What is a Bitcoin Wallet?A “wallet” is basically the Bitcoin equivalent of a bank account and it allows you to receive bitcoins, store them, and then send them to others. You need a Bitcoin wallet to manage your Bitcoins, just like you need an email program like Outlook or Gmail to manage your emails. In general, wallets grant you access to your public Bitcoin address and allow you to sign off on transactions. However, they differ based on how you choose to access them. Wallets also interface with the Bitcoin blockchain and they monitor Bitcoin addresses on the blockchain and update their own balance with each transaction. Now, I want to tell you something about private keys. They are necessary for accessing a Bitcoin address and they are stored on a “bitcoin wallet.” „What defines a wallet is where its private key is stored“ is definitely one of the most important things to remember about a wallet. back to menu ↑
What Is a Cryptocurrency Wallet and Why Do You Need One?One of Bitcoin’s greatest achievements is giving owners the ability to be their own bank and take control of their finances directly. However, this ability comes at a cost. It is not recommended to keep your coins on an exchange because you’re giving away control of your BTC to a third party and exchanges are known to be “hackable”. Also, they are prime targets for cyber criminals given that they hold large amounts of funds. Also, it can be challenging to keep your funds safe. There are hardware wallets that can be used to increase your security. However, they may not be affordable for everyone. Other cold storage solutions also require a second device, but a regular piece of paper can come a long way in ensuring that you are in control of your funds and that your private key cannot be reached. A cryptocurrency wallet is very simple and it is one of the most popular options for keeping your bitcoins safe. It is a digital wallet that you can use to store, send and receive various cryptocurrencies. The wallet consists of two ‘keys’. The one is the public key. This is your wallet address and is how other people send bitcoins to you. The other part of your bitcoin wallet is the private key, which enables you to send bitcoins to other people. The wallet doesn’t exactly “store” your money as a real world wallet does, but instead, it saves your public and private keys which in turn help you send and receive money. back to menu ↑
What Are Private and Public Keys?You can think of a private key like the secret coordinates for locating your Bitcoins, which means that whoever knows your private key has control over your Bitcoins. In general, it is a very long string of numbers and letters that acts as the password to your Bitcoin wallet and it’s from this number that your wallet gets its power to send your Bitcoins to other people. The private key is also used to generate your Bitcoin address and it’s something you give out to people who want to send you Bitcoins. However, there’s no way figure out what the private key is just by examining a Bitcoin address, even though the Bitcoin address is generated through the private key. To sum it up, the wallet’s core function is the creation, storage and use of the private key, which means that the wallet automates Bitcoin’s complex cryptography for you. HD wallets, or hierarchical deterministic wallets, were created as Bitcoin wallets evolved. HD wallets generate an initial phrase known as a seed or mnemonic phrase and this seed is a string of common words which you can memorize instead of the long confusing private key. Later on, you can enter these words if your wallet gets destroyed or stolen in order to reconstruct the private key. Additionally, all of the transactions sent to addresses created by the same seed will be part of the same wallet because an HD wallet can memorize many Bitcoin addresses from the same seed. These private keys and seeds must be kept secret and safe because they have complete power over your Bitcoins. The bitcoins that your wallet’s private key or seed controls could be irretrievably lost if you fail to protect it. A standard Bitcoin wallet will create a wallet.dat file. This file contains its private key and it should be backup by copying it to a safe location like an external flash drive, an encrypted drive on your computer, or even copying to a piece of paper and hiding it away. An HD wallet on the other hand will supply you with a seed phrase. This phrase contains up to 24 words that you should write down in a safe place. Crypto security has never been more important with Bitcoin, Ethereum, and a host of other cryptocurrencies once again making headlines following an incredibly bullish year. This guide will show you how to protect your cryptocurrency with a paper wallet and cold storage. If you’re reading this guide it’s likely that