WHAT IS BITCOIN WALLET? HOW TO STORE IT?
After you get bitcoins, you will need to store it in a secure wallet. This article will help you to understand wallets and how there are different wallets to suit your needs.
Similar to how a physical wallet is used to hold your cash and credit cards, you normally store your bitcoin after purchase in a wallet.
You should set up a wallet so that your counterpart has a digital address to transfer the bitcoin to once you understand bitcoin and are prepared to purchase it, earn it, or receive it as payment in return for products and services.
The wallet you choose to store your bitcoin must also be reliable and secure. There are many different digital wallets available today, and this article provides in-depth information to assist you in selecting the best one.
Wallets can be hardware- or software-based, downloaded to a mobile device, a desktop computer, or written on paper using a QR code to access the private keys.
Similar to how a regular wallet saves your cash, a bitcoin wallet is an electronic device that lets you transfer, receive, and retrieve your money. A bitcoin wallet, in contrast to a physical wallet, holds just the private key—a piece of cryptographic data—that serves as ownership proof and grants access to the actual money stored on the blockchain.
A Bitcoin user’s biggest nightmare is losing their private key or having it stolen since it means their money is gone. This is why the first thing you must do when you buy or get bitcoin is secure the cryptographic data. Additionally, your private key could be misplaced as a result of hacking, phishing, computer errors, or even the loss of the device itself.
The case for self-custody is made much more compelling in light of what transpired with Celsius, Voyager, Three Arrows Capital, and FTX in 2022, when they all lost all of their clients’ bitcoin due to unethical business methods, resulting in their bankruptcy. Even if these bankruptcy cases were a bitter pill for the cryptocurrency sector to take, Bitcoiners were not unfamiliar with insolvent exchanges prior to the Mt. Gox incident in 2014, which sparked the current trend of “not your keys, not your coins.”
Bitcoiners frequently refer to themselves as independent people. You must assume self-custody of your BTC in order to be a sovereign person. Learn about wallets in order to accomplish this.
- WHY SHOULD WE USE A BITCOIN WALLET?
According to the popular Bitcoin saying “Not your keys, not your coins,” you don’t truly own any bitcoin if your wallet doesn’t grant you exclusive access to your private keys. Instead, a third party, like as an exchange, will keep it on your behalf, just like a bank does with your money.
Bitcoin was developed as a banking system alternative, thus your wallet will grant you financial independence without middlemen, safety from rehypothecation, and the capacity to safely keep your capital.
Bitcoin educates you to be accountable for your financial decisions, which encourages you to store your BTC carefully and manage your spending. When researching this avenue, one of the first things you need to understand is how wallets operate.
- HOW DO WALLETS WORK?
All bitcoin value exchanges take place through bitcoin wallets on the Bitcoin timechain, commonly referred to as a blockchain. The private key for your wallet serves as your authorisation to spend your money as well as a means of confirming that you are the legal owner of the bitcoin stored inside. It functions similarly to the password you use to access your online banking.
Because private keys are 256 digits long, they cannot be used to store, transfer, or secure your money. Because of this, they are secured in a bitcoin wallet that will instantly enable them for transactions when used in conjunction with a public key.
A seed or recovery phrase is automatically produced when you establish a bitcoin wallet to help you get your money back if you misplace your private key. A series of 12 or 24 words known as a seed, mnemonic, or recovery phrase is used to produce any Bitcoin key you’ll need to transmit and receive bitcoin.
Although this wallet configuration is uniform across the board, there are alternative wallets to accommodate different needs and preferences.
Various bitcoin wallet kinds exist, depending on your needs. You should be aware that they all carry some amount of danger, especially custodial wallets that are under the supervision of other parties. To prevent making costly errors and running the danger of losing your money, we advise that you heed the following advice:
- Use only wallets that provide you with recovery information.
- Use a paper wallet only if you are an experienced user and are aware of the hazards.
