A Guide to Bitcoin Wallets
Simply put, a Bitcoin wallet is a place for a user to keep the Bitcoin they buy. It is an essential part of the Bitcoin experience, and it is an important barrier keeping you safe from potential hacks.
Bitcoin wallets are a bit like a bank account in some ways. You can keep your Bitcoin and other tokens safe in one location for you to access at your convenience, and they protect you from theft.
Unlike a bank, though, if you do fall victim to a hack, they don’t insure you for the loss. Remember, Bitcoin is largely unregulated and therefore is inherently risky to own because it isn’t overseen or controlled by a governmental body.
There are a number of different options for Bitcoin wallets tailored to different people. For instance, if you are always on the go, you’re going to want a wallet that is easily accessible no matter where you are or what device you’re using.
If your first and only priority is safety, you’re probably going to choose a wallet that is offline and easily disconnected from the computer where it is susceptible to hacks.
Your Bitcoin wallet will be the center of all of your transactions, so it’s important that you choose wisely and do as much reading and research on your potential wallet as possible before you make the decision to sign up.
How Bitcoin Wallets Work
To get a little more technical, Bitcoin wallets keep your private and public keys and not the Bitcoin or other tokens themselves. This is because Bitcoin is not actually a physical currency in any sense.
The information stored on Bitcoin wallets is simply a means of seeing your transactions made through the blockchain. When you’ve accessed your wallet, you can see the amount of Bitcoin you have, all of your transactions, etc.
When you log on to your bank online, the site doesn’t keep your actual cash or money within it, just the information needed to access your balance and other important information.
Though this is the true technical definition of a Bitcoin wallet, it has a tendency to make your eyes cross a little bit, so it can be easier to understand if you think of the stored key access as a representation of the amount of Bitcoin or any other token that you own.
To access your wallet, you’ll need to input your private key, which is typically a long string of letters and numbers. You’ll want to write this down and keep it in a safe place, preferably somewhere like a safe in your home as opposed to saving it on your phone or desktop computer.
As if you were accessing your bank account online, after you enter your key, you will be able to see everything that you have saved in that wallet. Most wallets have the ability to hold more than one type of coin info, and you can even keep your ICO token information in your Bitcoin wallet!
Why You Need a Bitcoin Wallet
As a Bitcoin owner, your number-one priority at all times should be safety. Safety from hackers or other entities that aim to steal your Bitcoin and information, and safety from yourself in ensuring that your digital assets don’t get lost somewhere in the ether by mistake.
Bitcoin wallets provide a solution to both of those problems if you use them correctly.
Owning a wallet can put a lot of space in between the potential for hacking and your personal stash of Bitcoin, but there is never a complete guarantee that your wallet will never be compromised, especially if you choose certain types that are inherently more dangerous.
Keeping all of your Bitcoin and other digital assets in the same place also has the potential to safeguard you from forgetting certain keys or losing track of where you were keeping the coins you own. It cuts down on the information you need to remember because all of your assets are being kept in one place.
You wouldn’t carry around wads of cash in your pockets that are not contained in one easy to reach but safe place. Don’t treat your Bitcoin or other digital assets any differently.
Different Bitcoin Wallet Types
Now that you know why owning a Bitcoin wallet is important, let’s go over your wallet options. Your choice is important, so make this decision with a lot of thought toward what your priorities are, how often you use and access your Bitcoin, and your lifestyle.
Feel free to mix and match wallet types. Many can be used in tandem for a safe and convenient experience, but keep in mind that the more wallets you own, the more likely it will be that you might forget or lose a private key.
You know yourself better than anyone, so if you have a track record of being forgetful, tailor your choice to fit that.
Online Exchange Wallets
This is the most basic type of wallet and could also be considered the riskiest.
Certain online exchanges will require you to obtain an online wallet with them upon signing up, where all of the Bitcoin you buy in that exchange will be transferred. This is the height of convenience for those who use online exchanges exclusively and buy, sell, and trade their Bitcoin and other assets very frequently.
