Choosing The Best Bitcoin Wallet
Choosing the best Bitcoin wallet can be confusing, so we’re here to break it all down for you. You’ll need a wallet in order to own cryptocurrency and perform transactions, and the type of wallet you choose will depend on your investment plans and security needs.
In this guide, we’ll review how Bitcoin wallets work, as well as the features of various types of wallets that are available on the market.
How Bitcoin Wallets Work
Unlike the wallet stuffed in your purse or shoved in your back pocket, crypto wallets don’t store physical currency. Digital coins don’t exist in any singular, physical location. Cryptocurrency holdings are simply recorded as transactions on the blockchain, and crypto wallets serve to interface with the public ledger and track your balance. They do, however, store your public address and private keys (in most cases), enabling you to send and receive cryptocurrency.
Your public address doesn’t correlate with where you live and isn’t directly traceable to your identity. Instead, your public address is a combination of numbers and letters that correlates to your crypto wallet. When someone sends cryptocurrency to you, they are transferring ownership of their digital coins to your public address, or wallet. This transaction is recorded in the blockchain, which causes your balance to increase. To unlock the transferred funds, you’ll need to enter your private key, which correlates with your address.
Your private key, or seed key, is a secret password made up of letters and numbers which is randomly generated when you create your wallet. Your private key is your only point of access to your crypto holdings, and if you can’t recover your private key, you have no way access to your funds in the event that you lose your wallet or lose access to your wallet. As such, private keys should be backed up and stringently protected against both loss and theft.
Online Bitcoin Wallets
Online Bitcoin wallets, usually on exchanges, are connected to the internet. As a result, they are more vulnerable to hacking than their offline counterparts. Many web and mobile wallets store your private keys on servers. Although your private keys will be encrypted, they will remain susceptible to viruses, malware, and more by virtue of their connection to the internet.
Web-based wallets run on the cloud and are accessible at any time from any device. Mobile wallets run on phone apps. These wallet solutions are ideal for users who wish to perform daily transactions and do not plan to hold onto digital coins for longer than a few days. If you choose to use these types of wallets, be sure that the wallet you choose offers security features like strong log-ins and two-factor identification (also known as 2-FA authentication). An HTTPS web address will offer more security than an HTTP, and a multisignature (or multisig) option will offer increased protection by requiring more than one signature in order to authorize a transaction.
A desktop wallet is a slightly more secure option for short-term and intermediate storage. These wallets are downloaded and installed on your desktop and deliver your public address and private keys to you in a downloadable, importable file. Desktop wallets will connect to the internet when your computer goes online, making your holdings vulnerable to attack and theft. Web, mobile, and desktop wallets are all software based solutions and known as “hot storage” because of their continuous connection to the internet.
Offline Bitcoin Wallets
Offline wallets are classified as “cold storage” because do not have direct contact with the internet and offer the highest level of security. Hardware wallets do perform transactions online, but they are stored completely offline. As such, they are ideal for long term storage. Certain hardware wallets offer small digital screens or security grid cards that resemble debit cards to verify your transactions. Hardware wallets are generally tamper-proof and feature a limited user interface. Even if your device is lost or destroyed, a backup code will enable you to retrieve your keys and coins.
Paper wallets are another variety of highly secure cold storage. A paper wallet can be a simple hard-copy print out of your public address and private keys. It can also be a piece of software that securely generates keys which are then printed out. To transfer funds to and from a paper wallet, they must be moved to a software wallet first. This process is known as sweeping. Overall, paper wallets are ideal for hyper-secure long-term storage.
Bitcoin Wallet Security Considerations
No matter which wallet solution you choose, it is always wise to spread out your holdings across multiple wallets in case issues with access arise. Offline wallets are excellent backup options and can be cloned to decrease risk. Additionally, storing your keys offline offers increased protection. Users should never take photos or screenshots of their private keys, as those are highly vulnerable to theft. You should also select a wallet provider who is transparent about their activities and offers wallets that run on open-source code that can be peer-reviewed and checked for vulnerabilities.
Fill Your Bitcoin Wallet At A Pelicoin ATM
Bitcoin ATMs are the easiest, most secure way to buy and sell cryptocurrency. Purchases made at Pelicoin ATMs are routed directly to your crypto wallet, meaning that you can expand your crypto portfolio without the hassle. If you do not already have a wallet, you can still use a Pelicoin ATM to buy cryptocurrency. The ATM will simply prompt you to create a paper wallet where you can put your digital currency. To find a Pelicoin ATM near you, check our list of locations and starting building wealth today.