A Bitcoin wallet is a secure digital file used to access, send and receive your Bitcoin.
You won’t use a leather wallet to store your coins, nor you will have a signed contract declaring the purchase of your bitcoin.
It is essential to understand that your digital wallet does not store your Bitcoin.
It simply contains the permissions you need to access your Bitcoin that are on the Blockchain in order to send them to your other wallets or someone else.
They allow individuals with little or no knowledge to interact with Blockchain and transact value globally without any barriers.
Up to date, there are more than 2000 different types of cryptocurrency and Bitcoin is the biggest and most popular one.
Whichever you are going to choose for yourself, you need to store it somewhere.
The worst thing you can do is to spend your hard-earned money on investing in the cryptocurrency market and then leaving it in an unsafe place.
Make sure that the place you are storing your coins is going to be secured by as many security measures as possible.
In this article, we are going to help you understand all you need to know about Bitcoin wallet, how does Bitcoin wallet work and the steps you need to take to secure your Bitcoin wallet.
Table of content:
- How does Bitcoin wallet work?
- What are the public and private key?
- What is a backup key?
- What are the types of Bitcoin wallet?
- How to secure an online Bitcoin wallet?
- What is a mobile Bitcoin wallet?
- How to secure a mobile Bitcoin wallet?
- What is a desktop bitcoin wallet?
- How to secure a desktop Bitcoin wallet?
- How to protect your hardware wallet?
- Which Bitcoin wallet is best for you?
Every Bitcoin wallet keeps your public and private key.
Both your keys are stored inside a wallet file and managed by the wallet software.
On the photo below, you have an example of Bitcoin wallet address and its private key.
Let’s make things easier to understand for you and explain the meaning of these keys.
The majority corresponds the public key to a public wallet address you share with others to receive Bitcoin, which is not totally true.
The wallet address is the hash of a public key.
The public key is derived from your private key.
The seed or backup key is a product of private key.
That’s why you can use multiple Bitcoin wallet addresses to receive the coins, but they will be all stored in the same wallet.
It is possible because those wallet addresses were generated from the same public key.
Every Bitcoin wallet address starts with 1, 3 or bc and it has 26-35 alphanumeric characters.
Bitcoin addresses with bc prefix are rare usually the prefix of Bitcoin address is 1 or 3.
If someone sends you a wallet address that doesn’t start with 1, 3 or bc and claims that it is his Bitcoin address, check with him one more time.
You will lose coins forever by sending them to the wrong wallet address.
The same way the prefixes for Bitcoin address are 1, 3 and bc, for Litecoin address it is L, for Ethereum wallet address it is 0x (ZeroX).
Declaring prefixes for wallet address makes easier developing a different kind of software for tracking and checking wallet addresses.
The private key is used to prove ownership of an address and sign transactions to send bitcoin to another address.
The seeds are a series 12 or 24 words that you get at the registration.
They come from the private key and help you confirm the ownership of the coins when your wallet gets hacked, or you forget login details.
You may be wondering how does the seed of 12 words help you access your coins in the Blockchain.
The hashing process turns those words into the hashes then they are used as the way to confirm your ownership and get the access to the coins.
The seeds are also called a backup key.
Make sure to write them down and keep them safe because those words will be used to access your coins in case you lose access to your wallet.
If you don’t own them, you don’t own the coins, and the person with the ownership over them can access your coins easily without your permission.
The level of security of your wallet depends on how well those keys are secured.
“Your keys, your Bitcoin. Not your keys, not your Bitcoin.” Andreas Antonopoulos
There are a couple of types of Bitcoin wallet in the market today.
You can choose between an online wallet, mobile wallet, desktop wallet, or hardware wallet.
Every one of these comes with pros and cons, and it is up to you to balance and make the best choice for you.
Before I go deeper into each one, let me clear something out.
Most people consider cryptocurrency exchanges as the same place to hold their coins on.
They will never be a safe place because they hold your private keys, and you do not get the ability to extract seed words (backup key).
If an exchange gets hacked, you can easily lose your entire portfolio.
The cryptocurrency exchanges are for buying and selling, not for holding your coins.
The most significant advantage of online and mobile wallets is their convenience.
They are very easy to use because all you need is to log in to your wallet using any of the browsers or open an app on your phone.
However, they are the least secure.
An online wallet is exposed to the risk of different types of hackers.
Either they attack your account or an entire platform that hosts an online wallet, you can be in problem and ultimately lose your coins.
The mobile wallet comes with a different type of problem.
The mobile device contains the private key of your wallet.
In case your mobile device gets lost or stolen, you will not only lose the wallet but the private key that is used to access your coins in the Blockchain.