you’ve recently decided to purchase into this rapidly expanding market, potentially to trade but, most probably, with the intention of holding an amount of a particular currency long term. This guide will help you learn how to safely store their cryptocurrencies themselves. „You and you alone are responsible for your cryptocurrencies and their security is only your concern. “ is the first and most important lesson in this guide. Before we understand what public and private keys are let’s think of a real world situation. Anyone can put their money inside the machine, right? But, because they don’t have the key, they can’t take out the money. Only the owner of the machine has the key and he is the only person who can take out the money. The vending machine is the public address in this example and anyone uses this address to send money to you. In this example, you are the vending machine owner, and the key that he is carrying is your private key. You can access your money and do what you please with it only by using this private key. The public key is the address that anyone can use to send you the money. On the other hand, the private key is what you will use to send money to anyone else. ONLY you should know what your private key is, remember that, and under no circumstances should you ever lose your private key. Otherwise anyone can use your wallet to send your money to any other addresses. Let’s put this in super simple, understandable terms that everyone can understand. You are SCREWED if you lose your private key (yes, uppercase has been used to emphasize the gravity of the situation). To save and store your private keys you should use at least two different techniques. These various techniques will be discussed a little later in the article. As of right now, let’s discuss the hot storage and cold storage. These are the two methods of storage that you can use to store your cryptos.
Hot Storage and Cold StorageUsing a real world example I will explain the basic distinction between these two methods. Hot storage is like the wallets that you carry around in your pocket, while the Cold storage is somewhat akin to your savings bank account. As we move forward, keep this distinction in mind. You must use hot storage if you want to use your currency frequently. On the other hand, you must use cold storage if you want to store your money for a long time. back to menu ↑
Hot StorageIn simple terms, hot storage is when you keep your cryptocurrency in a device that is directly connected to the internet and this connection is what makes a device “hot”. You should think of exchange wallets, mobile wallets, and desktop clients as a hot wallet. It’s simple to access funds on a hot wallet, and there’s nothing wrong with using one for day-to-day spending if you live somewhere that accepts cryptos for micropayments. You should think of it like fiat (government issued) currency. You might walk around with a portion of your wealth in a wallet for convenience. However, you should keep the majority of your wealth secured away. Your hot wallet should behave in the same way as a real-world wallet, which means that you should use it to carry a small amount of cash for ease of access. Transacting with hot wallets is very simple. However, they are easily hackable and that is a huge drawback when it comes to them. The whole crypto-space has been gaining a lot of value recently. As is well known, where there’s value, crime is never far behind. Previous compromises of large exchanges and recent ransomware attacks should be sufficient beacons to beginners. You’ll not be storing a great deal of value on your hot wallet. However, to avoid losing funds through human error it’s vital that you follow the backup steps within the restoration section of your wallet. You should be able to restore any wallet painlessly enough with your private key, and seed phrase intact. back to menu ↑
Hot Storage Pros and ConsPros
- Sending and receiving is simple thanks to the User-friendly Uis.
- There are a wide number of options, and support for different devices.
- You can access your funds quickly.
- It is exposed to cybercrime. There is a constant threat from sophisticated hackers, ransomware, and other malicious actors.
- The restoration details could still be lost/damaged/stolen.
- You could destroy the wallet by damaging the device. You could permanently lose your cryptocurrency investment without carefully backing up private keys, and seed words.
Multi-Signature WalletsBy thinking of a safe which needs multiple keys to operate is the simplest way of understanding how a multi-signature wallet works like. A multi-signature wallet (multi-sig) is good for 2 purposes:
- To create a more democratic wallet that one or more people can use.
- To create more security for your wallet and save it from human mistakes.
