Bitcoin is not a traditional currency, but a digital one. That’s why a different approach is followed when digital currencies are in question, especially when buying and storing it. As Bitcoins are digital assets, it is impossible store them in a physical environment. Instead, private keys to access your public Bitcoin address and signatures for transactions that need to be securely stored are used. Bitcoin transactions are possible via a combination of the recipient’s public key and your private key.
There are several different forms of Bitcoin wallets. They meet different requirements and they vary in terms of safety and security, convenience, accessibility and so on.
Types of Cryptocurrency Wallets
1 – Paper Wallets
Essentially, a paper wallet is a document. It contains a public address that can be used to receive Bitcoins and a private key. This address allows you to spend or transfer Bitcoins stored in itself. They are often printed in a form of QR-codes. You can scan this QR-code and to make a transaction, add the keys to a software wallet. A paper wallet can be generated using services like BitAddress or Bitcoinpaperwallet. These wallets are used to create a completely random Bitcoin address and a private key to it. This generated document can be printed. Some wallet services offer a tamper-resistant design or even an option of ordering holographic labels. Then it is ready for use.
Not being stored digitally is the main advantage of the paper wallets. So, it is protected from hacker attacks, malwares that can log the user’s keystrokes. However, you stil need for some precautions while creating a wallet. First of all, while generating a paper wallet, you need to make sure that no one is watching you. If you don not want any spyware to monitor your activities, you need to use a clean operating system like Ubuntu, which is running from an external drive etc. Also, after the paper wallet is created, the website code should be able to run offline. This allows you to disconnect from the Internet before generating the keys. Lastly, make sure that your printer is not connected to Internet.
You should know that you are printing valuable private information on a piece of paper. Thus, you need some precautions to protect that piece of paper. For example, to protect it from water, tear and general wear, we reommend you to keep the paper in a sealed plastic bag. You may prefer laminating it also. A deposit box or entrusting it with a solicitor may also be convenient.
2 – Physical Bitcoin
Physical Bitcoin is holds a fixed amount of BTC which is loaded prior to its purchase. Its intention is to keep it safe unless a private is entered, which is achieved through implementation of a tamper-evident seal.
Bitbill, which is the first of its kind, was shaped like a credit card. After it, most alternatives were shaped as a round medal. Mike Cadwell created the first of the popular Casascius physical Bitcoins in 2011. He is a cryptocurrency enthusiast nicknamed ‘Casascius’. A peelable hologram hides private keys. When you remove the hologram, it left a tamper-evident pattern. When used, the coin lost its digital worth. There have been several new coin manufacturers since Bitbill.
It is safer to store your funds via physical Bitcoins, and they are extremely useful in trading offline. Also, they’ve recently become a prized collector’s item. However, it has a serious disadvantage. In November of 2013, Mike Cadwell’s work was considered as a Money transmitter by Financial Crimes Enforcement Network, and they asked him to cease operations. The regulations for this activity were harsh; he was forced to stop the sales of items containing digital Bitcoins. BTC is still a legal grey area in a lot of countries so, be careful for such items may be considered counterfeit money by authorities.
3 – Mobile Cryptocurrency Wallets
If you are using BTC actively on a daily basis -paying for goods in shops or trading them face-to-face- a mobile BTC wallet is an essential tool. It is actually an app on your smartphone. These apps can be used to store your private keys and they allow you to pay for shopping directly from your phone. What’s more, as some apps enable users to use their smartphones’ near-field communication feature, users can simply tap their phone against the reader without having to provide any information at all.
Full Bitcoin clients must have access to the entire Blockchain ledger. The ledger constantly grows and it requires huge amounts of (several gigabytes) storage. That’s why, mobile wallets benefit simplified payment verification (SPV) technology. These work with very small subsets of the Blockchain. To ensure that they have the correct information, these wallets rely on trusted nodes in the BTC network.
Although mobile wallets are a convenient developing solution for Bitcoin storage, they are very prone to hacker attacks; you can lose control of your wallet if someone simply gains access to your mobile device. There’s a big variety of Bitcoin wallet apps for devices running on Android. Inspite of the fact that Apple banned Bitcoin wallets from the AppStore in February 2014, it reversed its decision several months later.
|Airbitz||iOS, Android||Zero-knowledge, single sign-on, one-touch 2 factor authentication|
|Bitcoin Wallet||iOS, Android||Hierarchical deterministic, enable to browse Bitcoin merchants in your area, open source software|
|Copay||iOS, Android, Windows Mobile||Can have multiple users, so the group approves each transaction to send money, open source software|
|FreeWallet||iOS, Android||Cold storage, withdraw from and to any cryptocurrency|
|Jaxx||iOS, Android||Cold storage, no verification required|
|Mycelium||iOS, Android||Сold storage, hierarchical deterministic, open source software|
4 – Web Wallets
Web wallets store your private keys on a server of a company providing such services. The server is constantly online and is controlled by a person(s). Different services offer different features. Some of them are linked to mobile and desktop wallets, and replicate your addresses across the devices you own.
