What is a Bitcoin Wallet, and Where Can I Store my Crypto?
One can store and transfer a variety of digital currencies such as Bitcoin using a wallet. A wallet app essentially allows you to interact with the blockchain, manage your Bitcoin's address, and transfer it to other addresses. As part of the interaction with the blockchain, the wallet also generates its address using the key.
Similarly to Bitcoin, most of the cryptocurrencies utilise their separate blockchain. As a result, the functionality of a wallet on these chains is very similar regardless of the chain. We've titled our review as a review of bitcoin wallets, but in reality, these wallets can support other cryptocurrencies and chains.
Many kinds of wallets can hold and manage Bitcoin assets, each catering to different needs and allowing for varying levels of accessibility, convenience, and, most importantly, security.
All wallets are secure in the sense that they use private keys. There's no risk of losing your Bitcoin due to a hack of encryption itself. Only your key can be used to authorise the transfer of your assets to other wallets. As long as your key is safe and you know your password, everything should be fine.
It gets complicated if you lose your password or if your password is easy to guess. This is where advanced wallet authentication methods are increasingly becoming more important.
If you are looking for a Bitcoin wallet to keep your cryptocurrencies in, you should be mindful when choosing the best Bitcoin wallet that fits your needs and handles safety and usability.
Different Kinds of Bitcoin Wallets
- Mobile App Wallets
Some people will actively use and manage their currencies regularly every day, whether it's for paying at stores or trading. This activity level is best suited for this type of crypto wallet that runs on an app on a smartphone. The wallet stores the private keys and enables access to the cryptocurrency assets whenever you need them.
The apparent key advantage of using mobile wallets is the convenience of accessing the assets on the go from whoever you are.
Some of the mobile wallets support convenient "touch" payment using NFC (Near field communication). For example, in cases where a retailer only accepts Fiat payments, this type of wallet can automatically convert crypto into fiat.
The security of mobile wallets is very much an issue. They are susceptible to hacking and malware, unlike cold storage devices, resulting in your wallets being accessed without your permission. Another issue is that if your mobile device gets stolen, other people will access your wallets.
While two-factor authentication provides an additional level of security on top of their username and password, this does not work well when the one-time password is received on the same device as the wallet.
When choosing a Bitcoin wallet, or what some refer to as "bit coin wallet", you should be careful to avoid installing fraudulent apps that can steal your crypto assets.
When storing your cryptocurrencies in your mobile wallet, it is therefore only recommended with wallets that provide advanced biometric authentication features such as Avarta.
- Exchange Wallet
Exchange wallets are a type of digital wallet that allows keeping your cryptocurrency on a cryptocurrency exchange. These exchanges are always (well, hopefully) online and are managed by a third party. One cannot transact on an exchange without an account, and each account comes with a wallet. Some exchange wallets can be linked to mobile and desktop wallets.
The main disadvantages of exchange wallets are that they are prone to be hacked. Normally with social engineering where hackers use phishing emails to get steal you to provide them with your credentials to the wallet. This is a real issue faced by many of the exchanges. Another problem, which is less common but still happens, is that some exchanges shut down and do without notice.
It is noted that exchange wallets do offer some form of protection even if your assets were stolen. Exchange a covered by insurance and have backup funds to repay users in the case of a cyberattack that targets an exchange. But these are not employed by all exchanges and cannot provide complete coverage in case of a loss.
- Desktop Wallets
You can store your private key on your desktop computer's hard drive or SSD by downloading and installing Desktop wallets. One of the key security features of this type of Bitcoin wallet is convenient of use. And to a degree, safer than a mobile wallet. But that depends on the nature of your browsing habits and whether you use security software such as antiviruses.
- Hardware Wallet
A hardware wallet is a different type of Bitcoin wallet that stores private keys in a secure physical device. They're thought to be the safest way to keep Bitcoin, as they cannot easily be accessed by someone else once you've locked your device and taken it offline. It is, in effect, the equivalent of cold storage device.