Online Wallets aka Cloud WalletOnline wallet is literally a web-based wallet and it is the easiest to use among all. Online wallets store your private keys on a computer connected to the Internet and controlled by someone else. The creation is very simple. It’s basically creating your own account on any of the exchange services. One advantage of online wallets is that they can be accessed from any server or any device in the world as long as it is connected to the net. Having said that, they also have one major disadvantage. They can put the organisation running the website in charge of your private keys unless implemented correctly. This essentially takes your bitcoins out of your control and it is basically like serving up your key to hackers on a silver platter. That’s a scary thought, so Do NOT use online wallets to store huge amounts of your money. You should only store the bare minimum that you need for exchange purposes. There are four main wallets that I recommend for newbies. Electrum Electrum is a software wallet. It enables you to set up a strong level of security very quickly. You are given a twelve word phrase during the simple installation process. If your computer fails, this phrase will allow you to recover all of your bitcoins. Also, your wallet is encrypted by default that helps protect your coins against hackers. Electrum is my recommended software wallet for newbies and is available for Windows, OSX, and Linux. Coinbase Coinbase is a web wallet. It has a simple design and a number of very useful features that make it great for newbies. Coinbase’s founders have a proven start-up track record and have raised money from very prominent venture capitalists, which gives this company a level of legitimacy unparalleled in the Bitcoin space. A full-featured Android app enables access to all account functions on the go and you can send and receive bitcoins via email and purchase and sell bitcoins directly from Coinbase. It is important to note that Coinbase is one of the only large Bitcoin companies to never suffer a major hack. Blockchain.info Blockchain.info (https://blockchain.info/wallet/) is another web wallet like Coinbase and is one of the fastest and easiest ways to get a Bitcoin wallet. All that you have to do is to simply go to Blockchain.info and fill out their brief requirements. This web wallet provides a simple setup and mobile access to your account via their Android app and it also provides a number of other useful services to the Bitcoin community. back to menu ↑
Desktop walletsDesktop wallets are the most common type of wallet. Desktop wallets represent a much better option in terms of security and they are downloaded and installed on a single PC or laptop. It is important to note that they are only accessible from that one device where it was downloaded. It is a much safer alternative than an online wallet. However, it can still be very inconvenient since you will not get access to your money unless you are on the device from which the wallet was downloaded. MultiBit and Armory are great examples of desktop wallets, but there are also other desktop wallets, all with different features. MultiBit runs on Windows, Mac OSX, and Linux, while Hive is an OS X-based wallet. Some desktop wallets, such as Armory are tailored for enhanced security, while others focus on anonymity – DarkWallet. back to menu ↑
Mobile WalletsDesktop-based wallets are all very well. However, if you are out on the street, trying to pay for something in a physical store they are not very useful. This is where mobile wallets come in handy. Mobile wallets are pretty convenient to use. All you need to do is to download an app into your phone. The wallet can store the private keys for your bitcoin addresses running as an app on your Smartphone. It can also enable you to pay for things directly with your phone. A bitcoin wallet will even take advantage of a Smartphone’s near-field communication (NFC) feature in some cases. This enables you to tap the phone against a reader and pay with bitcoins without having to enter any information at all. It is important to note that mobile wallets are not full bitcoin clients. A full bitcoin client has to download the entire bitcoin blockchain. This is always growing and is multiple gigabytes in size, which could get you into a trouble with your mobile service provider. The provider will be only too happy to send you a huge bill for downloading it over a cellular link. And the problem is that many phones wouldn’t be able to hold the blockchain in their memory. Instead, these mobile clients are often designed with simplified payment verification (SPV) in mind and they download a very small subset of the blockchain. They also rely on other, trusted nodes in the bitcoin network to ensure that they have the right information. Examples of mobile wallets include the Android-based Bitcoin wallet, Xapo, Mycelium, and Blockchain. The real problem with desktop wallets and mobile wallets are the dangers associated with virus attacks, because a hacker can easily put Trojans in your system to phish for your details. Also, if your desktop or mobile is damaged you can easily lose your cryptos. Bitcoin Wallet for Android and Blackberry