You may be new to the entire Cryptocurrencies concept! if so we recommend you to read the full article ‘What is cryptocurrency‘ However you can use the following guide to learn about bitcoin and cryptocurrency wallets , when and what each type of them is it used for
1. What is a cryptocurrency wallet
Bitcoin and cryptocurrency wallet refer to a software that allow you to access, send and receive cryptocurrencies. These software are available for desktop, laptops, mobile phones and other hardware devices, they interact with a digital decentralized register called “BLOCK-CHAIN”.
The process is similar to how emails works, it require a public address that has to be shared to allow sending / receiving cryptocurrencies, in addition to a private Key that should never be shared, similarly to the password for emails, this key allow you a secure access to your wallet.
2. What is a private Key
A private key is a very long chain (string) of numbers and letters that acts as a password to your wallet. This combination is secretly and randomly chosen for you by the wallet and has the capability to tell the network you want to send your coins or tokens to another destination. Remember that whoever knows your private key has control over your wallet.
As the wallet will automate the complex cryptography and interactions, therefore what matters more is to keep your private key offline, secured and you should never record it in a file on a computer connected to internet! This way and for example if you have a wallet on a mobile phone and that phone was stolen, you can just download a new wallet to a different phone, import into that wallet the private key that was kept offline or written on a piece of paper, and regain control of your coins.
The private key is used also to generate your public address by running sort of mathematical algorithm on this private key. It’s a one way process, means that there is no way to figure out the private key by examining the public address.
3. The HD wallets evolution (HierarchicalDeterministic)
These wallets generate a phrase known as mnemonic phrase or seed phrase which is a set of common words that can be memorized instead of the long confusing private key (it is mush easier to write down 12 simple words than a long chain of numbers and letters)
4. Custodial-Wallets and Non-Custodial Wallets
Non-custodial wallet is any wallet where you are the only one who knows the private key (or seed phrase) which means you are the sole owner of your coins and no one has access to them.
A custodial wallet is a place to store your coins but you don’t really own them and similar to bank accounts, the company supplying this wallet holds the private keys and therefore can freeze your funds, go bankrupt, get hacked, or commit fraud and steal your coins; This illustrate the risk of a custodial wallet but some people use them as they prefer not to be in charge of their own funds!
5. Types of wallets
We can distinguish two main types of cryptocurrency wallets – cold, and hot wallets.
5.1 The Cold Wallets
Cold wallet (or cold storage) refers to wallets that are detached from internet connection and therefore cannot be remotely hacked, they are non-custodial wallets.
Hardware wallets are devises similar to flash memories, they are the most secure because they do not expose your private keys to the network and the users need to connect them in order to access their cryptocurrencies. When not connected, it’s completely inert and virtually cannot be hacked:
- LedgerWallet: An easy to use secured wallet, it can be connected to any mobile or computer and can store 30 different cryptocurrencies on the devise.
- Tresor: An other highly popular hardware wallet offering a touchscreen interface and greater support for cryptocurrencies.
- ShapeShift KeepKey: Operating with a cryptocurrency exchange platform of the same name, allowing their owners to trade commission free.
- OPENDIME: A tiny hardware called “The Bitcoin Credit Stick”
- Shift Crypto AG BitBox02: A one-piece design, multi asset support made by a Swiss company, .
Paper wallets are a piece of paper with private key or seed phrase written on them. Only those who view that paper can use it to steal your coins. However, this paper are easily destroyed, and it is better to create multiple copies so that if one is lost, coins can be retrieved using other copies. Also to send coins from a paper wallet, we need to import the private key into some form of digital wallet.
5.2 Hot Wallets
A hot wallet refers to any wallets that is connected to the internet. They are the most popular type of wallet, but also the least secure because while connected, the computer or mobile can be hacked, therefor it’s likely that the wallet will be compromised. most of them are available on both desktop and mobile.
