While many investors have taken the plunge and have made the decision to buy cryptocurrencies, securing one’s wealth is always of utmost importance – and, similarly to holding large amounts of paper money, holding bitcoin involves taking several precautions.
While some might be content to leave their bitcoins on an exchange, the most secure way to hold bitcoin in the long term is to make use of a wallet. Bitcoin wallets are available in a variety of formats, and each offers unique features over the others.
Desktop wallets are software programs that can run on desktop and laptop computers that run popular operating systems such as Microsoft Windows, Apple’s macOS, and even Linux. The appeal of desktop wallets places access to one’s bitcoin address directly on the same computer that one might trade from, though these typically aren’t as portable or usable in the wild as mobile wallets are.
Desktop wallets can be excessively large to download and maintain, and furthermore require that users continuously update the program to stay in lockstep with the Blockchain as new transactions are verified and added. Some desktop wallets simply serve as a software wallet that can house both keys and are developed by third parties, and these are usually far less cumbersome to download and maintain.
Like their desktop counterparts, mobile wallets are software programs (apps) which one can install on their smartphone. Typically, these are available on Apple’s iOS (iPhones) as well as on Android.
Mobile wallets provide investors and traders with the convenience of being able to take their wallet with them on-the-go. However, the trade-off for this requirement is the fact mobile wallets do not download the entire bitcoin blockchain – instead relying on a small ‘portion’ of the blockchain to save space and processing efficiency.
Most mobile wallets take advantage of either QR-code scanning or Near Field Communications (NFC). In the case of the former, mobile wallets can scan a QR code by using their smartphone’s camera. The mobile wallet in question can then interpret the code as another bitcoin wallet address, which users can send bitcoins to.
There are several electronic products available specifically designed to house one’s public and private key. These are commonly referred to as ‘hardware wallets’, and are sometimes used to facilitate payments as well.
Hardware wallets typically function with an ‘online’ and ‘offline’ component. This sees an investor make use of an online wallet that holds their public address and signals which transactions will be ‘signed’. To complete a transaction, users will need to connect their hardware wallet by USB into a computer, where a signature is then formed, sent to the wallet, and then fed into the Bitcoin Blockchain.
The attraction for many users is that hardware wallets do not fall prey to viruses that may target software wallets from time to time. However, these devices are not immune to corruption, theft, or damage.
One of the most inexpensive ways of securing one’s bitcoin is to use what is referred to as a ‘paper wallet’. A paper wallet essentially sees a user print out a paper copy of two QR codes; one is the public address where one receives bitcoins, and the other is the private key which one uses to sign on outgoing transactions. To use a paper wallet, a user either scans either QR code themselves, or invites a transacting party to do so.
Paper wallets mitigate some of the risk of storing one’s private key on the internet, as they do not fall prey to cyber attacks or other malicious actions where parties might attempt to steal bitcoins online.
Paper wallets can be stolen or damaged, however, and paper itself degrades over time – meaning that users should take caution when storing their paper wallet and should ideally never use the same one for long periods of time.
Are Bitcoin wallets safe?
Fundamentally, each type of Bitcoin wallet carries its own strengths and weaknesses, and it is up to each user to adequately secure their accounts and select whichever option is most convenient or affordable to them. A successful rule of thumb is to consider using several different kinds of wallets, and ensuring that one’s allocation of bitcoins does not exist solely on one wallet.
There are further steps that one can take to make sure their Bitcoin wallets are safe. Users making use of online wallet services can use two-factor authentication, which means that beyond signing in with a username and suitably complex password, they can input a special code from a device of their choice that will serve as a ‘second layer’ of security when signing in.