As an investor or owner of Bitcoins, it is important to understand the safety and security of your cryptocurrency wallet. It would be best if you took many safety precautions to protect your BTC from being stolen by hackers, malware, and other digital threats.
It’s estimated that almost 4 Million Bitcoins have been stolen since the inception of this virtual currency. While most users who own BTCs keep them on exchanges for ease of use when trading or selling coins, others opt out of using exchanges altogether and store their coins in a place that keeps them more secure than if they were to store them on an exchange.
How they work:
A Bitcoin wallet is essentially a place to store your Bitcoins. It can be stored on a computer, external drive, or even a paper wallet that’s not connected to the internet. Every wallet works differently, and some provide more security than others. There are three types of wallets: full node wallets, simplified payment verification (SPV) wallets, and light wallets. Full node wallets download the entire blockchain on your local device and take up roughly 200 GB of hard drive space as it downloads blocks from the network. SPV wallets only keep track of addresses belonging to their users, requiring less storage space but still maintaining verifiable transactions from those you interact with frequently. Light wallets utilize a cloud-based solution that provides an easy way to store and access your Bitcoins without downloading the whole blockchain.
What apps they can be used in:
Wallets can be used on desktop, mobile, or even web-based applications. Coinomi is a great example of an app that provides multi-coin support using one wallet across multiple devices. Popular exchanges like Coinbase also provide wallets for their users to store their Bitcoins in an account that only they have access to if the correct password is provided.
Where they can be stored:
Wallets can be stored locally on your computer, externally on USB drives and external hard drives, or online through cloud storage providers like iCloud, Google Drive, Dropbox, or OneDrive. It’s important to note that storing large amounts of cryptocurrency online leaves it vulnerable to hackers, so it’s not recommended to store large sums there unless you are experienced with securing accounts online.
As always, if you are storing large amounts of cryptocurrency, it’s advised to spread it across multiple wallets for safety reasons. If one wallet fails or is compromised, your funds should not be lost entirely. Remember to keep your passwords safe and not share them with anyone, so your accounts remain secure!
Types of bitcoin wallets
Bitcoin wallets are usually categorized into five types: online, software, hardware, paper, and brain wallets. Let’s go over each of these categories individually.
Online wallets work the same as their name suggests: they are wallets that can be accessed from any Internet-connected device. They do not require any software to be installed and instead store your public and private keys online on a centralized server or decentralized cloud network. These types of wallets offer more safety than other options, but you must choose a reputable wallet with great security features to prevent theft. Many online wallet providers also insure their users’ Bitcoins against theft, which means the company would reimburse the user if hackers or thefts ever compromised their BTC balance. They often charge fees for such services (between 1 – 2% of your total balance per year), so make sure there’s a clear benefit to using an online wallet before you sign up. Online wallets are very convenient, but they are the least secure of the five categories. If you choose this option for storing your Bitcoins, it’s advised that you only store a small amount in these types of wallets, so nothing too important is lost should your account be compromised or hacked into.
Software wallets are applications that can be installed on any device that supports apps (such as desktop computers, laptops, mobile phones, etc.). These work by generating private keys and public keys directly on the app’s machine rather than sending data over a network connection. You will also need to protect any digital assets contained within this software just as though they were stored in an online wallet (i.e., only access the app when you need to make a transaction or send coins, and then immediately disconnect from the Internet when finished). Popular software wallets include Electrum, Exodus, and Jaxx.
Hardware wallets are physical devices that similarly store Bitcoins as paper wallets do. They also generate private and public keys using an offline device (usually with a desktop computer) and use cryptographic signatures to sign transactions without exposing your private key. The most popular hardware wallets on the market today are Trezor and Ledger Nano S (you can view our full article about hardware wallets here ). Hardware wallets offer unprecedented safety for storing large amounts of BTCs. Still, they are more expensive than most other options.
