A bitcoin wallet is very necessary for the purchase and sale of bitcoins. It is the first thing you need to tackle, so you either buy, download or create one.
THE TYPES OF WALLET.
There are various uses of Bitcoin and so similarly there are different types of wallets. They include;
1) ONLINE BITCOIN WALLETS: These are Wallets that can be gotten from the web through any internet enabled device.
2)BITCOIN HARDWARE WALLETS: These ones are Physical devices designed for the purpose of keeping bitcoins safe.
3)SOFTWARE WALLETS: These are Wallet apps that can be downloaded to your phone, computer or tablet.
4)PAPER WALLETS: These are Bitcoin private keys that are printed from an offline computer.
As earlier said, there are various uses of Bitcoin and these uses go a long way in determining the type of walls you use. So in finding out the type of wallet you need, you need to put some factors into consideration.
1) If you’ll have to be making your payments in person and not online then a mobile wallet is just what you need. Some examples of the mobile wallet are Copay (iOS & Android), breadwallet (iOS) or Mycelium (Android).
2) If you make payments frequently then a Paramount factor you should put into consideration is simplicity and accessibility. Example of wallets that possess these qualities are Mobile wallets and desktop wallets.
3)Amount of bitcoins you use is a very important factor to consider in your choice of wallets. So if you deal with large amounts of bitcoins you need a secure wallet. Examples are Hardware wallets and secure offline wallets like Armory.
4) Do you Use combinations? then use a mobile wallet as your checking account, and a hardware or secure offline wallet as your savings account. You may have to mix and match to find a combination that provides both security and accessibility.
Copay is a Bitcoin wallet launched by Bitpay. It is available on iOS, Android, Windows Phone, Linux, Max OS X, and Windows.
The fact that Copay is available on multiple platforms makes it easy to make use of the same wallet or accounts across multiple devices.
Copay is a wonderful choice for new Bitcoin users because it is simple and has a clean user interface. It is equally an excellent choice for businesses because of it’s shared account feature, which requires a certain number of users to sign each transaction. For example, two co-founders, could create a 2 of 2 wallet so both of them will be required to sign each transaction.
These are small computers or smartcards created with the single purpose of generating bitcoin private keys offline. These Hardware wallets securely sign transactions in the same offline environment.
The Ledger Nano is a smartcard based hardware wallet. It creates private keys which can be signed offline in the smartcard’s secure environment. The Ledger Nano is setup with the Ledger Chrome Application. A random 24-word seed is created upon setup and this is backed offline simply by writing it down on a piece of paper. So in the event of theft, damage or loss, the entire wallet can be recreated with the seed. Further more a user selected PIN code is assigned to the device to ensure against physical theft or hacking. Interestingly the Ledger Nano can be used on any computer, or Android phones with Mycelium or GreenBits.
Even though TREZOR also generates Private keys offline, it is still different from the ledger Nano because it’s a very tiny computer instead of a smartcard.
TREZOR equally creates a 24-word seed upon setup and has it’s own built in screen which enables the seed to be displayed and copied down during backup. Due to the fact that TREZOR is an offline device it provides extra security as a result of the fact that the seed is not shown on an online computer.
More so, an additional passphrase can be added to the 24-word seed which provides extra protection. This is because anyone who finds another person’s 24-word seed can access the funds, but with the addition of the passphrase an attacker would not be able to access funds because he would need both the seed and the passphrase. Note however that If the passphrase is forgotten, it cannot be recovered.
The opendime is first of it’s kind. It’s a Bitcoin Bearer Bond and can be referred to as a Bitcoin Stick. It is a small USB stick which enables you to spend Bitcoin like a dollar bill. You can transfer it many times and check balance by simply connecting to any USB. However you have to unseal each time you want to spend online. It functions like a read-only USB flash drive and is compatible with any computer, laptop, and phone.A QR Picture and Text file inside it, contains Bitcoin address and support.
A splendid part of the opendime is that the private key is generated inside the device, and is not known by anyone, not even you!
Though the Bitcoin world frequently changes, Opendime is built on the fundamental Bitcoin features that have remained the same in five years.Once you give an Opendime to anyone, they would not need to bother whether or not you can take back the funds.The private keys are available in the device.
This is physical Bitcoin so you just hand it to someone and they have got it. It doesn’t require any miner fees, and doesn’t have confirmation delays.
Opendime makes use of Bitcoin message signing, normal (non HD) bitcoin payment addresses and private keys in WIF format.
This is a more affordable version of the Ledger Nano.
This is a credit card-size wireless hardware wallet. In this, Private keys are created offline and transactions are signed on the device and then sent to a mobile phone through NFC.
The Ledger Unplugged is convenient for everyday use, because the device fits perfectly into wallets and no OTG cable is needed.
Software wallets makes it simple to securely spend and receive bitcoins to a hardware wallet.
USB stick style software makes it simple to load Bitcoin into hardware wallets without bothering to install any software or apps.
Online Bitcoin Wallets
Online Bitcoin wallets, or web wallets, helps to store your private keys online and can only be accessed with a user-set password.
GreenAddress is a multisig web wallet. The app is available for Chrome, iOS, and Android.
Mobile Wallets for Android
Mycelium is quite popular among experienced Bitcoin users. It’s an HD wallet that has a lot of advanced features, such as support for hardware wallets TREZOR and Ledger, watch-only accounts, cold storage spending, and Tor.
The Bitcoin Wallet was the first Bitcoin wallet to be made available for Android. It is quite simple, not difficult to backup, and connects directly to the Bitcoin network with SPV.
AirBitz is yet another Bitcoin wallet that is convenient for frequent use. It is merged with Fold, which implys that you can get 20% discounts at Starbucks from within the wallet. It manages accounts with usernames and passwords. However it can’t access your funds. This type of account creation is just perfect for less technical users who may experience difficulty backing up or comprehending HD seeds.
GreenBits is actually the native version of GreenAddress. It is quick, simple, and supports hardware wallets TREZOR and Ledger Nano/HW.1.
Mobile Wallets for iOS
Breadwallet’s is the most popular iOS wallet. The reason for this is not far fetched. It is as a result of it’s wonderful combination of simplicity and security. iPhone users in search of their first Bitcoin wallet would find Breadwallet easier to understand and use.
Bear in mind that Copay and AirBitz is available in the App store.
These are software wallets that can be downloaded and installed on your internet enabled device. The desktop wallets that can be gotten on Mac OS X, Windows, and Linux include the following;
Of them all, Armory is the most secure and full featured Bitcoin wallet. However it may appear to be technologically complicated for it’s subscribers. It doesn’t matter if you are an individual storing $1,000 or an institution storing $1,000,000,000, Armory remains the most secure option available. Users are in total control of all Bitcoin private keys and can setup a secure offline-signing process.
This is the “official” Bitcoin client and wallet. It is not patronised by however as a result of it’s slow speeds and a lack of features.
Nevertheless, the Bitcoin core is a full node. This implies that it helps in verifying and transmitting other Bitcoin transactions across the network and also stores a copy of the entire blockchain. This enables a better privacy since Bitcoin Core doesn’t have to rely on data from external servers or other peers on the network. Bitcoin Core routed through Tor is believed to be one of the best ways to privately use Bitcoin.
Electrum is arguably the most well known desktop wallet. This is as a result of how easy it is to use as well as it’s speed. In addition, Electrum can be used as cold storage if there is an extra computer that can be used offline. More so, Electrum provides other features like connecting through Tor, multisiganture wallets, integration with hardware wallets, etc.
This is a fast and straightforward desktop wallet that supports hardware wallets like TREZOR and KeepKey.
The Paper wallets were the standard method of cold storage before hardware wallets came into existence. They are private keys printed out on a piece of paper. If properly generated and printed with a secure, offline computer, paper wallets are secure cold storage.
A problem associated with paper wallets however,is that it can be inconvenient to create and print a new wallet each time a transaction is made to cold storage. it’s feasible though to bulk print paper wallets so as to save time and eliminate the reuse of address.
Bitcoin allows the control of your money. This implies that you have the responsibility of ensuring your money’s security as well as your financial privacy.
Below are some guidelines you can take to guarantee your privacy and security. They are as follows;
1)CONTROL YOUR PRIVATE KEYS.
Services like Coinbase and Circle provide “Bitcoin wallets”, but in fact controls your private keys. The best thing is to use a wallet that allows you to control your private keys. This is the only way by which you can have total control of your funds and not have to rely on third parties for security.
2)PROTECT YOUR PRIVACY
For every time you request a blockchain data from a wallet, the server has the ability to view your IP address and connect this to the address data requested. Every wallet handles data requests in it’s own manner. So if you value your privacy, use a wallet that can download the whole blockchain like Bitcoin Core or Armory. Tor can be used with other wallets to protect your IP address, but this doesn’t prevent a server from tying a group of addresses to one identity. For more information about this, have a look at the Open Bitcoin Privacy Project for wallet rankings based on privacy.
3)DON’T REUSE ADDRESSES.
