Bitcoin wallet: types, how to choose and create, ways to replenish the wallet with Bitcoin (BTC) cryptocurrency
In connection with the active growth of Bitcoin, more and more investors are considering the possibility of replenishing their portfolio with this promising asset. But even before you start choosing a site for buying BTC, you should choose a high-quality and most reliable wallet where investments will be stored. Do not forget that scammers in the field of cryptocurrency do not sleep and are actively looking for ways to steal such a valuable asset. It is in your power to find a wallet that fully meets modern security measures. The review prepared by the editorial staff of btcnewsweb.com will help you with this.
- 1 Functions performed by wallets in the bitcoin network
- 2 Varieties of wallets for storing Bitcoin
- 3 Desktop, mobile or online wallets
- 4 Centralized and Decentralized
- 5 Thin or thick
- 6 Expert opinion: which wallets are the safest?
- 7 How to buy bitcoin
- 8 How to top up a wallet
- 9 Conclusion
Functions performed by wallets in the bitcoin network
Bitcoin wallet is special software designed to work with the blockchain. In turn, the blockchain is a digital book of records that stores absolutely the entire history of transactions with a particular cryptocurrency, starting from the very first transaction. The wallet makes it possible to move funds between the nodes of the blockchain network, as well as receive information about the state of your own account.
To perform operations, the user must confirm the validity of his address, which requires the so-called private (private) key. Bitcoin wallet is designed to manage keys and ensure their reliable protection (since stealing a key is equivalent to stealing assets). Bitcoin itself cannot be stored anywhere, since it is a purely digital currency. So its storage comes down to keeping the keys.
There are different forms of bitcoin wallets, each of which has its own characteristics in terms of security, convenience, functionality and many other parameters. We suggest considering all the varieties available today.
Varieties of wallets for storing Bitcoin
Custodial or non-custodial
A custodial Bitcoin wallet is a service in which the user entrusts his keys to a third party for safekeeping. Thus, the developer company has full control over the clients’ funds, and they only give commands regarding sending or receiving payments. A third-party authority manages all finances, so that without its participation, the user cannot carry out a single transaction. This option cannot be called the safest, but it also has its advantages – these are significantly lower transfer fees (or even their complete absence), as well as maximum ease of management, which is convenient for beginners.
- Centralized crypto exchanges (e.g. Binance, Currency.com, Bybit, EXMO, Cex.io, Huobi, Kraken).
- Free wallet
A non-custodial wallet provides the user with the ability to own their own private key and the funds associated with it. There are two main types of private keys that can be used with these BTC wallets. The first is the seed phrase, or mnemonic phrase. It is a 12-24 word code generated from the primary private key. Needed to access the same account on several different devices. The second is the direct private key in its original alphanumeric form. Both keys are stored on the user’s device.
Today, it is mainly non-custodial wallets that appear on the market, as the community increasingly appreciates the self-storage of assets.
Hot or cold
Hot bitcoin wallets are more common than cold ones. They are software that is constantly connected to the internet to communicate with the blockchain. They can work in a browser, on a PC, laptop, phone. Also, most cryptocurrency exchanges use hot wallets to one degree or another, although it has already become a practice to store more than 90% of user funds offline. Internet-connected wallets are often targeted by attackers. However, from the point of view of convenience, they are superior to cold ones, since they allow you to quickly and without unnecessary actions make transactions.
- Bitcoin wallet
If you do not need instant access to your bitcoins, then it is best to store them in a cold wallet, offline. Security is a key factor in all cryptocurrency-related transactions.
There are two options for cold bitcoin storage – a hardware wallet or a paper wallet. A hardware device is an external device that stores private keys. To complete a transaction, you need to physically press a button on the device, and this is reliable protection from online fraudsters. Access to the hardware wallet is locked with a PIN.
A paper wallet is a sheet of paper or other material with a printout of the private key and public address. Before the advent of hardware wallets, this option was very popular, but now it is considered less secure due to the fact that the paper can be stolen or it can become unusable from external factors.
Desktop, mobile or online wallets
Desktop bitcoin wallets are installed on a computer, and private keys are stored on it. Working with them is to download and install the appropriate software, then create a seed phrase or key and ensure that they are stored in a safe place. It is important to maintain the security of your computer, install antivirus and firewall, and monitor their updates. Otherwise, an attacker can get to the keys by hacking access to the computer.