- Preferably, multiset wallets should be used to hold significant sums of bitcoin.
- Don’t forget to provide your heirs recovery instructions
- VARIOUS TYPES OF WALLETS
- MOBILE WALLETS
Apps like Bitcoin Wallet and BlueWallet are examples of mobile wallets. They are handy, portable instruments that provide a QR code for speedy in-person transactions. Some even use near-field communication (NFC), which enables customers to touch their phones against the terminal of the retailer without presenting ID.
Given how simple it is to misplace your mobile device, they pose the greatest hazards since they are the least secure. If you have the private keys, you can still recover your wallet on a new phone, but since it relies on the internet, hacking might cause you to lose access, which could result in the loss of your money. Because of this, they are unsuitable for keeping huge sums of bitcoin and are best suited for minor transactions.
The wallet is less susceptible to hacking or sim-swap attacks when two-factor authentication (2FA) is used for further protection, ideally using an authenticator software like Google Authenticator.
- THE WEB WALLET
Web-based wallets are often exchange-based wallets that enable you store your bitcoin and conduct transactions, such as BitGo or Blockchain.com. Because they are online websites that need a live internet connection, they are regarded as hot wallets.
Users’ private keys are kept on the provider’s server, making them very susceptible to theft or hacking should the exchange go awry. Avoid keeping the vast bulk of your bitcoin in a hot wallet, which is strongly advised.
- DESKTOP WALLETS
Desktop wallets are open-source programs that may be downloaded to your computer and keep your private keys on your hard drive. Examples include Atomic Wallet and Electrum, one of the first bitcoin online wallets, which has been operating since 2011.
Because you aren’t entrusting a third party to retain your funds, they are often more secure than mobile or online wallets, but they are still susceptible to hackers via an internet connection.
- COLD STORAGE WALLETS
Any kind of wallet that is on a device that is not online is referred to as a “cold storage wallet.” The wallet is shielded from any kind of internet-based assault while connected offline.
The standard cold storage options are hardware wallets and paper wallets. There is also deep cold storage, which is any cold storage wallet that is buried far below, locked in a vault, or guarded in any other manner to make it much more difficult to access your bitcoin than it would otherwise be.
- HARDWARE WALLETS
Hardware wallets are tangible objects, similar to USB drives, that securely hold your private keys. Since they cannot be attacked by computer viruses or online hackers since they are not linked to the internet, they are often thought to be quite safe.
Although setting them up involves some technical know-how, the manufacturer often includes an easy-to-follow step-by-step manual. To acquire experience and feel more confident while doing a transaction, test the wallet out with a little amount of money initially. Once you feel secure enough to send a sizable sum of money, only fill it with bitcoin.
Make sure the hardware wallet you buy is from the actual manufacturer, such as Ledger, Trezor, or COLDCARD, since counterfeit wallets found on sites like Amazon or eBay may steal your bitcoin.
- PAPER WALLETS
Paper wallets, which require you to save your private keys offline on a sheet of paper that you print out as a QR code, are also regarded as cold storage. To add the keys to a software wallet and complete a transaction, they may be swiftly scanned.
They are seldom used these days since there are so many options, but they are incredibly safe because hackers cannot access them and steal passwords. They are also incredibly private since personal information cannot be shared online.
- MULTISIG WALLETS
A multisig wallet adds an additional layer of security by requiring several private keys to sign and approve a bitcoin transaction. To decrease the likelihood of a hack or theft, which single-signature wallets are more susceptible to, it implies that a number of persons, often two out of three (or three out of five), must authorize a transaction.
- WHAT TO CONSIDER WHILE CHOOSING A WALLET
- BITCOIN WALLET OR MULTICURRENCY WALLET
You can store bitcoin in any cryptocurrency wallet, but only a few bitcoin wallets allow you to store additional cryptocurrencies. Consider the choices we’ve provided and concentrate just on a safe bitcoin-only wallet that gives you access to your private keys if you’re only interested in sound money and don’t want to be distracted by other cryptocurrencies.