I recommend the simply-titled Bitcoin Wallet mobile app for those looking for mobility and security. It is a software wallet, which means that you retain complete control over your bitcoins and there is a version for both Android (https://play.google.com/store/apps/details?id=de.schildbach.wallet) and BlackBerry OS (https://appworld.blackberry.com/webstore/content/23952882/?countrycode=US). It also works well with QR codes and NFC. This feature makes transferring coins to someone else’s phone easier than writing a check. I would strongly recommend to backup your wallet (with the included “Backup Wallet” feature). If you don’t do it you risk losing all your coins the next time you get too close to a pool. Other Wallets I also recommend a few other wallets. However, they are not for the beginning Bitcoin user. If you are up for more of a challenge, I recommend Armory (http://bitcoinarmory.com/). It is a good choice for those requiring the highest possible security. There is also the original Bitcoin-Qt (http://bitcoin.org/en/download) client that is trusted and worth learning how to use. back to menu ↑
Risks of Hot StorageDifferent hot wallets carry different security risks and those hosted on Exchange sites are definitely the least secure. Leaving your currency where you purchased it might seem like a good idea because „I can change it back to dollars quickly if it starts to crash. “ But in reality, if you leave cryptos on an exchange you trust an unlicensed entity with your money. They hold your private keys, and they ward off daily attacks and they’ve even succumbed to such threats in the past. Exchanges store a lot of value and they are a huge target for criminals. This risk is part of the deal if you are day trading. On the other hand, you want to avoid it all together if you’re holding long-term. A great example of the dangers of hot storage is the Bitfinex hack. The people at Bitfinex noticed in early August 2016 that several of their security measures were being compromised and before long, a hacker had stolen over $72 million worth of BTC. It was so bad that, within a day, the value of BTC fell 20%. So how can you keep your cryptocurrency safe from malicious attacks like this? You use cold storage, so let’s find out what that is all about. back to menu ↑
Cold StorageCold storage is keeping your currency in a device that is completely offline. Cold wallets are the way to go for those seeking the most secure form of storage and long-term holders, who don’t require access to their coins for months, or years at a time. They aren’t without their own set of risks. However, these are greatly minimized if you follow the instructions correctly, and take every precaution possible. Unfortunately, it has piqued the interest of attackers because of the amount of attention that cryptocurrency has been receiving over the last couple of years. In the light of that, using cold storage as means of storing your money is a far more secure option. CoinBase, San Francisco-based bitcoin wallet and exchange service, holds up 97% of its coin reserves in paper and hardware wallets. So, what are paper and hardware wallets? We’ll get there. Let’s check out the pros and cons of cold storage for now:
Cold Storage Pros and ConsPros
- It is completely offline, which means that it provides a safety net against hackers and people with malicious intent.
- If you need to hold large amounts of coin for a long period of time this is a great place.
- It is not ideal if you need fast and everyday transactions.
- It is still vulnerable to theft, external damage and general human carelessness.
- It can be a little intimidating for beginners to set it up.
Hardware WalletsCurrently, hardware wallets are very limited in number. These are dedicated devices where you can store your cryptocurrency. They come in a few forms. However, the USB stick style typified by the Nano Ledger series is the most common. Hardware wallets are still prone to compromise, although many swear by them. It’s very important that you make sure that the company who made your wallet hasn’t logged all the private keys with a plan to raid wallets in the future. This applies to those purchased from the company themselves. However, this is particularly the case if a hardware wallet has been pre-owned and under no circumstances should anyone ever use a second hand wallet. It is important to note that hardware wallets can be restored. However, loss or damage can spell disaster for the unprepared. Therefore, it’s just as important to back up your hardware wallet, as it is your online hot wallets and the restoration details should be kept in a safe place that only you, and anyone you plan to leave the money to know about. You should think very carefully about who (if anyone) you share your restoration details with, because they open the wallet. Remember, there is a chance that something unfortunate happen between you and anyone else who knows your private key so it’s also vitally important that you transfer all coins to a new wallet. Here are some hardware wallets that can be used:
- Hot Wallets
- Cold Wallets
- User-friendliness – Can a range of altcoins be stored? Is the hardware wallet UI intuitively designed?
