Today, we will talk about what you have to know about Bitcoin or Cryptocurrency Wallets, ranging from the types to help you select the Bitcoin Wallet well suited for you. People would ask: "Why do I need a cryptocurrency wallet?" "is it necessary to own a Bitcoin or crypto wallet to deal in crypto?
It's of importance to understand the basics and how a wallet works. This is the best way to make sure you know how it works and therefore help you make wiser decisions than someone who gets into it to learn from mistakes (I'd rather have you minimize making too many errors because it means losing money).
Let's begin by saying, a Bitcoin wallet is a program that lets you send, receive, store bitcoin. This seems pretty straightforward, right? People will insist that this is not necessary. A bitcoin wallet or cryptocurrency wallet does much more than just the storage of cryptocurrency.
A bitcoin wallet helps you monitor the trends or changes in the market and balance your funds contained within the wallet accordingly. Knowing how a wallet performs such tasks is crucial in understanding how it works. This ability is due to PRIVATE KEYS.
This is a crucial feature that makes every Bitcoin Wallet or address unique or special. A Bitcoin wallet address is made up of 2 components;
The private Key is a unique set of numbers and letters that works to protect the owner from thieves and robers. The Private key is of significant importance because having the Public alone gives you the power to deposit and receive Bitcoin into your Bitcoin Wallet.
This cryptocurrency would, however, be stuck there without you being able to withdraw it; why? If you have followed this article correctly, you'd know the answer. The Public Key is obtained from the Private Key and still has a high-security level (over 90%).
This is due to the near impossibility of the Private being reverse engineered to give the Private Key (which I said getting would give whoever has it access to your Bitcoins or cryptocurrency). Take the cryptocurrency Public key as the key to a house being shared by a group of strangers and the Private Key as your room key.
Everyone can get into your house using the Public key but won't get into your room because they do not have your Private Key. Losing the keys to your room means you too can't get in, and this applies if you lose your Bitcoin Wallet Private Key, which is why it is vital to back-up your Private Key.
Two main classes of cryptocurrency wallets are known, and they include;\
*** Full Nodes:** These are wallets with a full copy of the cryptocurrency blockchain and, therefore, can validate every transaction independently.\
*** Simple Payment Verification:** These are crypto wallets that don't hold the full copy of the cryptocurrency blockchain but rely solely on Full Nodes to validate every transaction. The Simple Payment Verification types are faster and consume less disk space.
Now that we know the classes of wallets, we will learn about the types of wallets that fall into either of these classes and learn a little about each, take note as it contains information that can help you choose a bitcoin wallet suited to your needs. The types of Bitcoin wallets include; Hot and Cold wallets.
A hot cryptocurrency wallet is one that has an internet connection. This is currently a popular kind or type of Bitcoin Wallet. Hot crypto wallets are insecure, resulting from their internet connection, exposing them to attacks from hackers.
It is essential to use wallets that provide various security measures (2-factor authentication, lots more). Some examples of hot wallet types include;
A web services wallet serves as the least secured and offers high convenience (trading security for convenience). One can say this because storing your bitcoin or cryptocurrency on a website can be hacked. You also have no access to your Private Key. In simple terms, you are giving your coins to another person to hold unto for you.
Cases like this emphasize the need for a different security method such as Two-Factor Authentication, which sends you a new secret code each time someone tries to gain access to your Bitcoin Wallet.
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Finally, this kind of wallet has its Private Key stored on your PC. It is considered a lot safer than the website wallet. As long as your PC is free from any malware and secure, your wallet is protected. It is not 100% secure, though, and can be hacked.
However, it is advisable to locate your Bitcoin Wallet Private Key in your PC and back it up.
Mobile wallets are trendy and frequently used platforms after the website service wallet. This allows users to monitor and conduct transactions from their Bitcoin Wallet on their mobile devices.
This offers convenience but has low security as mobile phones could get missing or damaged; however, it has been equipped with protection enough for a mobile device.
Enabling 2 Factor Authentication, creating app passwords, and backing up your Private Crypto Currency Key. However, it is not wise to store a large sum of Bitcoins on a mobile device except together with a hardware wallet.
This wallet offers the highest security form for stored cryptocurrency. Such wallets include; Paper, Hardware, and Brain wallets.
So, a technology called MULTI-SIG, which stands for multiple signatures, aids increase security to a wallet by sharing the power of key decision making amongst multiple users partaking in the joint wallet.
This is secure because no one user can decide to sell or steal Bitcoin without the approval of the right number of private keys. Let's explain it better below.
Let's take an example of a wallet using multi-sig technology. This wallet is a joint wallet between 3 individuals (A, B, and C). Every single one of these individuals has their special private keys, meaning for 'A' to transact Bitcoin, 'A' has to get an additional signature of approval from either 'B' or 'C,' and only then can 'A' be allowed to send or sell Bitcoin.
A possible question would be, "does this mean that all three individuals have to agree to get a transaction approved?" the answer is NO. In a joint wallet of 3 individuals, 2 out of the 3 would have to approve the exchange for it to be allowed (since the 3rd individual could be absent).
TAKE NOTE: A joint Bitcoin Wallet can contain over 3 individuals.
With all that has been said, the most important points or factors to consider when about to choose a Bitcoin Wallet or a Wallet for any Crypto are;\
1.How many coins am I planning on having? Remember, it is not advisable to have high numbers of coins in a mobile or website service wallet.
Whatever the wallet may be, the choice of wallets depends mostly on these factors.
If you're just starting out and need a Bitcoin wallet, use this guide to create one.
But if you have other cryptocurrencies (beside Bitcoin) that you want to keep in a wallet, check out these articles
Disclaimer: The content in this article is for informational purposes only and should not be construed as legal, tax, investment, financial, or other advice. Remitano bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links.
