Bitcoin is the most famous cryptocurrency in the crypto world. It has a share of 68.7% of the total crypto market. According to the reports, in January 2021, the market capitalization of bitcoin has increased by 400 billion U.S. dollars and has peaked at an all-time high of 600 billion U.S. dollars.
It is essential to store bitcoin safely as it is very prone to attacks due to its high value and popularity. Most people think of storing bitcoin on an exchange platform but fail to realize that it is unsafe to keep them there as they don’t own the coins on an exchange platform.
Exchanges are similar to a bank. They are third-party entities that are trusted to store the coins. There is a high chance that they can be closed down or can get hacked. Moreover, people don’t have complete control over their coins stored on an exchange.
There are no clear regulatory guidelines on cryptocurrencies and exchange platforms. Hence the safest way to store the coins is to have complete control over them. Total control means having control over the private keys.
One can get complete control over the private keys only when the coins are kept in wallets. Hence wallets are the safest way to store crypto coins. Moreover, an Ethereum or Bitcoin wallet is essential to join an ICO.
Blockchain wallet is the most famous wallet to store bitcoin. The wallet is named after the blockchain technology on which bitcoin works.
Blockchain wallet is a kind of software wallet that is very easy to handle. It gives complete ownership of the coins and assures tight security to the coins.
Basic Wallet terms
Before knowing any further about the blockchain wallet, the following are the few basic terms that need to be understood-
Public Key- It is a public address essential to indicate the address of the wallet. All the funds are received at this address. It is identical to the bank account number.
Private Key- This key is prominent as it authorizes the coin to the person. Whoever owns this key owns the coin. It is a very personal key and must be kept in a secure place. It is just like an ATM pin of the bank account.
Keystore file- Private keys are encrypted into the Keystore file. Encryption is a process in which data or information is converted into codes. It secures the wallet from any unauthorized access to the wallet.
Guide to setup bitcoin wallet
Following is a step by step guide to set up a bitcoin wallet-
Step #1: Visit the wallet website of Blockchain.info
Please make sure to visit the correct and authentic website as many fake websites have emerged in recent times. It will be beneficial to bookmark the official website.
To authenticate the website, one can thoroughly inspect the URL. It must contain “Blockchain Luxembourg S.A.R.L [LU]” in its web address.
Step #2: Complete the registration process
On visiting the official website, one will get an option to sign up for a new wallet. Click on the signup tab and fill in the email address and password section to generate a new wallet. Make sure to have an arbitrarily long password to enhance the security of the wallet.
If a person often forgets the password, it is advisable to note it and keep it in a secure place. After this, click the “Continue” tab to move forward. On pressing the continue tab, a confirmation email is sent to the given email address.
Step #3: Backup the paraphrase
After entering the account, click on the “Security Center” tab placed on the left side under the dashboard. After entering the Security Centre, click on the “Backup Phrase” option. Doing this is the first step to secure the wallet.
A recovery sheet will pop out immediately. Take a print of it and note down the 12-word recovery phrase carefully, as it is essential. Store the print in a secure place.
Step #4: Link the mobile number and enable 2 Factor Authentication
It is the second step in enhancing the security of the wallet. Link the mobile number and enable Two Factor Authentication with the help of the Google Authenticator App.
Step #5: Block the web address linked to TOR
It is the final step to secure the wallet. Restrict all the websites from TOR web addresses.
Step #6: Completed
This process successfully creates a new wallet for storing coins. Now, the exchange can send bitcoin to the wallet, and the person can start the trading.
For the bitcoin address, one can click on the “Request” tab under the dashboard. Here the bitcoin can be sent by the exchange platforms.
Types of Crypto Wallets
There are several kinds of crypto wallets available in the crypto market. Each wallet has its specialty, security features, convenience, and feasibility. Following are the most common and well-known wallets in the crypto world-
Cold Wallet (Hardware wallet)
If a person is trading in multiple cryptocurrencies, wants to deal for a longer time, and is very particular about the security of the coins, then the cold wallet is the best option for them.
The cold wallet is known as the most secure and safest wallet to store the coins. It is the safest wallet as it keeps the private keys of the users in a USB stick-like device. This device remains offline until it is plugged in to connect to a network.
As described above, the private key is an essential part of the wallet and is used to authorize the transactions.
Detaching the private key from the system connected to a network is The most prominent feature of the cold wallet. This way, it is impossible to hack the private key and the coins, and they are always safe from attackers. Moreover, the cold wallet requires manual approval to initiate the transactions even if the device storing the private keys is plugged into the system. Therefore, the coins are extra secure even if the system is affected by malware or a virus.
Cold wallets have their security software apps (like Ledger Live) that assist many cryptocurrencies. Cold wallets work perfectly fine with several external wallets. This feature allows the storage of multiple kinds of cryptocurrencies on a single device. For instance, approximately 1200 cryptocurrencies are feasible with Ledger devices, and nearly 1000 cryptocurrencies are feasible with Trezor.
How does it work?
- The device containing the private key needs to be plugged into the system connected to the network.
- The security pin has to be entered to access the wallet.
- On entering the wallet, one can send the crypto coins using a suitable software app.