Similar to mobile wallets, e-wallets offer access users to their funds from any device connected to the Internet. However, unless implemented correctly, the organizations running the website might gain access to your private keys, which may lead to losing your funds. What’s more, e-wallets operating on the base of exchanges were seen to be shutting down and running away with their users’ funds.
|Coinbase||One-stop solution, an exchange integrated with a wallet.|
|Circle||Users can store, send, receive and buy Bitcoins.|
|Blockchain||One of the most popular web-based wallets.|
|Strongcoin||Offers a hybrid wallet, which lets you encrypt your private address keys before sending them to its servers.|
|Xapo||A simple Bitcoin wallet, with the added security of a cold-storage vault.|
5 – Desktop Wallets
Desktop wallets which store your private keys on your hard drive are downloaded and installed on your computer. By definition, they are more secure than online and mobile wallets, due to the fact that they don’t rely on third parties for their data. Also they are harder to steal. As they are connected to the Internet, they are inherently insecure. However, desktop wallets are a great solution for those trading small amount of Bitcoin from their computers.
There is a variety of different options of desktop wallets that are suitable for different needs. Some focus on security and some on anonymity etc.
|Electrum||Mac OS, Windows, Linux||One of the most popular, robust, effective and secure desktop wallets; open source; allows you to replace a transaction fee on an already broadcasted transaction, which speeds up the confirmation process; address tagging; encryption|
|Exodus||Mac OS, Windows, Linux||Very user-friendly and easy to understand, reliable wallet.|
|Bitcoin Core||Mac OS, Windows, Linux||Full node wallet, you need to download the entire blockchain to use it. It allows you to independently verify transactions (not rely on anyone else in the system).|
|Copay||Mac OS, Windows, Linux||Multi-signature wallet; mobile and desktop; open source.|
|Armory||Mac OS, Windows, Linux, Ubuntu, RaspberriPi||Prioritizes safety and security; features a variety of encryption and cold-storage options.|
6 – Hardware Wallets
A hardware wallet is a rather unique type of Bitcoin wallet. It stores user’s private keys in a secure hardware device. It is the most secure way of storing digital currencies; there have been no verifiable incidents of theft from a hardware wallet. Hardware wallets can be used securely and interactively. They are not like paper wallets which must be imported to software to be able to use them. Also, they are immune to computer viruses beceuse the funds stored cannot be transferred out of the device in plaintext, and in most of the time their software is open source.
If there is a screen on the hardware wallet, it adds to the security. Screens can be used to verify and display important wallet details. For example, screens can be used to generate recovery phrases. Also they are used to confirm the amount and address of the payment you intend to make. Your device must be made by a competent and a trustworthy manufacturer with a good reputation. So that your funds will be safe and secure.
|Ledger Nano S||58 €||Screen; two buttons that you need to press simultaneously to confirm a transaction. It prevents hackers confirming payments; PIN code; box ships with an anti-tampering seal.|
|TREZOR||$99||Screen; two buttons; wallet can be backed up with up to 24 words + passphrase; PIN code.|
|KeepKey||$99||Screen; digital screen and metal body; PIN code; number randomization; can be backed with up to 24 words; recovery can be done with Chrome extension.|
|Ledger HW.1||$17||No screen; it must be setup on bootable USB or offline computer; backed up with a 24-word seed; PIN code; security card that provides extra two factor authentication.|
One of the sector’s actors, Rainer Michael Preiss, an executive director at Taurus Wealth Advisors, has recently stated that it is possible that all large US banks are afraid of cryptocurrencies. As the banks lack transparency and uncertainty, cryptocurrencies can present investors with a viable alternative (CNBC). In fact, the vast majority of banks do not accept Bitcoin as a currency. Some banks even refuse to manage funds obtained through operations with cryptocurrency.
As banks’ reluctance to accept Bitcoin as a viable currency, a Bitcoin Crypto Bank was recently established. This bank which is the first of its kind is a privately owned company. It operates on the Bitcoin trade market. They accept and manage Bitcoin deposits, and claimg that they know the market inside out. On their website, it is stated that they are a no-risk, secure and certified platform for investment with high chances of making huge profits.
Bitcoin wallets and security
- Catching malware. Malicious software are able to scan your disk and find your private keys. Your Bitcoins can be gone within seconds.
- A trojan encrypting all the files on your hard drive. When it does so, it might find all links to your wallets. They realize how much money you have and demand that amount of Bitcoins to decrypt your hard drive.
- Virtual exchange running away with your money.
- Loosing your laptop or your phone with your wallets installed on them.
- Do not use any kinds of wallets that require Internet connection; instead, use cold storage options.
- Always be cautious. Double-check everything. For example, you could receive spams such as an e-mail made to look like it’s from BlockWallet, which is actually from BlokcWallet. You loose your Bitcoins if you authorize it.