Bitcoin… Cryptocurrency… Blockchain…
It’s awesome to be taking part in this digital revolution of the decade. A myriad of opportunities await those who take advantage of it.
With that said, how do you get in this latest digital craze?
Well, the very first thing to do is find a way to store your Bitcoins.
In this article, we’re going to talk about the different types of cryptocurrency wallets used for storing Bitcoins and Altcoins. I’ll also recommend some well-known companies whom you can trust with your digital money.
But before I show you the tools, let’s get to the fundamentals first by understanding what it means to store Bitcoins.
Storing Cryptocurrencies: How It Works
In traditional wallets, you store your fiat money (i.e. USD, EUR or YEN), credit card, debit card, and some special ID’s inside the wallet. Every time you purchase something, you grab your wallet, pull out some cash/card, and then make the transaction.
In crypto wallets though, it’s not the Bitcoins or Litecoins you get to keep inside. But rather, you’re storing an important string of text, called the private key.
This private key is responsible for keeping your tokens safe and secure. The analogy is like that of an ATM PIN, which if you enter will grant access to your money.
Also, your wallet comes with a public key, which is commonly referred to as your “Bitcoin address”. Whenever you wish to receive Bitcoins (or other cryptos) from someone else, you give out this address so they’ll know where to send the money.
Through complex mathematical algorithms, these two keys provide access to very important information including your digital balance.
By nature, only YOU possess these two keys (public and private) and no one else. But if for some unfortunate event your private (or secret) key gets leaked or lost, then your money is lost FOREVER.
That’s why the #1 rule in protecting your cryptocurrency is:
“NEVER reveal your private keys to anyone.”
Whichever wallet you decide to use, this fundamental principle applies all the time. In fact, you might want to take note of this rule because it’s so important.
Anyways, let’s move on.
In storing cryptocurrencies, there are two main categories of wallets:
- Hot Storage
- Cold Storage
In the next part, we’ll go into the detail of both types.
Hot Storage: Your Digital “Leather Wallet”
Hot storage is what you need to spend cryptocurrencies online. The Bitcoins/Altcoins you hold with this tool are connected to the blockchain, which makes it possible to create transactions.
When you’re just starting out, a hot wallet is all you need to learn how to spend, invest, trade, or gamble with Bitcoins.
The downside of hot storage is that it’s less secure. There’s a good chance that your coins will get hacked if the wallet you’re using is not secure.
Not that it happens all the time, though.
A. Web Wallets
The most newbie-friendly way to store Bitcoins is through a trusted web wallet. In this scheme, you create an account by providing a username/email and password, which you will use to access your digital currency.
Depending on the site, some might still want to verify you by performing KYC procedures.
The major downside is, you don’t take control of your private key. You trust that the company (a 3rd party) will NEVER leak any sensitive information about you and will do its job to protect its consumers.
However, when you think of issues in the past, such as the Mt. Gox incident, it would feel uneasy to store your Bitcoins in online exchanges.
But nevertheless, it’s a great place to start especially when you’re just starting out with a few coins.
To get started, here are some popular websites that provide online wallet services:
B. Desktop Wallets
The second type of hot wallet is desktop wallet. You download some software to your desktop so that you can access your Bitcoins through it.
This option is great if you hang out a lot more in your computer. Just make sure you have strong encryption in your storage and that you provide multiple backups of the software.
Here are 5 popular brands for desktop wallet:
- Bitcoin Core
- MultiBit HD
C. Mobile Wallets
The third type of wallet, which I think is really awesome, is called a mobile wallet. As the name suggests, mobile wallets store Bitcoins in your mobile device (i.e. smartphone or tablet).
Mobile wallets are awesome for their flexibility and convenience. They allow you to use Bitcoin as a mode of payment in selected stores, as well as send coins to anyone in real life.
Of course, you need to keep an eye on your gadget because once it’s gone, the coins inside it are also gone.
To get started, head over to Google Play Store (for Android) or App Store (for iOS), download the wallet of your choice, then start loading it with money:
- Bitcoin Wallet
Cold Storage: Your Digital “Cash Vault”
Cold storage disconnects your money from the blockchain network. This ensures that no one can hack into your wallet and steal your precious coins.
When you start to get involved with large amounts of Bitcoins or Altcoins, then you’ll definitely need this in your tool set.
The main catch is of course, you’ll lose ALL your precious coins once the storage is gone. There’s no insurance in the cryptocurrency world because it’s decentralized. Both the banks and government can’t do anything with your carelessness.
A. Hardware Wallets
If you’re aiming for specialized storage, then a hardware wallet is all you need. They’re designed to store Bitcoins and Altcoins in the most secure way because they’re offline.
Hardware wallets are great because they can be connected to your laptop via USB cable, and then integrated with popular desktop wallets or web wallets to transfer your cryptos.
By the way, this wallet comes in the form of a “device”, with sizes ranging from USB sticks to card readers. With this in mind, expect to spend some cash when investing in any of the following brands:
B. Paper Wallets
Did you know that you can print Bitcoin wallets from your own office printer? It’s possible because of a technology called paper wallet.
The first step in creating one is to generate some public and private keys through an offline key generator. In the process, it will show you the design of your paper wallet containing the keys, as well as a QR code for scanning it.
Afterwards, you’re going to encrypt the address by setting a password of your choice. This serves as an extra line of defense for whoever reaches your keys.
To see what a paper wallet looks like, just watch this short video:
Want to practice having one? Get your hands on a paper wallet by heading over to these websites:
VERY IMPORTANT: Save the websites first in “offline mode”, then disconnect your Internet connection before generating your keys!
C. “Brain Wallet”
Being another cold storage option, a brain wallet is used for storing Bitcoins in your head. Really, brain wallets involve you memorizing some human-readable words which help you access your Bitcoins.
The way you do that is by using mnemonics (memory aid) in order to recall the words better. Another technique is to have a backup of all the seed words by writing it in a paper.
As I found out, some of the wallets mentioned above actually have a mnemonic seed feature that generates a passphrase for you, and they are:
Grab the Wallet of Your Choice and Start Buying Bitcoins
Now that you know the options for storing Bitcoins, it’s time for YOU to make a move. If you start with a web wallet, I suggest you don’t put too much coins in it.
Consider multiple options like a desktop or mobile wallet, then don’t forget to invest on a hardware wallet once you’re growing your crypto money.
Most importantly, be careful with handling your coins by making sure to research a lot on the websites I suggested. Go test them with smaller transactions until you’ve gotten the hang of it.
If you’re ready to proceed, here’s my guide on how to buy Bitcoins so you can utilize your newly-found wallet.
That’s all for my tutorial on how to store Bitcoins. Having trouble with wallets and still confused? Come ask me in the comments below and I’ll help you there.