Bitcoin Wallets for Beginners: Everything You Need to Know

Why you need a Bitcoin wallet

Bitcoin (BTC) is a digital currency. As Bitcoins don’t exist in any physical shape or form, they can’t technically be stored anywhere. Instead, it’s the private keys — which are used to access your public Bitcoin address and transaction signatures — that need to be securely stored. A combination of the recipient’s public key and your private key is what makes a Bitcoin transaction possible.

There are several different forms of Bitcoin wallets that cater to different requirements and vary in terms of security, convenience, accessibility and so on.

Types of wallets

Paper

A paper wallet is essentially a document that contains a public address for receiving Bitcoin and a private key, which allows you to spend or transfer Bitcoin stored in that address. Paper wallets are often printed in the form of QR-codes so that you can quickly scan them and add the keys to a software wallet to make a transaction. A paper wallet can be generated using services like BitAddress or Bitcoinpaperwallet, which allow users to create a random Bitcoin address with its own private key. The generated keys can then be printed, with some services offering a tamper-resistant design or even an option of ordering holographic labels.

The main advantage of a paper wallet is that the keys are stored offline, which makes it completely immune to hacker attacks, including malware that can log the user’s keystrokes. However, some precautions when creating a wallet still need to be taken. Before generating a paper wallet, you need to make sure that no one is watching you do it. To rule out the risk of any spyware monitoring your activities, it is recommended to use a clean operating system, such as Ubuntu, running from a USB flash drive or DVD. Furthermore, once the paper wallet is set up, the website code should be able to run offline, which allows you to disconnect from the internet before actually generating the keys. Finally, use a printer that is not connected to a network.

Moreover, it’s important to understand that you are printing valuable, private information on a piece of paper. So, you need to take certain measures to protect that piece of paper. For instance, it is recommended to keep it in a sealed plastic bag and to store it in a dry, safe place to avoid water damage and general wear and tear. Some people prefer laminating it and storing it in a safety deposit box.

Physical Bitcoin

Physical Bitcoin is usually preloaded with a fixed amount of BTC, and the intention is that its value cannot be spent as long as the private key remains hidden. This is usually achieved by using a tamper-evident seal.

The first of its kind, Bitbill, was shaped like a credit card, but most alternatives that followed were shaped like a round medal. Mike Cadwell, a cryptocurrency enthusiast nicknamed “Casascius,” created the first of the popular Casascius physical Bitcoins in 2011. Private keys were hidden under a peelable hologram, when removed, it left a tamper-evident mark. When redeemed, the coin lost its digital worth. Since then, there have been several new coin manufacturers.

Physical Bitcoins are a convenient way of storing your funds more safely and can be extremely useful when trading offline. In addition, they’ve recently become a prized collector’s item. The main disadvantage, however, is a serious one. In November 2013, Mike Cadwell was asked to cease operations by the Financial Crimes Enforcement Network, as his work was considered to be a money transmitter. The regulations for this activity were unbearable, so he was forced to stop the sales of items containing digital Bitcoins. As BTC is still a legal grey area in a lot of countries, such items might even be considered counterfeit money by authorities.

Mobile

For those actively using Bitcoin on a daily basis, paying for goods in shops or trading them face-to-face, a mobile BTC wallet is an essential tool. It runs as an app on your smartphone, storing your private keys and allowing you to pay for things directly from your phone. Moreover, some apps enable users to use their smartphones’ near-field communication feature, which means they can simply tap their phone against the terminal without having to provide any information at all.

Any full Bitcoin client requires access to the entire blockchain ledger, which is constantly growing and requires several gigabytes of storage. For these reasons, mobile wallets take advantage of simplified payment verification technology. They only work with small subsets of the blockchain, relying on trusted nodes in the Bitcoin network to ensure that they have the correct information.

Despite being a convenient on-the-go solution for Bitcoin storage, mobile wallets are prone to hacker attacks. Moreover, you can lose control of your wallet if someone simply gains access to your mobile device. There’s a large variety of Bitcoin wallet apps for devices running on Android. Apple banned Bitcoin wallets from the App Store in February 2014 but reversed its decision several months later.

Name

Operating system

Features

FreeWallet

iOS, Android

Cold storage, withdraw from and to any cryptocurrency

Edge

iOS, Android

Zero-knowledge, single sign-on, one-touch 2 factor authentication

Lumi Wallet

iOS, Android

Secure and easy crypto wallet & exchange for mobile

Blockchain Wallet

iOS, Android

Hierarchical deterministic, enable to browse Bitcoin merchants in your area, open source software

Copay

iOS, Android, Windows Mobile

Can have multiple users, so the group approves each transaction to send money, open source software

Jaxx

iOS, Android

Cold storage, no verification required

Mycelium

iOS, Android

Сold storage, hierarchical deterministic, open source software

Web

Web wallets store your private keys on a server, which is constantly online and controlled by a third party. Different services offer different features, some of which can link to mobile and desktop wallets and replicate your addresses across the devices you own.

