Bitcoin wallet

Every person who wants to enter the world of cryptocurrencies has to get familiar with all the prerequisites before investing, and finding out how to store and manage your virtual currencies is crucial for every future investor. 

Bitcoin wallet – what is it and which Bitcoin wallet should you choose?

Every person who wants to enter the world of cryptocurrencies has to get familiar with all the prerequisites before investing, and finding out how to store and manage your virtual currencies is crucial for every future investor. 

What is a Bitcoin wallet?

In simple terms, Bitcoin wallet – or, generally, a cryptocurrency wallet - is a tool used to store your public and private keys which, in turn, can be used to spend and receive cryptocurrencies. Bitcoin is a virtual currency, meaning that you can’t simply get your tokens and store them in your pocket - it’s necessary for you to have your own wallet. 

How does a Bitcoin wallet work?

Unlike physical wallets, Bitcoin wallets do not have any actual assets stored on them, but they can generate the information necessary to send and receive cryptocurrencies via blockchain transactions. In order to complete any transaction, you need two keys, private and public, and both these things are what your wallet consists of.

Firstly, let’s explain the terms. A private key is a random sequence of numbers and letters and is used to manage cryptocurrencies. It is related to your Bitcoin wallet address and public key mathematically, but there is no need to worry as strong encryption makes it impossible to reverse hashing used to generate them. It is essential to store your private key in a safe place or device since if you lose it there is no way to recover it. No private key, no access to your crypts. A public key is a single-use string of letters and numbers and is derived from your private key, but it is used only to receive Bitcoins and identify both sender and receiver. 

So, how does the actual transaction look like? As was mentioned before, Bitcoins – and all other cryptocurrencies – do not exist physically, they are records of transactions which are stored in a blockchain, and a wallet interacts with blockchain to manage cryptocurrencies. In order to transfer your crypts, you need to provide matching keys – by entering your private key you prove that you are the owner of specific cryptocurrencies and can transfer them further to another person by using their public key.

Bitcoin wallet types

Obviously, there is more than one method of storing cryptocurrencies, and neither of them is perfect. Choosing the one wallet that suits your needs might be a difficult task, so now we will outline the three major categories of wallets.

  • Paper Bitcoin wallet

A paper cryptocurrency wallet, also called a cold wallet, is basically an offline method of storing crypts. To put it simply, it is a printed piece of paper with your keys or QR codes on it. This method used to be highly popular as it was seen as the most secure way of storing Bitcoins. Printed keys cannot be hacked; however, paper wallets are now starting to be seen as outdated as it is easy to lose or destroy a single piece of paper accidentally. Ink can fade or get blurred, it can be damaged by water or fire, the paper can get stolen or simply taken a photo of – there are so many risks that as new security measures are being developed people tend to switch to more modern methods.

  • Hardware Bitcoin wallet

 This kind of wallet uses an actual device which safely stores your keys inside of it. As computers an all types of online storages can be hacked into, having a hardware wallet for your cryptocurrencies is much more secure. Moreover, most of these wallets require an additional PIN to be accessed, increasing the security of this method even further. Of course, there are risks of the device being destroyed, and software used to create the wallet can have bugs which might lead to exploitation of your keys. 

  • Online Bitcoin wallet

Using an online wallet (also called a hot wallet) to store your cryptocurrencies surely is convenient, but it is also the riskiest method. It can be easily accessed by a device connected to the Internet, such as mobile phone or the computer, and ensures quickens and simplifies entire process, but it has to be remembered that since online wallets are, well, online, they can be hacked – the site you are using might get attacked or your device can be infected by a malicious software that can steal your keys. 

How to create a Bitcoin wallet?

When it comes to creating your own cryptocurrency wallet everything depends on which type of wallet you have chosen. If you want to own a paper wallet you need to find a generator such as WalletGenerator. It uses your mouse's movements to create your keys, which then can be saved and printed. The site also includes detailed instruction and a layout showing how you should fold your paper wallet for it to be more secure. In the case of a hardware wallet, the entire process is a bit more complicated as you need a device and software, but there are solutions such as Trezor which provide you with everything you need. As for online wallets, there are plenty of options, Coinbase for example – it serves both as a cryptocurrency exchange and cryptocurrency wallet.

What is the best Bitcoin wallet?

Although there are so many options when it comes to cryptocurrency wallets, some are being chosen more frequently than the others. Currently, the most popular online Bitcoin wallet is the aforementioned Coinbase. Its interface is very newbie-friendly, offers various options and supports Bitcoin Cash, Ethereum and Litecoin as well. Trezor and Ledger are leading hardware wallets, and while they are not free, the security they provide is well worth the money spent on them. Moreover, for simple, quick access it is worth to check out Mycelium, the most popular Bitcoin wallet for Android. It might be a bit more complicated than other wallets but is the best choice when it comes to mobile wallets.

Free Bitcoin wallets

There is a shortlist of free wallets that you can use to store your Bitcoins: