Bitcoin wallets play an important role in buying, selling, and storing your cryptocurrency. To make a Bitcoin wallet, all you need to do is download the relevant software for the Bitcoin wallet and install it.
Once installed, your software wallet is automatically created which will let you manage your transactions. You also have the option of using hardware, paper, and web/exchange wallets.
But what is a Bitcoin wallet and why do you need one?
Reasons You Need a Bitcoin Wallet
If you want to join the cryptocurrency world, a good place to start would be with Bitcoin. This pioneering crypto coin has a good reputation for security and ease of use.
Before investing in Bitcoin, you must start a Bitcoin wallet that will serve several purposes such as:
- Store Bitcoin and protect your coins keeping them safe from theft or unauthorized access.
- Secure your Bitcoin by controlling your private keys.
- Send and receive Bitcoin.
- Check your Bitcoin wallet balance.
- View transaction history.
Let’s take a brief look at the different types of wallets that are available.
Online Bitcoin Wallets
Web-based or online crypto wallets are hosted by providers on the Internet who generate and store your private keys. This comes with the inherent risk of losing access to your funds or being the victim of theft.
In the case you do not choose a reputable wallet provider, they could shut down or withhold your digital assets.
Due to these risks, these types of wallets are not ideal for long-term storage, or storing large amounts of currencies. Instead, use them for making transactions when necessary. If you do use them for storage, most web wallets are free but you will only be charged a fee for your transactions.
To use an online wallet, you need to:
- Access the provider’s website and open an account.
- Enable two-factor authentication for additional security.
- Write down the private key that is made of a series of alphanumeric words and numbers. It is generated automatically and will give you access to your account in case you lose your password.
- Connect a bank account via credit card to transfer money to your Bitcoin wallet.
- When your payment is accepted and the Bitcoin is reflected in your account, enter your wallet’s public address and transfer the coins to that wallet.
- When the coins are in your public wallet, you can send them so long as you have an Internet connection.
Bitcoin Software Wallets
Bitcoin.com
Bitcoin.com wallet is 100% self-custodial meaning you have full control of your Bitcoins and there is a reduced risk of theft. To create a wallet, you need to download the Bitcoin wallet app.
Once the wallet is installed, navigate to the home screen where you will be asked to back up your information. This will generate a recovery phrase that you should write down and keep somewhere safe.
When you transfer money into the wallet, you can begin making transactions. You can use the app to track the market with industry news and real-time data on market movements. The software has over 40 million wallets with mobile access and lets you buy Bitcoin via a payment app, credit card, or bank account.
The wallet is dedicated to storing and transacting Bitcoin and Bitcoin Cash exclusively and is ideal for storage. The interface is easy to set up and use and is available on major operating systems including Windows, Mac, Android, and iOS.
Some disadvantages of the Bitcoin.com wallet include:
- The lack of two-factor authentication (2FA) which is viewed as an essential security feature for crypto wallets.
- The wallet does not have dedicated customer support and you need to rely on unreliable community support for help.
Binance (Trust Wallet)
Binance is a leading cryptocurrency exchange that caters to 150 million users across 180 countries. The software has a user-friendly user interface that is convenient for beginners and experienced cryptocurrency investors.
This non-custodial wallet is used mainly as a mobile wallet for Android or iOS although it comes with a browser extension for use on your desktop.
You have the option of enabling 2FA for tighter security and are advised to allow mobile and desktop notifications. The Trust Wallet security scanner issues alerts either in-app or mobile banner notifications that should be acted upon immediately.
When you download and install the application, you are prompted to create a wallet, input a strong password, and back up your recovery key.
A major advantage offered by Trust Wallet is the presence of support staff who are readily available for help. To buy Bitcoins, you can use your credit card for payments by simply entering your card details.
Electrum
This wallet is perfect for beginners with an easy-to-navigate layout. It also gives users the option of three levels of security, namely:
- Level 1: The lowest level is a standard wallet that is good to use if you have a hardware wallet for storage.
- Level 2: This security level 2FA offers additional security and is sufficient for safekeeping.
- Level 3: The highest level of security is the multi-signature wallet. Level 3 wallets provide more than one private key that you should distribute among different people.
For any transaction to occur, a specified number of keys or signatures must be inputted correctly. These can be one signature, two out of three signatures, or three out of five signatures.
Another security feature is the open source code for the app that can be accessed by anyone. If you have the know-how, you can look over the code for inconsistencies and errors.
An added advantage is its compatibility with major hardware wallets such as Trezor, Keepkey, and Ledger Nano X.
One disadvantage is the lack of direct customer support. You can only find solutions to any issues on the forum or via social media.
This popular software wallet should only be downloaded directly from the Electrum website.
Blockchain.com
This is one of the most secure wallets with 2FA and multi-signature capabilities. With this wallet, you are able to back up your private and public keys.
With over 71 million wallets and $620 billion worth of transactions, it is available in over 200 countries.
An added advantage is that it offers two wallets – a storage wallet that you manage and a trading wallet that you use for transactions. This trading wallet accepts deposits directly from your bank or via your card. It also gives you the option of making transactions using a mobile device.
The exchange lets users view transactions in real time as they are added to the Bitcoin or Ethereum blockchains. It provides useful information such as the ranking of 621 coins and tokens by their market capitalization and the supply, block size, and hash rates of Bitcoin meaning you don’t have to look at other websites for this information.
Coinbase Wallet
This wallet is primarily used for mobile devices and is compatible with Android and iOS. You however can download a browser extension to provide desktop access. The app’s interface is excellent for both beginners and experienced crypto users.
Security is a priority for Coinbase with PIN code and fingerprint or facial authentication options for access to the mobile wallet.
Because the self-custodial private keys are stored on your private device, you have maximum control, The wallet creation process is similar to the wallets discussed above, which is basically, downloading & installing the app, following the prompts to create a wallet, setting a password, and backing up your recovery key offline.
The send and receive buttons are clearly visible and intuitive to use. With a positive Bitcoin balance, you can access over 5,500 digital assets all from your device.
As we have seen the biggest advantage of software wallets is that they store your keys directly on your device in contrast to online wallets. For further security, let’s look at the below cold storage options.
Hardware Wallets for Bitcoin
Due to the security risks associated with cryptocurrencies online, it would be wise to invest in a hardware wallet or by storing cryptocurrency in a USB. The most secure wallets have no access to the Internet and are less prone to cybersecurity threats. It is advisable to find a wallet designed specifically for Bitcoin as they are more secure than other hardware.
One of the best hardware wallets is the Trezor Model T is the best for security. Although it is one of the more expensive averaging $219, the device offers convenience and allows access to third-party exchanges. The device comes with a USB cable for easy connection to mobile phones and personal computers.
Another well-known hardware wallet is the Ledger Nano X wallet, a robust cold wallet developed by a leading cryptocurrency company, Ledger SAS. For added security, you will need to enter a secure PIN code to protect the wallet if it is lost or stolen.
A unique feature of the hardware wallet is the Bluetooth option to connect with a mobile device. This integration may be seen as a disadvantage as it could be accessed to conduct cyberattacks.
To mitigate this risk, there is the option of buying a USB-C device. Users will need to safeguard their seed/recovery phrase to recover crypto coins if their Ledger Nano X is lost or damaged.
After unboxing the device, download the Ledger Live Application and install the mobile and desktop crypto software for Bitcoin. This app lets you perform transactions that you confirm on the device whilst keeping your private keys offline.
Paper Wallets for Bitcoin
Paper wallets are non-custodial offline cryptocurrency wallets and as the name suggests, they are pieces of paper with your private and public keys printed on them. They are not vulnerable to the online security risks associated with software wallets. Printing out your keys removes them from the online wallet but your cryptocurrency is inaccessible.
This option is thought to be more secure than other types of wallets as the keys are only physically accessible to you and with proper security measures, no one else can access them.
However, it is not advisable to store large amounts of Bitcoin in paper wallets because there is a risk of losing or damaging the paper.
You can manually generate and write down your keys or create a paper wallet with a generator app that can create a scannable QR code. This code is a good way to access your keys by scanning the code on your mobile phone’s camera.
The following steps will help you make a paper wallet:
- Before you use a wallet generator, make sure it’s from a reputable company, and not a ‘fake’ generator created by hackers.
- Check your device for viruses or malware with updated antivirus software.
- Once you have identified a safe wallet generator, visit their website and save the generator as a web archive for later use offline. If you are using a mobile device, switch it to airplane mode to disable any signals it may emit.
- Switch off your Internet and Bluetooth connections before you generate your private keys offline.
- Check your printer and make sure it is not connected to any hackable networks but should use a wired connection instead.
- Print the QR code and keys or write the keys on a hardy piece of paper and store them in a secure location like a water and fireproof lock box or safety deposit box. You might want to consider laminating the piece of paper.
- Delete the saved wallet generator.
This video will explain how to create a paper wallet.
Although digital wallets are the most popular method of storing digital assets, paper wallets are still a good option for cold storage for small amounts of crypto.
So now you know how to get a Bitcoin wallet, let’s answer the question of “How does a Bitcoin wallet work?”
How to Use a Bitcoin Wallet
Software and web Bitcoin wallets and hardware wallets that have Internet access perform three major functions namely:
- Buy Bitcoins
- Send Bitcoins
- Manage Bitcoins
For these activities to be processed, you will need to have your wallet address as well as your private key. So firstly, you’re probably wondering, “What is my Bitcoin wallet address?”
All Bitcoin wallets that have a network connection have different interfaces but will usually have a tab to display your personal account or wallets. Some may also show your address or public key when you choose the ‘receive’ option on the interface.
Tip by Ed Ackins: For Bitcoin, the wallet addresses always begin with ‘1’, ‘3’, ‘bc1, or bc1p’. An example is 1A1zP1eP5QGefi2DMPTfTL5SLmv7DivfNa; the world’s first Bitcoin address.
Below, you will learn how to use your Bitcoin wallet efficiently and keep your transactions safe. Let’s dive in!
How to Send Bitcoin To Another Wallet
To send Bitcoin, you will need the recipient’s public key or wallet address. Most wallets display a ‘Send’ button that will prompt you to key in this address.
The blockchain you use will verify this wallet address in relation to your own public key. The crypto coins will then move from your wallet and into the recipient’s.
For those interested in online gambling, Bitcoins can also be used to make bets and transfer funds to and from online casinos instantaneously.
How to Add Bitcoin To My Wallet
Many Bitcoin wallets accept fiat currencies and are less riskier than centralized exchanges for buying Bitcoin. As mentioned above, you can buy currency with your credit card, a bank transfer, or online payment services.
For bank-related transactions, you will need to consider the relevant fees, and remember, that larger transactions usually have lower fees. For first-time purchases, you may be asked to verify your identity but future purchases will be swiftly completed.
Just like when sending Bitcoin, wallets have ‘buy’ buttons and easy-to-follow instructions.
How to Manage Bitcoins
Bitcoin wallets let you make long-term investments or day-to-day trading so just like fiat currency, you will need to manage them.
As we have seen, keeping your private keys safe and away from prying eyes is a critically important role. As they say in the crypto world, “not your keys, not your coins”.
Software, web, and hardware wallets let you view your account balance along with a transaction history. This information is necessary for you to confirm payments made to vendors or if you are a vendor, payments made to you. Before making any transactions, you will be able to view your balances.
Are You Ready to Open Your Bitcoin Wallet?
By reading this article, I hope you will be able to successfully open and begin using a Bitcoin crypto wallet. What information I have given you will allow you to choose the correct type of wallet from between hardware, software, web, and paper wallets.
As we have seen, each of them has its advantages and disadvantages that cater to different needs and security requirements.
The three main functions of a crypto wallet as well as safeguarding your digital currencies means you must have a wallet to own any crypto. Remember that moving cryptocurrencies is often an irreversible procedure and may result in you losing your funds.
Disclaimer: This article is meant for informational and educational purposes only. It is not financial advice.