To buy, sell, and trade bitcoin has become accessible but next step that comes up is regarding its storage, according to Cointelegraph. As bitcoin is a digital currency, it is stored in an electronic wallet which can be entered through a private key. A wallet application ensures the automatic use of a private key to sign outgoing transactions and generate wallet addresses.
According to the publication, digital wallets save cryptographic information necessary for bitcoin based transactions, while other cryptocurrencies can also be stored in them. The steps required to choose the appropriate bitcoin wallet are to decide the kind of cryptocurrency wallet required and then to select ideal individual wallet. It is important to ensure that chosen wallet is compatible with stored currencies and caters to specific security and usability requirements. Different kinds of bitcoin wallets are:
Mobile wallets help with the usage of bitcoin to make payments for goods and services in shops or to make daily trade oriented transactions. It runs as an application on smartphones, to store private keys and allows one to pay, trade and store cryptocurrencies with the phone. Mobile wallets take advantage of payment verification technology, as they only operate with subsets of blockchain that rely on nodes in bitcoin network to ensure that they have appropriate information. Disadvantage lies with nodes which have control over the coins and transactions. Mobile wallets are susceptible to malware and hacking. One can lose control if someone gains access to their mobile, and there is no two-factor authentication.
Web wallets (exchange wallets)
Web wallets store private keys on a server which are online and controlled by a third party. These wallets enable users to access funds from any internet linked device. Exchange wallets have been targeted by hackers as they are accessible through one’s email address and password. In some situations, they offer a certain degree of security from the loss of funds.
Desktop wallets are downloaded and stored onto one’s computer, to store private keys on one’s hard drive or solid-state drives (SSD). They do not rely on third parties but are connected to Internet, which raises concerns about their security. Desktop wallets are appropriate for those who trade small amounts of bitcoin from their computers.
Hardware wallets store private keys in a physical device. They are immune to computer viruses, as the funds stored cannot be transferred out of the device in plaintext, and their software is open source. Most hardware wallets have screens as a security feature, to verify and display wallet details. Hardware wallets purchased from any used item marketplaces are considered fake and can steal funds from one’s bitcoin account.
Paper wallets are physical documents which contain public addresses to receive bitcoin and a private key that allows one to spend or transfer bitcoin stored in that address. Paper wallets are printed in the form of Quick Response (QR) codes, to scan them and add keys to a software wallet or a wallet application to make transactions. A paper wallet can be created through services that allow users to create a random bitcoin wallet address with its private key. The advantage with paper wallets is that keys are stored offline, which makes it resilient against hacking attacks including malwares. One must ensure about not being surveyed while the wallet creation takes place.
(With insights from Cointelegraph)