- Cost – Is the wallet free and what are the drawbacks of using this wallet?
- Style -Do you have a weakness for tech gadgets?
- Security – It is very important to see if the company have a track record of security excellence.
- Convenience – When the time calls for it will you be able to make a fast buy?
- Mobility – Is the wallet accessible anytime, anywhere and is it easy to keep and difficult to lose?
- These wallets can be carried around easily because they are designed to be sleek.
- Your private key will be safe and secure since it’s a cold wallet. The keys are stored in the protected area of a microcontroller. This means that they cannot be transferred out of the device.
- They are resistant to malware, virus and hacker attacks and there have been no instances of hardware wallets ever been hacked.
- Transactions are super simple. All that you have to do to make your transactions is to plug in the wallet and follow the instructions. The UI interface of the wallets are extremely user friendly and all the transactions that you will make will be safe and secure.
- Hardware wallets can store multiple addresses for you to send funds over.
- The wallets are pin code protected. This is very important in case your wallet falls into the wrong hands. Your wallet will automatically shut down on entering the wrong pin code 3 times.
- The software is open-source most of the time. This means that you can simply take a look in the code itself if you want to know how the hardware wallet works and keeps your private keys secure.
- You can recover your money by using the restoration details that comes with each wallet if your wallet shuts down for whatever reason.
- It may not be possible to store all kinds of cryptocurrencies in the wallet. The Ledger Nano supports bitcoin, Ethereum, ERC20 Tokens and other altcoins. On the other hand, the Trezor only supports bitcoin and dash (when connected to Electrum).
- Hardware wallet is a physical object. This means that there are chances that it might get bruised or damaged via external stimuli. (Seed Phrase overcomes this problem).
- You have to blindly trust the company developing your hardware wallet when you are purchasing a hardware wallet because you stand to lose all your cryptocurrency if the company gets compromised for whatever reason.
- There is a chance that you might get a used, second-hand wallet instead of a new one, which means that you will also have to blindly trust the company delivering your wallet. I highly recommend that you don’t use a second-hand hardware wallet.
- Hardware wallets are still susceptible to design flaws, like all products, and there is a possibility that hardware wallets have a fundamental design flaw which can get exploited in the future.
- Green Address
- The Ledger Wallet (I recommend downloading the chrome extension for ease of use)
- It costs only $65.
- It is compatible with many software interfaces.
- It has U2F support.
- It is super simple to set up.
- It can be used to transact Bitcoin, Ethereum and Ethereum Classic and other altcoins.
- It is easy to use with a very friendly interface.
- The Security card creates a unique code for each transaction. It also saves you from man-in-the-middle attacks.
- The physical page that contains your restoration details can be lost very easily.
- It has no ability to create hidden accounts.
- You can lose your security card if you don’t keep it securely.
- It is recommended to use only your private computer, which is free from keylogging malwares, since the pin code is generated one time only.
TrezorTrezor is a Prague based company and the Trezor Bitcoin hardware wallet pioneered the era of hardware wallets. It is created by SatoshiLabs (https://satoshilabs.com/), and this company has built one of the easiest and most convenient hardware wallets ever. It is the world’s first secure Bitcoin hardware wallet and it sets the gold standard for crypto security. Trezor is insanely simple to use and has a reputation for providing top-notch security, protecting against both virtual and physical theft. It looks like a small calculator with an OLED screen and its sleek design means that it can be carried around very comfortable. Your private keys will be safe with Trezor even if your PC is compromised with malware. Trezor is compatible with Windows, Mac OS X and Linux you can use the Trezor wallet with apps such as TREZOR Wallet, Mycelium, and Multibit HD. You simply plug in the USB drive to your laptop and connect to your chosen interface in order to use Trezor. These are the interfaces that can work with Trezor:
- My Trezor (also known as wallet.trezor.io). You can simply install the Google chrome extension and make interactions a lot easier.
