The emergence of Bitcoin and its meteoric rise in value has paved the way for hundreds of services in the digital currency space. The lack of education can make it difficult for newcomers to take advantage of Bitcoins use cases. If you have any intention of getting involved with Bitcoin or cryptocurrency, the first step is finding a way to store your digital assets. In this article, we help newcomers understand Bitcoin wallets and how one can go about obtaining their first digital wallet.
How Is Bitcoin Stored?
First and foremost, when we talk about owning and storing Bitcoin, what we are really talking about are the private keys that allow access to Bitcoin. As a blockchain-based currency, Bitcoins themselves are stored on the blockchain as publicly accessible code that anyone can see. What enables ownership is a private key, which is a unique digital fingerprint specific to every Bitcoin that exits.
So whenever we talk about storing Bitcoins, the keys are what we are talking about. This is critical to understand because, unlike traditional currency, Bitcoin can be accessed by anyone with your private key. This is similar to banking where someone can technically access your banking assets if they had your account or routing number. If your Bitcoin private keys are lost or stolen, it can result in the loss of your investment with no real way to recover it.
What Is A Bitcoin Wallet?
Now that we understand how the storage of Bitcoin works, we need to understand what a Bitcoin wallet even is. To put it simply, a Bitcoin wallet is nothing more than a third-party application or software that can store the access keys to use your Bitcoins. Without using a wallet, the only way to make transactions with Bitcoin would be to store the keys yourself on a physical hard drive. This is, of course, not workable for anyone who actually wants to use Bitcoin to make transactions, and is arguably a disadvantage for active investors and traders.
In addition to the inconvenience, storing Bitcoin keys yourself is incredibly risky. If your computer data is lost or destroyed with no backup, Bitcoins can be rendered worthless because you won’t be able to access them. There’s also the risk of hacking and data breaches because if anybody else gets a hold of your keys they can simply move them to their own computer or wallet and effectively steal them.
Because of all the risk and hassle associated with keeping the keys yourself, there are several applications known as “wallets” that are available, allowing users safe and easy access to cryptocurrency exchanges. Most wallets allow users to deposit money and use that money to purchase Bitcoin and other cryptocurrencies at will.
The wallet application will typically store your private keys and do everything possible to keep assets in your wallet safe and secure. This is similar to the centralized party that oversees bank accounts. In this way, digital asset enthusiasts do not have to take the responsibility of storing their own Bitcoin. This comes with some disadvantages, namely the security risk of trusting a third party, but it is essential for beginners who don’t have the technical know-how or hardware to do it themselves.
Are There Different Types Of Bitcoin Wallet?
Not every Bitcoin wallet is identical and there are a few different varieties you can choose from depending on your needs. The most accessible and easy-to-use type of Bitcoin wallets are mobile apps. These are simply applications that you can download onto a smartphone and start purchasing and trading cryptocurrencies. Mobile wallets are essentially the only way to make Bitcoin transactions day to day, making them a must if you intend to use cryptocurrency in this way.
If you intend to instead use Bitcoin as an investment and don’t plan on actually using it to make purchases there are other options available to you as well. There are web-based wallets that behave similarly to mobile wallets, as well as desktop applications that download the data directly onto your hard drive. The advantage of desktop wallets is the ability to store Bitcoin on your computer, which can be safer than apps that store the data on third-party servers. This makes them a good option if you intend to invest large amounts of money and have a solid understanding of computer hardware.
For those who are really concerned about keeping their investment secure, there are also hardware wallets which are standalone electronic devices whose only function is to store Bitcoin. These devices are not connected to the internet at all times but can be used to securely make transactions, making them one of the safest ways to store Bitcoin. A popular example would be the Ledger hardware wallets, that support crypto assets such as Bitcoin, Ether, XRP, Monero, and others.
So Which Wallet Is Right for Me?
So now that you know what your options are, which one is going to be most appropriate for you personally? A lot of that is going to come down to what you intend to use your Bitcoin wallet for, how much you plan on buying, and what your tolerance for risk is. If you intend to make regular transactions using Bitcoin, then a mobile app is probably the most appropriate. There are many different options available, Coinbase is one of the most widespread wallet apps,
If you are not necessarily planning to use your Bitcoin to make purchases and are instead interested in using Bitcoin as an alternative investment, it may be wise to use an application that offers greater security — especially if you plan on investing significant amounts. Exodus provides a desktop version as well with all of the security benefits associated with it. Finally, those who really want to prioritize security over convenience may want to explore physical hard drive wallets such as the Trezor Model T or the Ledger Nano X, both highly rated and secure hardware Bitcoin wallets.
Of course, there are many options available for you to explore, so search through all of your options before settling. Sites like Bitcoin.org provide a convenient tool to help narrow it down and compare wallets against one another. Just make sure you do your own research and choose a solution that is going to fit your needs of digital assets. As referenced above, some users like to invest long-term, while others are looking to facilitate daily transactions.
Notice: Information contained herein is not and should not be construed as an offer, solicitation, or recommendation to buy or sell securities. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Authors may own the cryptocurrency they discuss. The information and content are subject to change without notice. Visionary Financial and its affiliates do not provide investment, tax, legal, or accounting advice.