But major exchange hacks have been known to happen, and when they do, the hackers leave no wallet unturned in order to maximize the value of their heist.
Wallets and their contents are not insured because Bitcoin is not a legal or governed form of currency, and any transaction made via blockchain is irreversible, meaning you will most likely suffer a complete and permanent loss of funds.
If you are a person that uses online exchanges often, use an exchange wallet for convenience, but keep a safer backup wallet with the majority of your Bitcoin somewhere else.
Be sure to transfer the contents of your exchange wallet to the backup wallet every time you leave the exchange site, so you always have eyes on the Bitcoin that is being kept in the more convenient wallet.
Online Third-Party Wallets
Similar to an exchange wallet, online third-party wallets still have the convenience factor of being accessible online, but they are not directly connected to any exchange and are kept on a third-party host site.
The issue that many people take with these wallets is that your private key and other information is stored on this site as well, so you are not the only person with access to it, and that could be a huge issue if the site is ever hacked.
If you are concerned about the safety of your Bitcoin but still enjoy the convenience of having a wallet you can access from anywhere, try using it in tandem with a hardware or paper wallet.
If you are transferring Bitcoin to an online third-party wallet for the first time, be sure to first send a very small amount to make sure it makes it to the intended wallet safely before sending the lot.
Though it might seem like a tedious stutter step to some, it can potentially save you from losing your entire stash of Bitcoin, so it’s always better to be safe than sorry.
Mobile wallets use an app to allow you to access your Bitcoin from your phone anywhere you have Wi-Fi or cell phone service. This is ideal for anyone who is accessing and using their Bitcoin from their smartphone more than half the time.
But mobile wallets should be considered a secondary or add-on wallet that is used outside of your main wallet. Doing this can safeguard you from any malfunctions or hacks. Generally speaking, the ease of use can be directly correlated to the ease of the wallet being compromised.
You wouldn’t carry around your life savings in cash in your back pocket at all times, so you shouldn’t do it with your Bitcoin, either.
You can use a safer backup wallet to transfer a small amount of Bitcoin to your mobile wallet every so often to keep the convenience factor but still have the majority of your stash kept somewhere else.
Where most of the online wallets are free to have and use, hardware wallets need to be purchased. Most will run around $99, but that is a small price to pay for anyone who is serious about keeping their Bitcoin safe.
Hardware wallets are a great option for anyone wanting to keep a primary and secondary wallet. Keeping the majority of your coins offline in a hardware wallet ensures their safety, and transferring some Bitcoin to a secondary wallet like an online or mobile wallet ensures easy access for the user.
Paper wallets are physical documents that contain the private and public keys required to access your Bitcoin. Like hardware wallets, they remove the need to use the (hackable) internet to store your currency. Your keys are literally just printed on a piece of paper for you to keep hold of and not digitally transmitted anywhere or to anyone.
The downside to paper wallets is that you are solely responsible for setting up your wallet. This is not a simple process and one reason why paper wallets are not typically recommended for beginners to cryptocurrency.
However, there are plenty of online guides that will teach you everything you need to know about how to set up and maintain a paper wallet. Don’t be discouraged by the complexities involved if you feel this is the best option for you.
One important thing to note is that you MUST ensure your paper wallet is kept in a safe place. If it is lost, your Bitcoin will be unrecoverable unless you have a backup. If someone steals it, they’ll be able to claim your Bitcoin as their own.
The Impact of Your Bitcoin Wallet Choice
The world typically frowns on a “me, me, me” attitude, but in this case, it’s encouraged. The only person that is impacted by your Bitcoin wallet choice is you, so it’s important that you take your time to do research, weigh pros and cons, and don’t rush your decision because you’re eager to get started.
Your choice will affect your Bitcoin’s safety and the flexibility you have to buy, sell, use, and trade your Bitcoin. Take your personality and current spending patterns into account.
Ask yourself the following questions.
- Do I make Bitcoin transactions once or more throughout the day?
- Do I find myself relying on my smartphone to access my Bitcoin?