Much like mobile wallets, e-wallets enable their users to access their funds on-the-go from any device connected to the internet. If not properly protected, the organizations running the website might gain access to your private keys, thus gaining total control of your funds. Moreover, some e-wallets operate on exchanges, and there have been instances of exchanges shutting down and making off with their users’ funds.

Service

Features

Coinbase

One-stop solution, an exchange integrated with a wallet

Lumi Wallet

Free, easy, client-side interface to generate one wallet that supports BTC, ETH and plenty of ERC20 tokens

Circle

Users can store, send, receive and buy Bitcoins

Blockchain

One of the most popular web-based wallets

Strongcoin

Offers a hybrid wallet, which lets you encrypt your private address keys before sending them to its servers

Xapo

A simple Bitcoin wallet, with the added security of a cold-storage vault

Desktop

Desktop wallets are downloaded and installed onto your computer, storing your private keys on your hard drive. By definition, they are more secure than online and mobile wallets, as they don’t rely on third parties for their data and are harder to steal. They are still connected to the internet, which makes them inherently less secure. However, desktop wallets are a great solution for those who trade small amounts of Bitcoin from their computers.

There is a variety of different options of desktop wallets that cater to different needs. Some focus on security, some on anonymity and so on.

Name

Operating system

Features

Electrum

Mac OS, Windows, Linux

One of the most popular, robust, effective and secure desktop wallets; open source; allows you to replace a transaction fee on an already broadcasted transaction, which speeds up the confirmation process; address tagging; encryption

Exodus

Mac OS, Windows, Linux

Very user-friendly and easy to understand, reliable wallet

Bitcoin Core

Mac OS, Windows, Linux

Full node wallet, you need to download the entire blockchain to use it. It allows you to independently verify transactions and not rely on anyone else in the system

Copay

Mac OS, Windows, Linux

Multisignature wallet; mobile and desktop; open source

Armory

Mac OS, Windows, Linux, Ubuntu, RaspberriPi

Prioritizes safety and security; features a variety of encryption and cold-storage options

Hardware

A hardware wallet is a rather unique type of Bitcoin wallet that stores the user’s private keys in a secure hardware device. It is the most secure way of storing any amount of Bitcoin. There have been no verifiable incidents of money being stolen from a hardware wallet. Unlike paper wallets, which must be imported to software at some point, hardware wallets can be used securely and interactively. Moreover, they are immune to computer viruses, the funds stored cannot be transferred out of the device in plaintext, and in most instances, their software is open source.

Some hardware wallets even have screens, which add another layer of security, as they can be used to verify and display important wallet details. For instance, a screen can be used to generate a recovery phrase and to confirm the amount and address of the payment you wish to make. So, as long as you invest in an authentic device made by a trustworthy and competent manufacturer, your funds will be safe and secure.

Name

Price

Features

Ledger Nano S

58 €

Screen; two buttons that you need to press simultaneously to confirm a transaction, which prevents hackers from hacking into it and confirming payments; PIN code; box ships with an anti-tampering seal

TREZOR

$99

Screen; two buttons; wallet can be backed up with up to 24 words + passphrase; PIN code

KeepKey

$99

Screen; digital screen and metal body; PIN code; number randomization; can be backed with up to 24 words; recovery can be done with Chrome extension

Bank

Rainer Michael Preiss, an executive director at Taurus Wealth Advisors, has recently stated that all large U.S. banks are probably afraid of blockchain, Bitcoin and other cryptocurrencies. He has also mentioned that, given the uncertainty from banking’s lack of transparency, cryptocurrencies can present investors with a viable alternative. Indeed, many banks do not accept Bitcoin as a currency; some of them even refuse to manage funds obtained through operations with cryptocurrencies.

In the light of banks’ reluctance to accept Bitcoin as a viable currency, a Bitcoin Crypto Bank has been established. The first of its kind, it is a privately owned company operating on the Bitcoin trade market. It accepts and manage Bitcoin deposits, claiming to have a deep understanding of the market. On its website, it claims to be a no-risk, secure and certified platform for investments with high chances of making huge profits.

Bitcoin wallets and security

Possible problems

Pieces of advice

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