Before owning any bitcoin, you need a place to store it. That place is called “wallet.” Instead of actually having your bitcoin, you have the private key that allows you to access your bitcoin address (which is also your public key). If the wallet software is well designed, it will appear that your bitcoins are really there, which makes the use of bitcoin more convenient and intuitive.
In reality, a wallet generally has several private keys, and many bitcoin investors have several wallets.
The wallets can live on your computer and / or mobile device, on a physical storage device or even on a sheet of paper. Here we will briefly see the different types.
An electronic wallet can be downloaded or hosted in the cloud. The first is simply a formatted file that lives on your computer or device, which facilitates transactions. Hosted (cloud-based) wallets tend to have an easier-to-use interface, but they will trust a third party with their private keys.
Installing a wallet directly on your computer gives you the security of controlling your keys. Most have a relatively easy setup and are free. The disadvantage is that they require more maintenance in the form of backups. If your computer is stolen or damaged and your private keys are not stored anywhere else, you lose your bitcoin.
They also require greater safety precautions. If your computer is hacked and the thief gets your wallet or your private keys, it also takes over your bitcoin.
The original software wallet is the Bitcoin Core protocol, a program that runs the bitcoin network. You can download this here (it doesn’t mean you have to become a fully operational node), but you would also have to download the ledger of all transactions from the dawn of bitcoin time (2009). As you can guess, this takes up a lot of memory: at the time of writing, more than 145 GB.
Most of the wallets in use today are “light” wallets, or SPV (Simplified Payment Verification) wallets, which do not download the entire ledger, but synchronize with the real thing. Electrum is a well known SPV desktop bitcoin wallet that also offers “cold storage” (a completely offline option for added security). Exodus can track many assets with a sophisticated user interface. Some (such as Jaxx) may have a wide range of digital assets, and some (such as Copay) offer the possibility of shared accounts.
Online (or cloud-based) wallets offer greater convenience: you can usually access your bitcoin from any device if you have the correct passwords. All are easy to configure, they come with desktop and mobile applications that make it easy to spend and receive bitcoins, and most are free.
The disadvantage is the lower security. With your private keys stored in the cloud, you must rely on host security measures, and it will not disappear with your money, or close and deny access.
Mobile wallets are available as applications for your smartphone, especially useful if you want to pay something in bitcoin at a store, or if you want to buy, sell or ship while on the move. All online wallets and most of the desktops mentioned above have mobile versions, while others, such as Abra, Airbitz and Bread, were created with mobile devices in mind.
Hardware wallets are small devices that occasionally connect to the web to perform bitcoin transactions. They are extremely safe, since they are generally offline and therefore cannot be hacked. However, they can be stolen or lost, along with the bitcoins that belong to the stored private keys. Some large investors keep their hardware wallets in safe places, such as bank vaults. Ledger, Trezor and Keepkey and Case are notable examples.
Perhaps the simplest of all wallets, these are pieces of paper on which the private and public keys of a bitcoin address are printed. Ideal for long-term storage of bitcoin (away from fire and water, obviously), or to give away bitcoin, these wallets are safer since they are not connected to a network. However, they are easier to lose.
With services like WalletGenerator, you can easily create a new address and print the wallet on your printer. Fold, seal and go. Send few bitcoin to that address and then store it safely or give it away. (See our tutorial about paper wallets here).
Are bitcoin wallets safe?
That depends on the version and format you have chosen, and how you use them.
The safest option is a hardware wallet that keeps you offline, in a safe place. That way, there is no risk that your account can be hacked, your keys are stolen and your bitcoin disappears. But, if you lose your wallet, your bitcoin will disappear, unless you have created a clone and / or saved reliable backups of the keys.
The least secure option is an online web wallet, because the private keys are held by a third party. It also turns out to be the easiest to configure and use, presenting a very familiar option: convenience versus security.
Many serious bitcoin investors use a hybrid approach: they keep a basic amount of long-term bitcoin offline, while having a “balance of expenses” for liquidity in a mobile account. Your choice will depend on your bitcoin strategy and your willingness to be “technical.”
Whichever option you choose, be careful. Make a backup of everything and just tell your closest loved ones where your backups are stored.
(Note: the specific companies mentioned here are not the only options available, and should not be taken as a recommendation).
Wallet image via Shutterstock.
Article Source: http://www.coindesk.com