- REPUTATION OF RESEARCH WALLET
While Bitcoin Magazine makes an effort to educate you on the most reputable and trustworthy bitcoin wallets now in use, there is a wealth of online content that may help you understand the various wallets and their reputation. Software
Once all necessary signatures have been obtained, the transaction is complete. The number of signatures needed is the sole requirement; there is no hierarchy among the necessary signatures.
For instance, CTO and co-founder of popular self-custody solution Casa and engineer Jameson Lopp offers some of the most trustworthy and thorough instructional resources about Bitcoin on his own website.
- RESEARCH WALLET BACKUP OPTIONS
The importance of backing up your wallet cannot be emphasized enough. The most basic form of recovery is to safely backup your private keys by noting and keeping your wallet seed phrase in a secure physical place that you can recall.
Never do this online, not even on your PC or the cloud, where your money is always at danger of being stolen by hackers.
- RESEARCH KEY MANAGEMENT
Think of how your bank account is safeguarded to get the concept; private key management is a crucial part of your wallet. Find out whether your private key is managed by many independent keys, if it has an automated or manual cloud backup, and if your wallet allows you to save your keys outside or on the same device as the wallet programme.
- TO UNDERSTAND THE PURPOSE OF YOUR WALLET
When picking your wallet, keep the following in mind:
- Convenience: Do you need a wallet for trading, for usage on the go, or for everyday transactions?
- No matter what kind of wallet you use, security should always be your first concern.
- Anonymity: Some wallets place a higher priority on privacy than others. High degrees of anonymity are provided by Wasabi Wallet and Joinmarket.
- An investment wallet for holding bitcoin for the long run.
- Wallets like Opendime are appropriate for gifting bitcoin without disclosing the recipient’s private key.
- SETUP FOR A WALLET
It’s simpler than it seems to set up a bitcoin wallet, and most devices are user-friendly and appropriate for novices. The directions on the gadget are often simple to follow as you go through the procedure. However, the steps for putting up a wallet are listed below:
Only through the provider’s website can you download and install the software, mobile, or desktop wallet. To configure a hardware wallet, you must follow the manufacturer’s instructions.
Utilize the device’s instructions; they are often simple to understand. You’re usually ready to utilise an app or piece of software as soon as you download it.
Secure your private key by jotting down your recovery phrase so that, in case of need, you may retrieve your wallet;
Just a little quantity of bitcoin should be sent at first to practise using a wallet.
- SECURITY RISKS WHEN USING A BITCOIN WALLET?
A common method to store and utilise bitcoin is via bitcoin wallets. They are vulnerable to security concerns, nevertheless, just like other digital gadgets. The following are some of the most widespread security vulnerabilities connected to bitcoin wallets:
- Theft: Your bitcoin may be taken if someone gets access to your wallet. Therefore, always store your wallet(s) in a safe and secure location.
- Coercion: Using multisig and cold storage solutions, you may avoid being physically forced to give over your stack in a tactic known as a $5 wrench assault.
- Hacking: Your bitcoins might be stolen if your bitcoin wallet is compromised. Various methods, such as phishing and brute force assaults, may result in hacking.
- Malware: Malware, which is designed to steal your money, may infect bitcoin wallets. So make sure your operating system is virus-free and clean.
Using a hardware wallet together with a multisig solution is the safest approach to keep your bitcoin. This is the strategy you should use if you plan to hold onto most of your bitcoin for a considerable amount of time.
- HOW TO MAKE YOUR WALLET MORE SECURE?
When a bank keeps your money, the bank is in charge of keeping it safe, so you don’t have to worry about the possibility of theft, fire, floods, or any other kind of damage.
You become your own bank and inherit the same worries that any bank management or bank security expert would have when you possess bitcoin and assume personal responsibility for keeping it secure. You alone are responsible for safeguarding your fortune.