- It features extremely sleek design.
- It is super easy to use.
- Your private key will never be exposed.
- You can use it on all devices provided the platforms are compatible (windows, Mac OS X or linux).
- Randomly generated pin code keeps the Trezor safe and secure.
- It costs $99. This price is a bit steep.
KeepKeyKeepKey is the latest crypto hardware wallet available in the market for storing bitcoins. It is made by a relatively new company and was launched in 2015. KeepKey offers a hardware wallet of a polished design and it is the coolest looking tech gadget to show off to your friends. It has same backup seed key feature with pin code enabled. KeepKey works like the other wallets and supports six cryptocurrencies: Bitcoin, Dash, Testnet, Litecoin, Namecoin, and Dogecoin. KeepKey is said to be a port of Trezor’s code and firmware. This means that their main difference is the material. KeepKey is simple to setup but also has some more advanced features. This makes it a perfect choice for new and experienced Bitcoin users alike! KeepKey feels like a ‘premium’ wallet. However, it might be a little on the heavy side because it is more than two times in size than its peers and hence more susceptible to drops. For this reason, KeepKey is not so convenient to carry in your pocket. KeepKey provides top-notch security and this wallet can be used on any computer, even one that’s been infected with malware or targeted by hackers. It protects against both physical & virtual theft. KeepKey’s pin code and number randomization makes sure that:
- a hacker couldn’t steal bitcoins from your wallet using malware
- your wallet is secure from physical theft
- It features metal body and digital screen.
- It is most secure and feature packed hardware wallet available.
- It is intuitive to use
- It needs to gain more trust since it is a new wallet.
- It costs $99. This price may be out of range for some buyers.
- It is not very portable.
Paper WalletsUsing a paper wallet is, without a doubt, the safest way to store any cryptocurrency. You can set one up entirely for free by following a few pointers below. This truly makes you the master of your investment and there’s no possibility of your private keys being known by anyone else if precautions are followed. Of course, this means that it is even more important to keep a record of them, because you’ll forfeit the entire contents of your paper wallet if you lose your private keys. What Are Paper Wallets? Paper wallets are an offline cold storage method of saving cryptocurrency they are one of the most popular and cheapest options for keeping your bitcoins safe. It includes printing out your public and private keys on a piece of paper and the keys are printed in the form of QR codes which you can scan in the future for all your transactions. After that, you store the paper and save it in a secure place. the reason why it is so safe is that it gives complete control to you, the user and the only thing that you have to do is to take care of a piece of paper. You do not need to worry about hackers or any piece of malware, nor do you have to worry about the well-being of a piece of hardware. Do You Need a Paper Wallet? The answer will largely depend on your circumstances. You probably don’t need it if you plan to spend the summer day trading a couple of coins. On the other hand, a paper wallet is the most secure option available to you if you’re in for the long haul, and don’t intend to touch any portion of your stash. Creating a Paper Wallet You form paper wallets by using a program to randomly generate a public and private key. What’s more, we’ll be generating our keys offline, which eradicates the exposure to online threats. Also, deleting the simple program after use will destroy any trace of them. The keys will be unique, and the program that generates them is open source and those who have advanced knowledge of coding can check the backend of the program themselves for randomness in results. Don’t worry if this sounds confusing, because it’s not. You’ll need no specific knowledge of encryption or coding for this. A computer, an internet connection and something to record your keys on is all you need. Anyway, follow these steps to create your paper wallet:
- First you need to ensure your computer is entirely free from any form of malicious software. A brand-new computer would be perfect. However, that is often not feasible.
- Go to this page http://walletgenerator.net/
- Click here to download the zip file:
- Once downloaded open the “index.html” file. But, make sure that your internet is off before that. This whole process is done to make sure that your wallet is hacker free.
- Generate your wallet. Keep hovering over the highlighted text and it will generate more characters, or you can manually type in random characters if you want. You need to keep doing it until the counter goes to zero.
- Your wallet will be generated the moment the count goes to “0”.