- Do I often make transactions that are unplanned or on impulse?
A person with spending habits like those would not necessarily mesh well with using a hardware wallet as their only Bitcoin wallet but would certainly be able to make it work if they used a mobile or online wallet in tandem.
Even if you don’t yet own Bitcoin, you can take your everyday spending habits and use them to make an informed decision about which wallet will best fit your needs.
If you favor online shopping, find yourself buying things impulsively without planning, and/or make more than one transaction every day, you would fall into the same wallet category as mentioned above.
If you tick these boxes but would like to curb that spending pattern with your Bitcoin, maybe using a hardware wallet exclusively would do the trick.
Your choice will directly and continuously impact your ability to use your Bitcoin, so choose wisely.
After you decide which wallet or wallets you’d like to use, you then have to decide which platform you’re going to operate on.
Fraud is everywhere in the Bitcoin world, so don’t rush this decision. Using tools like discussion boards and social media, you can get a feel for what current or past users think of the specific platform you’re considering.
If a large number of users report missing Bitcoin from their wallet, you should immediately move on to the next platform in question. You don’t ever want to take a risk like that with your Bitcoin.
Remember that this is a digital asset that represents money that you have worked hard for, so treat it as such.
Recommended Bitcoin Wallets
For those of you who are worried about taking a chance on the wrong platform, we are in the process of compiling a list of reputable and trustworthy wallets to help your search end in success.
In the meantime, it’s important that you take the same amount of time to research a platform and see what past and current users have to say about it. If nothing else, this will show you what a quality Bitcoin wallet should look like in the eyes of the everyday user.
Important Things to Look for in a Bitcoin Wallet
Whether you decide to go with one of our recommended Bitcoin wallets or if you decide to venture out on your own, there are a few important elements that should be present in any wallet that you choose.
Security should always be your first priority and is perhaps the most important factor in choosing a Bitcoin wallet. If you find that a wallet platform has a bad reputation where security is concerned, that wallet should no longer be up for consideration.
For Bitcoin wallets, security refers to how many people have access to your information, keys, passwords, etc. This means that online third-party wallets are inherently less secure by nature because your information is stored on the platform.
It doesn’t mean that choosing an online wallet will end in disaster; it just means that you need to judge the security of the platform relative to the nature of the wallet.
Do some research on the history of the platform. Anything obtained from discussion sites should be taken with a grain of salt, but you can get an idea of the tone past users have when talking about it and make a decision with that information.
Finding hard evidence on news sites of hacking, missing coins, private key sharing, or anything that could be considered a security issue should be a huge red flag, and you should probably look elsewhere.
Ease of Use
Every new thing, regardless of your level of experience, comes with a small usability learning curve. Whether you’re talking about wallets or online exchanges, the user interface differs from platform to platform, so it’s going to take a little bit of getting used to no matter what.
Again, this is where reviews and experiences come in handy. If you are a beginner, you should be able to determine which wallets are the most beginner-friendly without compromising other important wallet features.
If you are going to be dealing exclusively with Bitcoin, this is a non-issue. But if you currently are interested in owning some other coins or ICOs or think you might want to diversify in the future, this is something you have to take into consideration.
Before you sign up, look at the wallet’s supported coin list. Of course, if you’re planning for the future, it’s hard to say which coins or tokens you’ll want to purchase other than Bitcoin. But seeing the list of supported coins can at least give you an idea of what your options are.
Owning Bitcoin is not the terrifying experience it can seem to be to a beginner. It’s not something you should rush into, though, without first taking the time to learn some important basics.
The subject of Bitcoin wallets and how they work is one that you definitely need to understand. You also need to be aware of the importance of choosing the right kind of wallet for your needs and ensuring that you use a reputable and trustworthy wallet you can rely on.
This page was written to give you all the fundamental information you need to know about Bitcoin wallets. We’ve also provided some advice on how to choose the right one.
Please make sure you follow this advice if you decide to invest your money in Bitcoin and store your cryptocurrency in a wallet.