Most of the Bitcoin wallets today automatically create a new address for each transaction and since all Bitcoin transactions are public, address reuse makes it easy for others to group transactions and understand which payments are connected to one identity.
4)USE DIFFERENT WALLETS FOR DIFFERENT SUMS OF MONEY.
There are different Bitcoin wallets so you should make your choice depending on how much money is being stored or transferred. You can make use of Secure wallets like paper wallets or hardware wallets as “savings” wallets, while mobile, web, and desktop wallets should be used as a spending wallet.
5)CREATE MULTIPLE BACKUPS
It is advisable for subscribers to create multiple backups of their wallets. These Backups should be kept in different physical locations in the case of fire or water damage. To have more protection, paper wallets can be laminated or written in metal.
HOW TO STORE BITCOINS
As you already know, there are four types of Bitcoin wallets and they include: online wallets, hardware wallets, software wallets, and paper wallets.
However these four types of wallets can be further divided into various kinds of storage and security. They are as follows;
Hot wallets are those Bitcoin wallets used on internet enabled devices like phones, computers, or tablets. Because of the fact that hot wallets run on internet enabled devices there is always a risk of theft. So you have to make use of hot wallets like your normal wallet. You shouldn’t store large amount of bitcoins in a hot wallet, just as you would not walk around with the money in your savings account as cash.
When used with small amounts, hot wallets are ideal for everyday Bitcoin needs. For instance, you may keep $200 worth of bitcoins in a hot wallet for spending, and have $10,000 locked away in cold storage.
Despite the fact that services like Coinbase and Circle are often referred to as Bitcoin wallets, they are not true Bitcoin wallets. Customers private keys are held by these third party services, which implies that subscribers don’t really have control of their money.
As is popularly know amongst Bitcoiners; “if you don’t control the keys, you don’t control the coins”. Mt. Gox though an extreme instance is one that shows the necessityof holding private keys. Gox was the first and largest Bitcoin exchange up until 2013. Thousands of subscribers stored more than 800,000 bitcoins in their Gox accounts. As as then, one may have claimed to have 1,000 bitcoins in a Gox account. Though this was true, the moment Mt. Gox claimed to have been a victim of theft, users with bitcoins in their accounts were left with nothing as they lost all.
So while services like Coinbase and Circle may in fact use good security practices and there’s a chance your bitcoins could be safe, the fact that you are storing bitcoins with a third party is always an additional risk.
Cold storage is achieved when Bitcoin private keys are generated and stored offline. Private keys stored offline are more secure since there is zero risk of a hacker or malware tampering with your coins.
You can create cold storage in three ways; They include; paper wallets, hardware wallets, and software wallets all ran on offline computers. For better comprehension, the cold storage can be regarded as your savings account. It can be used to securely store bitcoins that you don’t intend spending immediately.
Multisignature wallets just like Copay makes it easier to share the control of bitcoins among multiple users. Also if created offline, multisig can make cold storage more secure.
Multisignature wallets requirea multiple parties to sign transactions in order for funds to be spent. In a 2-2 wallet, for example, both parties has to sign a transaction. In a 2-3 multisig wallet, two out of the three co-signers must sign each transaction.
ARMORY MULTISIG: This provides a Lockbox feature that allows any amount of up to seven co-signers to approve shared transactions. A Lockbox is created by one party who adds additional public keys as co-signers. This provides flexibility and security either for personal use or for organizations.
The Armory’s fragmented backups is also another important feature. Instead of requiring multiple signatures for each transaction, fragmented backups require multiple signatures only for backups. A fragmented backup splits up your Armory backup into multiple pieces, which in turn decreases the risk theft of your wallet. Otherwise, discovery of your backup would make for easy theft. With the fragmented backup, multiple backup locations would need to be compromised so as to have the full backup.
Instances of some everyday use cases for multisig include;
2-2 Wallet: Here two business partners work together at a startup. They create a 2-2 multisig wallet which means that no funds can be spent without the permission of both founders. If one of them creates a transaction, the other partner has to sign off on the transaction before money can be moved.
2-3 Wallet: A 2-3 multisig wallet can be used to generate secure offline storage with paper wallets or hardware wallets. Subscribers should have already backuped their offline Bitcoin holdings in various locations, and multisig also helps to add another level of security. A user, for instance, may keep a backup of a paper wallet in three separate locations. So tgat peradventure any single location is compromised the user’s funds will not be stolen. Multisignature wallets also improve upon this by requiring instead for any two of the three backups to spend funds as regards a 2-3 multisig wallet. The same setup can be generated no matter the number of signatures. A 5-9 wallet will at least require any five of the nine signatures in order to spend funds and make transactions.