…
How do I use a bitcoin wallet securely?
The same best practices for keeping all cryptocurrency wallets safe apply to bitcoin wallets.
Here are some tips to keep your bitcoin wallet safe:
- Only choose an active wallet from a trusted provider. This will help ensure that you are protected if the provider goes out of business or their servers are compromised.
- Encrypt your wallet with a strong password and back it up. A thief can steal your bitcoins from an unencrypted computer no matter how secure the computer is when it is connected to the public internet.
- Do not lose your private key! If you forget or misplace this number, there is no way to recover or reset this number without losing access to your money forever.
- If you are using a wallet management system, make sure that it is reputable and does not have security or privacy issues. These services can increase the risk of your bitcoins being stolen.
Bitcoin wallets can be a little tricky to understand at first, but these tips should help you figure out how to best secure your money.
Note that mobile wallets are more vulnerable than hardware or desktop wallets for the following reasons:
- They are less secure because they are mobile and therefore easier to steal.
- They have the highest degree of user error since they require that you use a PIN code to unlock them. If someone knows your Pin code, your wallet is compromised.
- If someone has access to your phone or tablet, then they can access your wallet and spend all of your bitcoin within it without having possession of your physical device. Always lock the screen when you walk away from it and never leave anything important visible on it (such as keys, passwords or letters).
- If you do not want to use a PIN, then consider using a hardware or desktop wallet instead.
- Since they are an app, the software itself could be vulnerable to being hacked and your bitcoins stolen.
The blockchain is an amazing technology that has the potential to disrupt and transform a lot of industries in a positive way. However, it is still in its early years, and as with all things, there are still some regulatory and infrastructure issues to be solved. Once these are ironed out, the real explosion of innovation will occur and we’ll see more exciting uses of bitcoin (and other cryptocurrencies), including more use cases in business. I’m excited to see how this space develops!
Feel free to share your thoughts on this topic by leaving a comment below!