If you do not have a recovery seed (backup key), the coins are gone forever.
On the other side, a hardware wallet is the most secure type of digital wallet.
Even if the device gets stolen, the thief won’t be able to access the coins without the pin.
But hardware wallet is convenient for everyday use as it is the case with an online or mobile wallet.
It takes way more time for transactions to be done than it would take using a mobile wallet, for example, that is almost as instant.
That’s why we suggest you diversification of your coins, so they are at the same time safe and convenient for use.
In this guide, we will help you secure any wallet to its maximum.
An online wallet is the least secure Bitcoin wallet.
As it is online, it is always exposed to the risk of being hacked.
The hackers are using a lot of different approaches to gain control over your Bitcoin wallet.
They will be creating phishing websites that look the same as the original website but with small changes in the domain.
For example, instead of a, e, i, o they will be using á, é, í, ó.
If you log into a phishing website, they will get your login details which will be used to hack your Bitcoin wallet on the original site.
Due to potential phishing attack, make sure to bookmark the right domain and always log in using that bookmark.
Another attempt they will try is to send you malicious emails that will contain links with the intention to steal your login details.
Try to avoid opening suspicious emails.
When you open an online wallet, make sure to set up all layers of security that are available.
I would never use an online wallet that doesn’t have Two-Factor Authentication (2FA) that will be asked on login and withdrawal.
Even if a hacker steals your login details, he will face 2FA.
There is probably a way to hack 2FA, but it will give you additional time to get in control of your coins and send them somewhere safe.
An inexperienced hacker may face the unsolvable challenge and 2FA will save your coins.
Look for an online wallet that gives you the ability to extract your backup key (12 or 24 words).
It will help you access your funds in the Blockchain in case the website gets hacked, or you lose login details on your Bitcoin wallet.
The advantage of an online wallet is that it can be accessed anywhere at any time.
That’s why it is suggested to keep a small portion in the online or mobile wallet for everyday use.
However, the bigger portion of your coins should be in a more safer place (hardware wallet).
The one we suggest using as an online bitcoin wallet is blockchain.com.
It has been in the market since 2013.
It offers several layers of security, including Two-Factor Authentication.
You can also extract your seeds which is very important, and you won’t find a lot of online wallets offering this option.
If you need help getting started, make sure to check out a complete guide on How to get started on Blockchain.com.
Mobile wallets allow you a very fast and convenient way to access your coins since most people carry their mobile devices with them anyway.
All you need is a wallet app installed on your mobile device and you can use it anywhere you have your phone with you.
On the other side, the security of mobile bitcoin wallets is a big disadvantage.
When you download a mobile wallet for Bitcoin, the private key is stored inside your mobile device.
It means if the mobile goes missing, so does the private key.
If an experienced hacker steals the mobile, he can gain access to your coins sooner than you will be able to recover them using your backup key.
That’s why make sure that your phone is locked by a strong pin that will unable access to your phone without your approval.
Don’t share the pin with anyone not matter how close you are with that person.
The next layer of security is choosing a mobile wallet that comes with the ability to be protected by a password.
When someone accesses your phone, he won’t be able to access your wallet unless he knows the password.
Don’t be naive to put your name as a password with the year of your birth.
Take time and generate a strong password that will protect your account and be helpful.
We suggest you using Secure Password Generator.
The next thing you want to do is to check the authority of the wallet you are planning to use.
The last thing you want is to store your coins on a wallet that is not legal and verified.
If you deposit your coins to the suspicious wallets, you can lose all your coins.
We will link down below a couple of popular mobile wallets for Bitcoin with a high reputation to help you in search for a bitcoin mobile wallet.
What happens with the coins if you lose your mobile?
I would never choose a bitcoin mobile wallet that doesn’t offer you the ability to extract your seed words that will ensure that the private key is in your hands.
Without them, the ownership of coins is not yours.
If your phone goes missing, so does the coins.
The coins are on the Blockchain and what wallet allows you is only the access to the coins in order to manage them.
That’s why even if your phone goes missing, you can still access your Bitcoin if you have a backup key.
Once installed, make sure to update your mobile bitcoin wallet to ensure that your coins receive more security and protection with the latest version of the wallet.
Last but not least, don’t store a huge amount of coins on your mobile wallet.
They are great for everyday use because you can access them almost instantly.
They are very convenient because you can send your coins on-the-go by scanning QR codes.
But we do not suggest holding a large number of coins on your mobile wallet.
It is better to top up your wallet time to time from your hardware or desktop wallet than to expose your coins to risk by holding them on the mobile wallet.