Fortunately, we have a wide range of wallet alternatives at our disposal that may help us protect our money. It’s important to conduct your homework before selecting a wallet since some wallets protect your bitcoin more effectively than others. Here are some more steps you may take to strengthen the security of your wallet.
- YOU CAN STORE YOUR SEED PHRASE SAFELY
It’s crucial to keep your seed phrase safe by keeping it in a secure location. For more peace of mind, you may take a few easy steps. You can store it on a piece of paper, in a safe that is cryptographically secure, or on a metal plate like those offered by Coldbit or Blockplate.
Keep it private and don’t divulge your seed phrase to anybody. For further security, divide the seed phrase into two halves and keep them apart. Be inventive with your Bitcoin security, but make sure you can find and retrieve your money if you need to!
- 25th WORD ADDED
The system advises you to securely store your seed phrase, which is commonly a string of 24 words, while configuring your wallet. Some wallets let you to add a second phrase that further encrypts your root seed. In the event that your 24 words are stolen, the person who has them will unwittingly need the 25th word in order to have access to your root keys. If necessary, this option gives you the time to switch wallets.
- APPLY A MULTI SIGNAL SYSTEM
One of the greatest ways to protect your bitcoin is by using a multisig system. Multisig solutions come in two flavours: hosted (where companies like Casa and Unchained keep your private keys) and unhosted, where you retain complete control. Each flavour has pros and cons.
- A FAKE PASSPHRASE
When password databases are protected by a fake passphrase, hackers might think they have cracked the code only to be issued acceptable credentials that do not enable them access to the private keys. Cybercriminals will still be able to open the file, but the passwords they get are fictitious or false.
- USE MORE THAN ONE WALLET
Having many wallets and distributing your money across them may lessen the likelihood that one point of failure may cause you to lose everything. To make all of your devices more accessible, make sure you implement all of the security precautions mentioned above.
- ACCESS FROM A SECURE COMPUTER
By employing a device just for managing bitcoins, you may lessen the likelihood that your computer will be compromised and your money will be taken. It is worthwhile because overworked systems, especially those with poor OS security, are more likely to acquire malware.
- USE IN CONJUNCTION WITH A FULL NODE
The most effective safeguard you can use to protect your money is to use your wallet with a complete node. Running a full node also strengthens the network, which is advantageous for all Bitcoin users.
When you use a node, you are protected from fraudulent activity since you are acting in a trustless environment and no one can access your cash because the node is decentralized. Make sure you can customize how to connect to your own full node with your lightweight wallet.
- INHERITANCE PLANNING
Nobody wants to consider passing away or being unable of handling their finances one day, but you may have asked what would happen to your bitcoin after you pass away. Planning how to transfer your Bitcoin keys to your heirs is necessary if you manage them yourself.
Being your own bank and having your own keys already involve a high amount of responsibility, therefore for some people, considering their own succession may be daunting. The first thing you should do is see a lawyer and draught a will so that the executor will be aware of your intentions about your BTC.
There are normally two methods to handle the inheritance of your bitcoin, both of which need legal counsel for your own piece of mind:
- Manual method: Since you’re probably the most experienced person on this issue, you’ll also need to provide your successors with instructions on how to use the private keys in addition to the private keys themselves. The keys should be maintained with a legal team, a trustworthy family member, or ideally a mix of both. To guarantee that no party ever gets entire control or early control, it is important to limit access to certain parties.
- For-profit service: With the assistance of a legal and technical team that can unlock the assets for your beneficiaries, service providers like Casa can work with you to build an inheritance plan that enables your heirs to access your bitcoin at the appropriate moment.
- A book titled “Crypto Asset Inheritance Planning” was created by American lawyer and businesswoman Pamela Morgan under the technical direction of Bitcoin educator Andreas Antonopoulos. It contains a tonne of helpful advice on preparing inheritance procedures.