This may be the safest option for protecting your Bitcoins, but it can also be one of the most inconvenient, especially if you plan on making many transactions frequently. When you store BTCs on a paper wallet, they are stored in a physical document with both your public and private keys printed out. There are several sites available where you can create your paper wallets (such as WalletGenerator ). Once your paper wallet is created, transfer the amount of BTCs you would like to store onto this document using any previously mentioned wallets (or an exchange). Then disconnect from the Internet and store your paper wallet somewhere safe where no one else has access to it. If you wish to sell or transact any of your coins, all you’ll need to do is connect online long enough to send the stored BTCs back online again using a software wallet.
This option should be approached with extreme caution. A brain wallet stores Bitcoins in mind by memorizing a seed phrase that controls your private keys. Theoretically speaking, this method provides maximum security because no other factors are involved beyond your memory (i.e., Internet connection). On the flip side, getting this information would cause you to lose ALL of your coins forever, negating the entire purpose of investing in Bitcoin. There are numerous services available where you can create your brain wallets for free, but it’s probably not the best idea to use this option unless you are confident that you won’t forget your “password.”
Bitcoin wallet safety risks
But even the most secure wallet can be susceptible to dangers. Here are some risks associated with each wallet type:
Because these wallets store your Bitcoins on servers, they are at risk of being hacked or compromised. You must also protect this “password” just as seriously as you would any other login information. Finally, suppose you plan on using this option for storing your coins long-term. In that case, it’s important to remember that BTCs could also become inaccessible should the company responsible for maintaining them go out of business.
Similar to online wallets, software wallets generate private keys directly on the device where the app is downloaded; compromising one could mean compromising both your public and private keys along with it. It’s also important to back up any wallets you plan on using in the event of a loss (extremely unlikely, but possible nonetheless).
A hacker would need physical access to your hardware wallet to access your Bitcoins, making this option relatively safe. Be sure to set up an additional passphrase for added security, which can be done in both software and hardware wallets. However, if you lose your hardware wallet or forget the passphrase, your coins will still be inaccessible.
Loss of paper wallet or forgetting private key is not recoverable without backup; ensure that encrypted backups are available when using this option.
Forgetting the seed phrase can result in the loss of all BTCs forever. Additionally, some users have experienced temporary paralysis or loss of mental faculties after attempting to memorize a passphrase (“post-brain wallet syndrome”).
Bitcoin wallet safety tips
There are certain steps you can take to ensure maximum security for your Bitcoins. First of all, use more than one wallet type, which will help distribute any potential threats. This is also an opportunity to use different passwords for each wallet type. Store only small amounts online while keeping the larger portion of your funds in offline storage. And remember, you are still ultimately responsible for maintaining control of your coins.
Second, always back up your wallets if something happens on the original device (i.e., loss or theft). This can be done by exporting your private keys to a USB drive, SD card, or even a piece of paper. This can be accomplished using both software and hardware wallets.
Third, never connect online with a hardware or paper wallet unless you plan on using it immediately. This can be accomplished using both software and hardware wallets.
Fourth, beware of phishing attempts, which happen when a hacker sends a message pretending to be from a company you trust. If an offer looks too good to be true, it probably is.
Fifth, if you use any online wallets, ensure that two-factor authentication is enabled when possible. Additionally, even if you own your private keys (which hopefully you do), it’s still best practice to store only small amounts of BTCs in this type of wallet; if your password or PIN is compromised, these funds are easier to recover than larger amounts.
Sixth, remember that having Bitcoins stolen probably isn’t nearly as bad as losing all of their value due to deflation. Most importantly, always take the time to acquire knowledge about Bitcoin security before investing large sums into the cryptocurrency.
Also, nothing beats personal interaction when it comes to learning about security. Spend some time on forums, ask questions, or even chat with experts directly.
Keep an open mind about new technologies, even if they might be considered unsafe. This will allow you to stay on top of security trends and also help you learn more about Bitcoin wallet safety.
Lastly, always double-check the URL within your browser before entering in any login credentials or private keys. This can be done with both software and hardware wallets.
The most important thing you can do is educate yourself before using any wallet type for storing Bitcoins. This article was written to help provide the knowledge needed for safe storage; use whatever information seems relevant and applicable based on what you learn. And of course, be sure to consult a trusted source if you have any additional concerns or want to be certain that your coins are safe!
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