The interfaces on most hardware wallets increase users' security and allow you to verify and display key wallet details. One example is generating a recovery phrase or confirming the amount or address of the transaction you are trying to make. These advantages have prompted some to store a portion of their bitcoins and other crypto assets in hardware wallets.
The main disadvantage of hardware wallets is that when they are offline, they cannot be accessed—making trades and payment impossible. But when taking these devices online, it circumvents their key and perhaps a sole advantage. They are only good if you don't use the crypto stored. Great for all you HOLDers!
On a side note, we recommended avoiding buying hardware wallets from used item marketplaces as these can be fake. If you are unfortunate enough to be the owner of fraudulent hardware wallets, you could have your Bitcoin and other cryptocurrencies stolen from you.
- Paper Wallet
Essentially, a paper wallet is a physical document with a written public address where you will receive your Bitcoin and a private key. The latter will allow you to manage your cryptocurrencies stored inside the address the wallet comes with. Often, paper wallets are printed in a QR-code form so that they can be easily scanned. You can then add the keys to a software wallet or wallet app when you want to make a transaction.
Paper wallets are made using services that generate a random Bitcoin address. A user can print the generated keys with some benefits having tamper-resistant designs and other offering holographic labels.
Because a paper wallet is inherently offline, it is secure from online attacks until it is used. However, despite this major advantage, a user should still exercise caution when storing a paper wallet. As, unlike hardware wallets, frequently there's no way to stop someone who steals the paper to use it.
Another level of security can be taken by running the website QR generation code after you've disconnected from the internet.
- "Physical" Bitcoin
Users can also opt to keep their Bitcoin funds inside a physical Bitcoin item that often comes with an arranged amount of cryptocurrency. This type of physical wallet cannot have its value spent as long as the key is not used. The security of this wallet usually comes in the form of a tamper-evidence seal.
Bitbill was the first physical bitcoin wallet shaped similarly to a credit card and a Bitcoin design. Subsequent designs that were created after were shaped like round medals. A cryptocurrency enthusiast, Mike Cadwell, nicknamed "Casascius", is famous for creating the first Casascius physical version of Bitcoin in 2011.
The private keys for the wallets were stored under a removable hologram that left a tamper-evident mark when taken off. This lets a user know if someone else had tried to gain access to their storage of cryptocurrencies. When the Bitcoin funds inside a physical Bitcoin wallet were redeemed, the coins would lose their digital worth.
Due to the inherent limitations of using a physical bitcoin, they are impractical and never became popular. Instead, the items are now somewhat of collectors' items.
How Secure are Bitcoin Wallets?
There are many issues that even the best Bitcoin wallets and users and traders face. Knowing what these risks are is paramount to properly safeguarding your cryptocurrencies from fraudulent individuals and hackers.
Security Risks When Using a Bitcoin Wallet and Digital Assets
- Hackers and cybercriminals use many types of malware to try and gain information, such as a user's private keys. Any malicious software is capable of recording keystrokes on the keyboard, scanning the hard drive of a computer, potentially gaining access to a wallet, enabling someone to take your Bitcoin funds in a short time without your knowledge.
- Ransomeware is a type of software capable of encrypting all of your hard drive's files and blocking access to your wallet. It can also, in theory, record your screen before blocking access and discover how much cryptocurrency you own. This can give the attacker a bargaining chip in exchange for decrypting your files.
- Having your wallets on your laptop or smartphone introduces a risk of losing access if they get damaged, misplaced or stolen.
How To Protect Your Bitcoin
- One of the best ways for new users to avoid getting hacked is to use an advanced wallet with biometric authentication such as Avarta.
- Hardware wallets can be used to keep a portion of your crypto assets.
- Make sure that you transact only with parties you trust.
- Avoiding unknown or non-credible websites is key to keeping your desktop or mobile wallets safe from malware that could be lurking online.
- Do not trust individuals who ask for your Bitcoin and promise to pay you back in the future.
- Never give your Bitcoin wallet's private key to anyone you do not trust 100%
Don't forget - that despite the precautions we need to take, you are part of one of the greatest revolutions in money in centuries!