Desktop wallets are harder to steal! therefore more secure than mobile wallets but less secure than hardware wallets. This is a good solution for small amounts of bitcoin and other cryptocurrencies (altcoins) but for larger amounts, ALWAYS use cold storage wallets. The following lists some of the best and secure options:
- Electrum: One of the most robust and effective desktop wallet, available for Mac Os, Linux, and Windows. Also it is an open source (reducing to practically zero chance of malicious inside code). It’s an SPV wallet (don’t have full copy of blockchain but a light version) – they relay on other computers on the network to give them transaction confirmation.
- Exodus: Launched in July 2016, and gained a serious momentum, is an SPV wallet available for Mac Os, Linux, and Windows however this is not open source, means developers can potentially insert malicious code inside the software without you knowing about it therefore measure well your risk.
- Bitcoin Core: The “official” Bitcoin client and wallet, it is a full bitcoin node wallet, meaning it helps verify and transmit other Bitcoin transactions across the network and stores a copy of the entire blockchain. This offers better privacy since Core doesn’t have to rely on data from external servers or other peers on the network as Bitcoiners like to say “don’t trust, verify”. You have to take in consideration that you’ll download hundred Gigabytes to your computer which take some time
- Atomic: An other SPV easy multi-currency wallet allowing you to store and swap between 500 different coins and tokens. It is available for Mac Os, Linux, and Windows.
- Copay: Created by Bitpay, is one of the largest bitcoin payment service, easy to use and available on multiple devices: iOS, Android, Linux, Max OS X, and Windows. It is a multisig wallet with shared account feature, which requires a certain number of users to sign transaction.
- Armory: A mature, secure and full featured Bitcoin wallet available for Mac Os, Linux, Windows, Ubunto and RaspberriPi. It offers a complete control of private keys and signing process, though this is suitable for more advanced users.
Mobile wallets store the private key on mobile phone, considered as highly convenient for small amounts of coins but not really secure as phones are frequently lost, broken, or stolen. It is strongly recommended to enable two-factor authentication, password-protect the wallet, and create a backup for the private key. We have listed some of the top secured ones:
- Edge (Airbitz): is an open source, multi-currency secure mobile Bitcoin wallet. It manages accounts with usernames and passwords, but doesn’t have access to your funds. This type of account creation is easier for less technical users.
- Coinomi: is an other security and privacy focused multi-currency wallet.
- Abra: Is a good option for mobile-forward cryptocurrency traders.
- Trust Wallet: Is the official wallet of Binance, the most secure and versatile mobile wallet around.
- BRD (Breadwallet): A simple and easy to use open source mobile wallet supporting 70+ cryptocurrencies.
- Trust: ….
Web wallets are the easiest and most convenient to use but are potentially less secure than the above options because the private keys to your cryptocurrencies are usually held by a third-party. We do recommend to only use them with small amount of coins in order to spend or exchange them with other currencies but never for storing big amount!
- BlockChain: is a good secured platform easy to stat with.
- Kraken is one of the world’s largest Bitcoin exchanges and traders. Residents of Europe and UK can deposit and purchase bitcoins with same day SEPA transfer.
- Binance is one of the world’s most popular cryptocurrency exchanges but doesn’t accept fiat currency.
- Coinbase: One of the world’s largest Bitcoin exchanges. Users in the United States, Canada, most of Europe, and Singapore can buy bitcoins with a connected bank account or SEPA transfer.
- SpectroCoin: A trusted solution with the ability to buy bitcoins using credit cards. They offer a debit card that you can use to withdrawal your funds.
- LocalBitcoins is an escrow service that helps match Bitcoin buyers and sellers. Only Bitcoin wallet and no exchange available. They have a simple and fast guide to create your first Bitcoin Wallet: Click Here to watch the video it.
- Xapo is one of the industry-leading security companies for managing your bitcoins.
- Coinpayments The best I know till now! It accepts over 45+ crypto-coins and allow you to exchange between them including.
We hope this article helped you to get started with bitcoin and cryptocurrencies
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