As cryptocurrency becomes a more relevant topic, people are interested in the Bitcoin Block Chain, its uses, investment potential, and its security. As investors and miners choose to dabble in the popular cryptocurrency, they are looking for ways to protect their BTC. The storage locations for generated bitcoins are called ‘wallets’, and there are several different types in which your bitcoin can be stored.
What are Wallets?
Wallets are storage locations for generated bitcoins. They don’t actually contain the coins but hold the private key that allows the owner to unlock their Bit addresses (your public key). The use of a wallet as a storage facility is intuitive as the software makes it look as though the coins are actually there, like a physical wallet containing paper money or coins.
Electronic wallets can be as simple as downloaded software, like a file on your computer that enables transactions. Electronic wallets can also be cloud-based, and while this is somewhat simpler to use, there is a third party involved that will have access to your private keys.
Software wallets are easy to use and gives the owner control as it is accessed only on the owner’s computer. The downside is, like any file on a computer, it will be vulnerable if someone were to steal the computer or access the files. If your computer is hacked and your private keys are only stored there, the hacker will have access to your keys and can make bitcoin transactions.
Online wallets are cloud-based, and these offer their owners the ease of convenience as they can be accessed from several devices with the right passwords. They are easy to install, use, and are generally free.
The downside is the lower security. As your private keys are stored in the cloud, there is the issue of trusting a third party, the host’s security protocols.
Mobile wallets are apps installed on a smartphone. They are very easy to use in terms of mobility; if you are wanting to use your bitcoin for shopping in stores or buying/selling while you are on the go, the mobile wallets allow for that.
Hardware wallets are tiny devices that can connect to the web to initiate bitcoin transactions. The advantage to these is their security as they are not generally online so cannot be hacked. Although if the device is lost, so are the stored keys and their potential bitcoin transactions.
Paper wallets are convenient to store and effective as they are simply printed lists containing the private and public keys of the bitcoin addresses. These are secure for the obvious reason of not being connected to a network, but like any physical item, can be lost, along with the bitcoin addresses.
When it comes to selecting your wallet type for bitcoin storage, consider how you will be using it. Another option is a hybrid approach, where the bulk of the keys are stored in one wallet, likely one that is not connected to a network, while some are kept handy for spending on the go as in a mobile wallet.