- Print the page or make multiple copies of the numbers from it, but make sure that your printer is not connected to Wi-Fi at this point.
- Delete saved web page and now you can safely reconnect to the internet.
- Store the private keys in their long term, secure home.
Creating a Paper Wallet for EthereumIf you see the list of cryptocurrencies supported by walletgenerator, you will notice that Ethereum is not on that list. So, how to set up a paper wallet for Ethereum? It is really simple. You just need to follow these steps:
- Visit the page http://myetherwallet.com/
- Click on the help tab.
- Click on option 5:
- Open the highlighted link:
- Download this zip file after that.
- Open the zip file and click on the index.html file. Remember to switch off your internet so that you are offline before doing that.
- Create a new password and generate your wallet. Be sure that you are putting in a strong password:
- Now you will have to download your keystore file. This is basically your wallet file. It’s very important that you keep a backup of this file. Click on “I understand. Continue.” after you are done with that.
- There you go, your wallet has been generated and what you see here is your private key. Remember, you mustn’t share this with anyone.
- Click on the “Print” button to print your wallet, and this is what will you get. You can see both your public and private keys here:
Tips for Keeping Your Paper Wallet Safe
- Store your paper wallet in a safe to protect from fire and theft.
- You can laminate your paper wallet for durability and proof against water.
- To protect your paper wallet against water or damp you can store it in a sealed plastic bag.
- You may store a wallet in several locations for added redundancy. Some bitcoiners use deposit boxes, others use trusted family members.
- The paper wallet could be entrusted with a solicitor, e.g. the person who holds your last will and testament.
Importance of Private Keys and Restoration MethodsIn the same way that we’ve mentioned restoration details previously, the private key to your paper wallet is its single most important detail and you must guard it with your life. You lose your money if you lose your private key and it’s as simple as that. However, this doesn’t mean that you should get it tattooed on your chest. As well providing you access to your funds when you need them, anyone with the key can also get at them and it must be kept totally secret. It’s highly recommended to store your paper wallet in multiple secure locations, which will help alleviate against certain “acts of God”, such as tornado, sudden evacuation, or similar. However, the higher the risk of compromise, the more locations you use to store your keys. back to menu ↑
Under Lock and KeySome people prefer to store their private keys in a physical location and a safe is usually favored for this. Only those people who are allowed access to the funds must know the combination of your safe. Of course, small home safe deposit boxes are often much less durable than they’re made out to be. This means that they will usually be a target for home invaders. You should use a high-quality safe if you have sole access to it, otherwise risking a lower end model may be your best option. Either way, the combination to the lock should only be given to those who have ownership of the coins stored on the paper wallet. back to menu ↑
Cloud-Based StorageSelf-encrypting, decentralized “cloud” based storage will likely be an option in the (very near) future. Its reliability remains to be tested. However, it could reduce warranted concerns over storing private keys digitally. Wxisting cloud-based storage services are hackable, like exchanges, and they can fall victim to malicious attacks. Generally, it is not recommended to store your most sensitive documents. However, it’s possible to encrypt the data yourself and store it online and you limit the number of people who can view a document in its raw state by encrypting it. Also, uploading an encrypted version of a private key to the web is a suitable option for some people. back to menu ↑
MemoryIt is possible and incredibly secure. However, it should go without saying that this isn’t perfect because the practical barrier of remembering 64 unique characters will discourage the majority. It is certainly not recommended, although I am sure there are some who favor this method. When considering storing private keys these are the things to remember:
- Most ways of practically recording private keys are potentially lost, e.g. fire, theft, water damage. It would be perfect if you could engrave metals yourself and can store it in a high-quality safe.
- The access to the private keys should be given to only those people who have access to the funds stored.
- All storage has risks and you should minimize them.
- Multiple safe locations are better than one, but additional locations must not compromise security.