The desktop Bitcoin wallet is a type of cryptocurrency wallets that you download and store on your computer.
With a desktop wallet, you are in full control of your coins and their security since your private key is stored on your hardware.
You can either download and use a desktop wallet as a full node or light client.
As a full node, you need to download the entire Bitcoin blockchain to your computer.
It will require significant space on your computer ( an excess of more than 225 GB to be precise).
An example of a full node Bitcoin wallet is Bitcoin core.
However, being a full node is not required due to the ability to use Bitcoin wallet in the form of “light client.”
It won’t require from you downloading the entire Bitcoin blockchain, but it will synchronize itself to it.
Comparing to the online and mobile wallets, the desktop wallet is considered to be more secure since it is not dependent on the third parties.
While we didn’t suggest using the mobile or online wallet to store a large amount of your coins, the desktop wallet may be a good option if you don’t have a hardware wallet.
However, they are still connected to the internet, so there are potential risks associated with their use.
If your computer gets hacked or infected with a virus, your coins will be in danger.
Or if your computer breaks down or you lose it, you may lose your coins along with it.
Last but not least, you may accidentally delete your desktop wallet, and your coins may be gone along with it.
That’s why it is very important to secure your desktop wallet and protect your coins, whatever happens with your computer.
The first thing you should do is making sure that your computer is not infected with a virus before downloading the desktop wallet.
Either you choose a paid or free version of antivirus software, make sure that your computer is clean of any viruses.
Next thing is downloading a reputable, open-source desktop wallet.
It is advised to be open-source.
It means that the code is opened to the public, and a lot of people checked their code in search of potential malicious lines of code that may endanger your coins.
A closed source wallet means that the developers can potentially insert malicious code into the software without you knowing about it.
The most important thing is that wallet enables you to extract your backup key.
That is the only guarantee that in case something happens with your computer, you will still be able to access your funds using backup key (seed words).
Last but not least, try to avoid keeping your desktop wallet logged in.
Don’t expose it to the unnecessary risk.
Currently in the market, I would like to point out 2 desktop bitcoin wallets.
The first one is Exodus that is user-friendly and easy for beginners to start with.
The problem with Exodus is that it is not open-source.
That’s why we have the second option, which is open source but not that user-friendly and the beginners may face hard times in the beginning.
Its name is Electrum.
Both of these wallets are having a high reputation in the market and tens of thousands of happy users.
A hardware wallet is a physical, electronic device, built for the sole purpose of securing your coins . The hardware wallet must be connected to your computer, phone, or tablet in order to send your coins.
The main advantage of a hardware wallet is its security.
Even though it is not convenient for everyday use as a mobile or web wallet, nothing beats its security.
Hardware wallet never reveals your private key, even while connected to the Internet.
Your private keys are in a secure offline environment on the hardware far away from malicious internet software.
It is fully protected even when you plug the device into a malware-infected computer.
Hackers would have to steal the hardware wallet itself, but even then, it is protected with a PIN code.
Don’t worry about your hardware wallet getting stolen, lost or damaged either.
As long as you have a backup key in your hands, you can always retrieve your coins.
A hardware wallet comes as a very secure wallet.
But a few wrong steps and the security can fly away.
When you set up a hardware wallet, make sure to write down the backup key that will be in the form of 12 or 24 words.
Keep those words on a safe place far away from Internet or any devices that may get in contact with Internet.
Even though it is very secure if you put your backup key on a place where hackers can get their hands on, you can easily lose your coins.
That is the major security measures you have to take.
Two biggest competitors in the field of hardware wallets are French Ledger and Czech Trezor.
Once you decide to buy a hardware wallet, keep your hands out of Amazon, AliExpress or any similar sites.
Don’t even try to buy a used wallet because your private key can be in danger and all your future holdings.
If you want to buy a hardware wallet from Ledger, click here.
If you want to buy a hardware wallet from Trezor, click here.
The links will lead you to the official sites of these two.
Hardware wallets are a good choice for everyone who is serious about his/her crypto future.
Even though they are not free, the price is way lower compared to the price you will pay for losing your precious coins by storing them on a third-party wallet.
We highly advise you getting one and moving the majority of your coins to a hardware wallet.
I hope you understand the characteristics of each type of Bitcoin wallet and the importance of securing them properly.
My suggestion is to keep a large part of your cryptocurrency portfolio on a hardware wallet.
However, for everyday use, it would be great to have some part in a mobile or online wallet.
If you are just starting and you can’t afford a hardware wallet, store your coins on a desktop wallet that is more secure than mobile and online wallets.
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