- Bitcoin core
Mobile wallets are inherently similar to desktop wallets, but designed specifically for the mobile operating systems iOS or Android. Likewise, they store keys on the user’s device and require the security of this device. In particular, by stealing a phone, a fraudster can get hold of funds if access codes are not installed on the phone and wallet. A convenient feature of mobile wallets is support for QR codes, with which you can quickly transfer and receive funds.
Web wallets do not require downloading any applications, but work directly from the browser. They can be both custodian and non-custodian. Access is carried out from any device where there is Internet, using a login, password and any authentication method (Google 2FA, SMS, email). It is recommended to carefully configure the security of your account before using it: enable the above authentication methods, specify the allowed IP addresses, etc.
- Coin Space
Centralized and Decentralized
Centralized bitcoin wallets function in such a way that all basic functionality is under the control of a central governing body. At the same time, a centralized wallet can be non-custodial, but more often they are custodian. Such services always retain complete control over user accounts and the transfer of their transactions.
A decentralized wallet is one that does not have central authority but operates according to the principles of blockchain technology. Provides users with much more control and financial security than centralized. Such a wallet does not hold any funds or personal data of users. A special algorithm is responsible for sending and receiving transactions. Another important caveat: governments and regulators also cannot interfere with operations or obtain data about users, since there is no centralized source that could provide this data.
- Atomic wallet
- Bitcoin core
Thin or thick
Thick Bitcoin wallet is a program that downloads the entire blockchain to your computer for maximum security and manageability. In this case, it initially requires downloading several hundred gigabytes of data, which takes a decent amount of time. But then the client only needs to periodically check the authenticity of the blockchain and update it.
- Bitcoin core
A thin wallet is downloaded and installed instantly, but then constantly goes online to update the data. This option is considered less secure (after all, the more connections to the Internet, the greater the likelihood of hacker attacks), but due to its convenience it has become very popular.
Expert opinion: which wallets are the safest?
In 2020, Veriphi conducted an analysis of all currently existing Bitcoin wallets. The services were compared on 48 different criteria: from the programming language or the ability to connect to your own node, and ending with the presence of multisignature and two-factor authentication. As a result, all the considered services were divided into four groups.
Bitcoin wallets are recommended for use:
- Bitcoin core
- Bitcoin wallet
- Blue wallet
Allowed for use:
Better not to use:
- Coin Space
- Trezor Wallet
- Ledger live
Definitely not worth using:
You can also take these recommendations into account when choosing. But a lot depends on which features are important to you personally, and which are not of great importance.
How to buy bitcoin
You can buy Bitcoin in several different ways:
- On a crypto exchange by creating a trade order for exchange within the currency pair of interest. It should be noted that replenishment of an exchange account with fiat funds – rubles, dollars, etc. – most often requires identity verification.
- On a p2p platform through direct exchange with other users. You transfer fiat without the participation of an exchange, to the details of the seller. And he transfers you cryptocurrency. Exchange mechanisms protect both parties from fraudulent activities.
- In the exchanger, where you can do it even without registration and verification. It is enough to indicate the details and pay for the application with fiat in a convenient way (card, electronic wallet), and then receive bitcoins to your crypto-address).
- At a cryptomat, if there is such an opportunity in your city. Cryptomat makes it possible to purchase bitcoin for cash.
- Through a cryptocurrency wallet (e.g.Matbea, Trustee Wallet, Trust Wallet). Many of the wallets that we have listed in this article allow you to directly purchase bitcoins from a card or with another cryptocurrency.
- Payment systems (e.g.Payeer, Capitalist, AdvCash). If the payment system supports working with bitcoin, which is now a frequent occurrence, then it makes it possible and easy to buy it.
How to top up a wallet
To replenish a Bitcoin wallet, an address is used – this is an alphanumeric code that you will find in any cryptocurrency wallet if you click on the Receive button. To replenish your wallet, you need to copy this address, and then send it to the person who is going to transfer funds to you, or paste it into the service from which you want to withdraw BTC.
Almost all wallets generate a QR code simultaneously with the address. Having scanned it using a mobile wallet, you can speed up the sending process as much as possible, since the address will be entered automatically, all that remains is to indicate the amount and confirm the transaction.
It is very important to choose the right Bitcoin wallet and keep it safe in the future. Private keys are valuable loot for hackers, and they don’t need to be allowed to steal them. The main precautions are using a cold wallet for all large amounts and setting strong passwords on hot wallets. Remember to regularly back up your software wallets to avoid losing your savings due to a system crash.