Restoring a Cold Storage WalletYou need to import the private key into a suitable online wallet when you want to bring your cryptocurrency back out of cold storage. Any wallet that supports importing private keys will work. For most wallets the process is simple and intuitive and the steps we have given below correspond to using the Bitcoin Unlimited wallet.
- Open the client
- Click on “Help”
- Select the Debug Window
- Click on the Console tab
- Type “importprivkey<private key>” replace <private key> in the fieldwith your private key
- Remove quotation marks
- Press enter
- A software wallet. This wallet can be installed on your own computer or mobile device and you are in complete control over the security of your coins. However, my experience is that they can sometimes be tricky to install and maintain.
- A web wallet or hosted wallet. This wallet is one that is hosted by a third party and it is often much easier to use. However, you have to trust the provider to maintain high levels of security to protect your coins.
Tips to Choose the Best Bitcoin WalletSo let’s see how to choose the best wallet for your needs now you know all there is to know about Bitcoin wallets. I use different Bitcoin wallets for different purposes. For example, I will use a different wallet if I need to store a large amount of Bitcoin safely than if I just want to have some small Bitcoin change to pay for a sandwich. Wallets usually vary on a scale of security vs. convenience. This means that you need to decide where you want to be on that scale and these are some of the questions you should ask yourself:
- Are you tech savvy?
- How often will you use the bitcoin wallet?
- How many Bitcoins will you be storing?
- Can you afford to pay for a hardware wallet?
- How much do you value your privacy?
- Do you need to carry the bitcoin wallet around with you?
- Do you need to share the wallet with someone else?
- Do you trust yourself to safeguard your wallet or do you want to give some 3rd party the task of doing so?
ConclusionCreating a cold wallet is a straightforward way to help reduce third party risks associated with most other cryptocurrency storage methods. No method is entirely free from threat. However, storing coins offline drastically decreases the chances of losing your investment through digital means – ransomware attacks, exchange insolvency, exchange compromise, and other cybercriminal operations. It is still as important as ever to remain vigilant of real-world threats, such as damage, theft, or loss of private keys and you should always protect your private keys. Also, if there is any indication that their privacy may have become compromised you should ensure to replace them (setup new cold storage) immediately. Diversification is the best solution. Always diversify (as the old saying goes, “Do not keep all your eggs in one basket.”) You should keep a portion of your currency (a major portion), in paper wallets. Also, it is very important to have lots of backups to ensure that you are not going to get screwed. Keep some in hardware wallets. Also, if you really have to, keep a few in a hot wallet that you can do fast transactions. Having said that, it is strongly recommended to keep most of your money in cold storage. Remember, it is your responsibility to ensure your crypto investments are kept safe and not someone else’s. Plenty of people have already been frivolous enough to lose access to their cryptocurrencies through their own fault and others, which means that you shouldn’t take short cuts and underestimate the importance of security. You will drastically decrease your chances of joining this number by minimizing the risks effectively. Also, remember that with any wallet, you will lose your money if you lose your private key. That is true for hardware wallets, paper wallets, or any other wallet type. There is no way to reclaim your cryptocurrency without your keys and the reason you lose them doesn’t matter. You need to have a hardware wallet if you are a seasoned user of cryptocurrency. Hardware wallets keep your funds safe and secure, and they also make transactions very simple. An all-in-one package wallet does not exist so it is important that you manage to find the wallet that addresses your greatest concern, ease of transfer, security from theft, monetary cost, convenience and even style. A bitcoin hardware wallet may turn out to be your greatest investment decision. It’s time to learn how to get some bitcoins now that you have a wallet set up.
If you are hardcore crypto-fanatic, you probably hold some of these coins as well. Here are the wallet solutions for them:
- Here is our list of best ethereum wallets.
- Here is our list of best dashcoin wallets.
- Wonder what is the best wallet for Litecoin? Click here to find out.
- Read here about best NEO and GAS wallets.
- Here is our list of best Bitcoin Cash wallets.
- Wonder what is the best wallet for PivX? Click here to find out.
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