- Before finally sending the crypto coins, a memo of the transaction is sent to the hardware device. This memo asks for the digital signature to authenticate the transaction. By pressing the ‘confirm button,’ the digital signature is authenticated.
- It is the most secure and safest wallet in the crypto world.
- It is impossible to hack the wallet as the private key stays in an offline device.
- It is safe from any virus or malware.
- It is feasible with several cryptocurrencies.
- It has an extra security feature of a passphrase and a pin code.
- A secured software app is essential to access the transactions after plugging in the device with a private key.
- It is expensive, and everybody can’t afford it.
- The primary setup of the wallet can be a little complicated.
Hot Wallet (Software wallet)
Hot wallets are for the people who have just started trading in cryptocurrencies and want simple, free, and convenient wallets for transacting crypto coins.
A Hot wallet provides an easy mechanism to store crypto coins. These wallets support a wide range of browsers, operating systems, and devices like Android, Chrome, iOS, Opera, macOS, and Windows.
Following are the kinds of Hot Wallet that are available in the crypto market-
Desktop wallets need to be downloaded onto a particular computer where the private keys are stored safely on a hard drive. The data is safely stored with a third party and is very difficult to sneak. However, these wallets are connected to the online network, making them prone to potential hackers.
- Desktop wallets are easy to download and install. They are very user-friendly.
- They support multiple cryptocurrencies.
- Many desktop wallets don’t have the option to enable Two Factor Authentication to enter the wallets for transactions.
- Many desktop wallets don’t allow the synchronization of mobile apps to the wallet.
Some of the suggested desktop wallets are Trust Wallet, Exodus, and Jaxx Liberty, Bitcoin Core, Armory, Copay, Atomic Wallet, and Electrum.
Web-based or online wallets use various servers to store the private keys. A third party runs these wallets. They are always online. Many third-party service providers often offer multiple safety and convenient features.
Users can access the wallets from any device that has an active internet connection. The organizations that operate the website can have complete control over the private keys. In case they are not secured properly, they can bring the coins under their control.
- One can access the wallet from any device having an active internet connection.
- A user can recover the password of the wallet if they lose or forget it.
- It has third-party control. Hence there is a constant threat to the control over private keys.
- It is always online, which makes it more prone to hacks and attacks.
Some of the suggested online or web-based wallets are Xapo, Circle, Strongcoin, Blockchain, Lumi Wallet, Coinbase, MyEtherWallet (MEW).
Mobile wallet is for the users who regularly use bitcoins for buying goods or use them for daily trading. It functions as a regular application on all smartphones. It stores the private keys and enables the user to use the coins from the smartphone device. Some apps work on the feature of ‘near-field communication’ to transfer the coins from one device to another. They function with a tap on the smartphone without requiring any information.
Generally, bitcoin clients ask for the complete blockchain ledger for the transactions, which requires a lot of storage. On the other hand, mobile wallets make the process easy with simplified technology that simplifies the verification of the payments.
If a user loses the smartphone device, he can lose the crypto coins. They are also very prone to attacks and hacks. Moreover, the user doesn’t have complete control over the private keys.
- It is very convenient to use as available on the smartphone 24×7.
- Users can use the app to buy services and goods instantly with the help of bitcoin stored in the mobile wallet.
- Some mobile wallets can also sync with desktop wallets.
- Users must be careful regarding the backup phrase and the smartphone device. If they lose these two things, it is impossible to get back the crypto coins.
- If there is no option to enable Two Factor Authentication, then the wallet can be easily hacked or accessed by anyone who has access to the smartphone.
Some of the suggested mobile wallets are Edge, Lumi Wallet, Free Wallet, Mycelium, Jaxx Liberty, Copay, Atomic Wallet, Blockchain Wallet, Trust Wallet, and Exodus.
Paper wallets are seldom used wallets and are highly underrated. A paper wallet is a document that stores a public key which is the address for getting bitcoin, and a private key to authenticate the transactions done through bitcoin. The user has complete control over the private key, and it is highly secure.
The most important feature of the paper wallet is that it stores the keys offline. Hence it is safe from hackers and attackers. Also, it is safe from any virus or malware. While generating a paper wallet, a clean operating system like Ubuntu is preferable. Furthermore, the website code on the paper wallet must function offline. At last, try using a printer that has no internet connection to print the document.
It is also important to note that the document consists of sensitive and confidential information. Hence, it is advisable to store it in a secure place, preventing it from getting stolen or damaged.
- It is not expensive and very affordable.
- It is impossible to hack, as it is an offline document
- There are no risks of malware or virus attacks.
- It has to be stored carefully, as it is prone to theft.
- It can get damaged easily in an accident or mishappening.
Wallets are the best place to store bitcoin. They provide the much-required convenience. They also allow the user to use the coins for trading and investing with ease. They provide complete ownership of the coins, unlike exchange platforms.
Though there are certain risks of hacks and attacks associated with them, it is preventable by choosing the correct wallet according to personal requirements. Experts recommend using a cold wallet if a user is dealing with bitcoins regularly in huge sums. These wallets provide maximum security to bitcoin and are free from any risks of hacks and viruses, and malware.