We keep cash in a physical wallet, but how is Bitcoin stored, if you can’t touch it? We will talk about all the nuances of Bitcoin wallets, their varieties and degree of security.
If you want to start working with Bitcoins (Bitcoin), first of all you need a Bitcoin wallet. It allows you to make transactions, that is, to buy and sell cryptocurrency. The main task of a Bitcoin wallet is to keep the secret key that is needed to access the Bitcoin address and, accordingly, your funds.
From a technical point of view, Bitcoins themselves are not stored anywhere, only secret digital keys are stored, giving access to public Bitcoin addresses and the ability to “sign” transactions. It is for this information that a bitcoin wallet is needed.
Wallets are different, depending on the device for which they are intended – you can even not use the computer at all and write the keys on paper. Of course, it is very important that the wallet has a backup copy and is protected from unauthorized access.
Bitcoin wallets are divided into desktop, mobile, online and hardware. They are available on almost all popular operating systems – Windows, Linux, OS X, Android, iOS, Windows Phone – and compatible with them. In addition, there are even paper clients.
PC wallets (they are also desktop or local) are stored on your computer, as well as a file with keys. There are two types of Bitcoin clients for PCs: “thick” (“heavy”) and “thin” (“light”).
One of the most popular “thick” wallets – Bitcoin Core. This is the “official” client of the Bitcoin network, which is developed and promoted by the Bitcoin Foundation, a non-profit organization uniting kernel developers. Bitcoin Core not only serves network transactions, but also allows you to create a Bitcoin address for sending and receiving Bitcoins, as well as to store the private key.
Also known is the Armory wallet, which runs on top of Bitcoin Core and extends its functionality. This client is more suitable for advanced users. This requires flexibility in management and the ability to ensure the security of keys.
Among the “thin” wallets Electrum is considered the best. It requires you to minimal effort after installation, you just need to choose a server. You get a phrase that you need to write or print – it will become a kind of guarantee in case of loss of a password. In addition, Electrum offers work not only with bitcoins, but also with other cryptocurrencies, including lightcoin.
There are other purses for the computer – all of them are slightly different functionally. MultiBit works under Windows, MacOS X and Linux. Hive is an OS X-based wallet with some unique features, including an app store, that directly connects to bitcoin services.
Some wallets emphasize anonymity. For example, DarkWallet comes with a browser extension with additional features, including mixing bitcoins, when tokens of different users are mixed to make tracking difficult.
Unfortunately, the wallet for the computer is not very useful, if you went outside and want to pay for something in the store – a mobile wallet is useful in this situation. This is a smartphone application that stores secret keys for your Bitcoin addresses and allows you to pay directly from your phone.
However, mobile wallets have a common feature; all of them are not full Bitcoin clients. Such a client must download and store the entire constantly growing blockchain occupying several gigabytes. Firstly, it would lead to huge bills for mobile communication, and secondly, there is simply not enough space in the memory of many phones.
Therefore, usually in mobile wallets, simplified payment verification (SPV) is usually implemented. In this case, the client downloads only a small part of the blockchain and relies in part on other, trusted Bitcoin network nodes.
Among mobile wallets on Android, Bitcoin wallet, Mycelium, Xapo and Blockchain are popular (it stores the keys on the phone in an encrypted form, and also creates a backup on the server).
Apple is known for its paranoid attitude to bitcoin wallets. The Coinbase wallet mobile app was removed from the App Store in November 2013, and the same fate befell the Blockchain version for iOS in February 2014. However, similar applications began to appear again in the iOS store in July 2014, and now almost all the leading wallet authors have released versions for this system.
There are other types of wallets that can also be used on a mobile device – for example, Aegis Bitcoin, which supports smart watches on Android.
Online or Internet wallets store secret keys on the Internet, on a server that the user does not control. There are several such server services and they are used, including mobile wallets and wallets for computers – to synchronize data between devices.
One of the advantages of a web wallet is access from anywhere and from any device. However, the main drawback is connected with this, if the wallet implementation is not entirely correct, the organization that stores your keys can take possession of them, denying you access.
Circle offers users around the world the opportunity to store, send, receive and buy bitcoins. For the time being, only US citizens can directly link a bank account to an account, but the rest can use credit or debit cards.
In addition, Blockchain has a web wallet and Strongcoin offers a so-called hybrid wallet. Here, private keys are encrypted directly in the browser before being sent to the server.
Today, hardware wallets on the market are represented just a little. These are specialized devices designed to store secret keys in electronic form and facilitate payments.
This solution is designed for bitcoiners with large reserves of cryptocurrency, who do not want to rely on third-party bitcoin storage services or on reliable, but impractical offline storage.
Mycelium is developing multicurrency wallets and recently announced a partnership with Dash, as a result of which users can buy and sell this popular cryptocurrency directly inside the application.
This is one of the most popular and cheapest solutions, and several sites offer similar services. They create for you a bitcoin address and a picture with two QR codes: one is a public address where bitcoins can be received, and the second is a private key that can be used to send bitcoins stored at this address.
The advantage of a well-organized paper wallet is that personal keys are not stored anywhere in digital form, which means they are not at risk of a cyber attack or a hardware failure.
In this regard, some companies are tracking transactions, and to counter this, the Bitcoin community has developed various merge avoidance techniques, hidden addresses and coin mixing.
Depends on use. Personal keys in your wallet are the only way to access transaction data stored in a Bitcoin address, so if you lose them, you will lose your money.
The wallet can be encrypted with a secure password – this makes it difficult to break in, but does not provide one hundred percent protection. If your computer is infected with a keystroke virus, the password may become known to the attacker.
It is important to back up your entire wallet. The fact is that some addresses are used to store changes in transactions and may not be visible to the user. So you need to create a backup of the entire wallet in several places.
Recently, there are more and more services that support transactions with multiple signatures. This approach allows several users to partially sign one address with a public key and if someone wants to spend bitcoins, it is necessary that in addition to his signature, several other users sign the transaction. How many signatures are needed is set in advance when creating an address.
This form of signature may be convenient in the event of mutual agreement between, for example, business partners or family members. Also, the second participant can be a second device belonging to the same user.
If storing your Bitcoin keys in digital form seems too dangerous to you, for example, there is another way to a wallet that is stored on media that is not connected to the Internet.
You can store fixed assets in such an offline wallet, and a small operating reserve – in a more convenient wallet connected to the Internet. Thus, even if you lose a mobile phone or a wallet on a laptop will be damaged as a result of a hard disk failure, only a small part of bitcoins will be lost.