- FREQUENTLY ASKED QUESTIONS
- WHERE CAN I BUY A HARDWARE WALLET?
Always purchase your bitcoin wallet from the official vendor or the device manufacturer, since these are the sources that are the most secure. Never purchase anything from online stores like Amazon or eBay since the item could not be what it seems to be and your money might be stolen. It’s always preferable to overspend and safeguard your money than to later regret not buying a new wallet in a secure manner.
- WHAT IS THE BEST BITCOIN WALLET FOR INTERNATIONAL PEOPLE?
Because they are open-source and decentralised technologies, the majority of bitcoin wallets are accessible globally. The best international wallet is the one that best suits your requirements. Devices like Electrum, Blockstream Green, or the hardware varieties may be downloaded or purchased from most nations.
- HOW MUCH DOES A BITCOIN WALLET COST?
Most mobile and online wallets are cost-free. But if you want to buy cold storage, the price may go from $60 for a Ledger Nano S to more than $200 for the Trezor Model T, which is more secure.
- HOW DO I CONFIGURE A BTC WALLET WITHOUT AN ID?
The majority of bitcoin wallets don’t need ID confirmation. When purchasing a hardware wallet, you must provide information in order to get the item. It is advised to use clever strategies to prevent the delivery of your actual address or even just your name, email, and phone number.
The very least you can do, for instance, is provide a general delivery location of a business that could accept the wallet as a service that is either close to you or not. You may even slightly change your name, but bear in mind that the retailer could need identification.
- HOW LONG DOES IT TAKE TO CRUSH A BTC WALLET?
The good news is that it will be very difficult to compromise your bitcoin wallet if you take all of the aforementioned precautions. Your money is at danger if you use a web wallet or a mobile wallet for so-called hot storage. Make careful to use the strongest password you can if you’re utilising hot storage.
A four-digit pin code may be broken in as little as five milliseconds, according to calculations, but the longer your password, the better. With current technology, it would take two millennia to decipher twelve random letters.
- CAN LAW ENFORCEMENT GET A HANDLE ON A BTC WALLET?
They can, yes. However, it depends on the kind of wallet used and the security measures used.
The largest danger are hot wallets or wallets hosted by centralised service providers, since law enforcement might simply compromise a bitcoin hot wallet or convince a centralised service provider to provide access to the private keys in order to freeze or take your bitcoin.
Authorities may take a cold wallet device, but they will not be able to access your bitcoin until you give them access to your private keys, password, and recovery seed.
The strongest defense against confiscation, however, is a multisig wallet since, even under duress, you would not be able to produce the whole set of keys to access your bitcoin. This is particularly true if your keys are maintained by many people or organizations in various places.
- IF I FORGET MY WALLET PASSWORD, WHAT HAPPENS?
It is possible to reset or obtain a wallet password. Your cash might be lost if you forget your private key or lose access to it, therefore you must take special care to keep it safe at all times.
- FINAL COMMENTS
If you don’t safeguard your bitcoin, your fortune is at risk. Strong, secure, non-custodial wallets are the way to go.
Small quantities of bitcoin may often be kept anywhere and used for trading or spending. The highest degree of safety you can provide your bitcoin is multisig wallets in cold storage combined with a complete personal node for larger quantities.
Governments, including the EU, have lately sought to outlaw bitcoin wallets or at the very least restrict their privacy and independence from other parties. Bitcoin cannot be banned or restricted, but government-enacted persecution might undermine its decentralisation and sovereignty.
With everything that has been going on in the cryptocurrency industry for years—from a regulatory perspective to criminal activity, exchange hacks, and so forth—Bitcoin is widening the gap with “crypto” and establishing its own ethical stance, which is backed by businesses that are only concerned with its soundness as money.
Taking personal ownership and custody of your bitcoin seriously has never been more crucial, and understanding how to safeguard it is the additional work that is required to lower the danger of losing the most powerful asset you’ve ever owned.