What is a bitcoin wallet?
Simply put, a wallet is a program that stores your private keys. There many different types of bitcoin and cryptocurrency wallets, all with different trade-offs, risks, and security profiles.
How do bitcoin wallets work?
Because bitcoin only exists on the blockchain, wallets don’t technically store your bitcoin. Your private keys provide access to your bitcoin and your wallet stores your private keys.
Wallets also manage the derived public keys, bitcoin addresses, and QR codes that enable users to send and receive bitcoin. For key management wallet software all implement different versions of hierarchical deterministic keys (BIP32) which organizes the parent and child keys into a hierarchical structure, where the mnemonic recovery can seed the root of the wallet and all of its associated keys.
What is the best bitcoin wallet in 2020?
Bitcoin Core is the best wallet available. If there was an official bitcoin wallet this would be it, and it’s free. Bitcoin Core may not be the most user friendly since it’s for the more advanced “power users”, but it’s the highest performing full node you can run, and it’s the only way to use Bitcoin peer-to-peer. Bitcoin Core can also be used with a hardware wallet or a privacy wallet.
So what is the best bitcoin wallet for beginners?
The truth is that there isn’t a single best single choice it’s all about trade-offs.
Welcome to the complete beginners’ guide to wallets! I’ll start with the basics.
What is the difference between a bitcoin app and other payment apps?
With most major payment apps every transaction is covered by the bank’s fraud protection. Meaning that if you someone steals your funds, or if you have been a victim of fraud, you have a company waiting in the wings to bail you out. This is not the case with cryptocurrency.
With any bitcoin wallet, you’re taking complete control of your funds. This means also that if you lose those funds there is no one that can help you get them back. This fact incentives hackers to target cryptocurrency since they get to keep everything they steal.
TIP: The risk of having funds stolen with bitcoin is greater than any other type of wallet because it’s typically connected to the internet, in arms reach of bad actors. Consider avoiding mobile wallets if you want to maximize security.
What is the difference between a bitcoin wallet and a physical wallet?
With cash, a physical wallet can hold value in your wallet directly. Whereas a bitcoin wallet only ever stores access to your funds on the blockchain via your private keys. This works a bit like your credit or debit card has access to the funds in a bank account. In Bitcoin, your private keys give you access to your fund on the blockchain, but without any physical card.
Unlike a physical wallet that has to be carried around, your bitcoin wallet has all the properties of being digital. But because your keys are just data, they sent over the internet or spoken as human-readable words over the phone. Bitcoin is easier to send, but also easier for hackers to steal.
What types of wallets are there?
There are wallets that run on your phone (mobile wallet), wallets that run on your desktop (desktop wallet), and wallets that run in the browser (web wallet). There’s also the more novel paper wallet or brain wallet, that best to just stay away from.
What are hot wallets and cold wallets?
Mobile, desktop, and web wallets are all hot wallets because they are connected to the internet, putting them in closer reach of hackers. Hardware wallets are the most secure wallet option because they keep your keys offline and in cold storage, this is why they are also called cold storage wallets.
There are pros and cons to each. Hot wallets are generally more convenient, they tend to have a friendlier user interface and are easier to use. Cold wallets can be a bit of a hassle but are substantially more secure.
TIP: To prevent hackers from making more money from their side-hustle it’s best practice to avoid using hot wallets for any bitcoin you plan on keeping long term.
What are custodial and non-custodial wallets?
Most people start off with their first buy and sell of bitcoin on an exchange, which holds your funds for you in a custodial wallet, where the exchange is taking custody of your private keys. When you move your funds off of an exchange into a wallet you control, you’re using a non-custodial wallet that allows you to store your own keys.
Once I choose a wallet . . .
How do I get a Bitcoin wallet and use it?
- Step 1: Choose which wallet app you’re going to use, then download the software. If you’re using a mobile device you can download a mobile app from the app store.
- Step 2: Open the software to create a wallet, private key, and mnemonic recovery phrase.
- Step 3: Write down your mnemonic and store it someplace safe.
- Step 4: Create a receive address and QR code. At this point you’re ready to receive bitcoin.
- Step 5: Share your wallet address or QR code to accept bitcoin.
TIP: Make sure you’re set up with a Bitcoin BTC wallet and not one that is intended for Bitcoin Cash BCH. Bitcoin Cash is not Bitcoin, but Bitcoin Cash payments look a lot like bitcoin and it can potentially be a very expensive mistake to confuse the two.
SECOND TIP: From a new user perspective, the experience of using bitcoin can feel like other online wallets or online payment methods. Yes, Bitcoin is an online payment system, but Bitcoin is also a digital currency. The properties of Bitcoin isn’t the same as loyalty cards, Apple pay, or even Samsung pay. Bitcoin may be the 2089 future of field communication NFC contactless payments, but bitcoin wallets have different properties from other mobile payment apps users are used to.