There is no denying that Bitcoin (and other cryptocurrencies) is an awesome way to make transactions online. It allows you to connect with different merchants, send funds to your friends and family, and even just to invest your money in a scalable currency.
But before you dive into the complexities of Bitcoin, there are some things that you need to know in order to avoid potential problems that may arise. One of these things is to know how to safely secure them.
In real life, there are different ways to store your fiat money and cash – in your patent leather wallet, in the bank, in a safe under your bed, in an online bank, etc. The same is true with Bitcoins. There are different ways to store them. However, in this context, whatever way it is, it is still called a wallet. Like in real life, the type of wallet you use can provide security to your Bitcoins at varying levels. Some of them are more secure than the others and it is very important that you choose the kind of wallet that suits your needs and provide you with the best security.
In this post, we will discuss what you need to know about Bitcoin wallets and the different ways to securely store your coins. But before anything let’s, it’s intuitive that we define what exactly a wallet is in this context.
What is a Bitcoin Wallet?
In the broader sense, a Bitcoin wallet is a software or a hardware that safekeeps your coins. Essentially, it works like a bank and it allows you to send, receive, and store cryptocurrencies. It is an infrastructure that stores your private keys that allows you to initiate a transaction in the Blockchain network, just like how a bank connects you to the entire fiat currency network.
There are two general kinds of wallets that can be used. The first one is an online (hot) wallet storage and the other is a hardware (cold) wallet storage. The two types of wallets serve different purposes and offers varying degrees of security to users.
Online (Hot) Wallets
The first type of storage is online wallets also called hot wallets. Online storage is a software that allows you to store, send, and receive Bitcoins by connecting you to the blockchain network. The operating word is online as the wallet is not physical. Instead, you use a website or a platform as your wallet.
This type of wallet is ideal for those who have small funds and need to have instant access to their funds. Since the wallet is perpetually online, using cold storage comes with greater risks. There are countless cases where online wallets and Bitcoin exchange platforms have been hacked and their coins have been stolen.
Hardware (Cold) Wallets
A hardware wallet is a special kind of device (or hardware) that you can use to store your private keys in. Coins stored in cold wallets are in a protected area of the device’s microcontroller which means that the keys are not transferable out of the electronic device in plaintext. It provides a greater deal of protection as your private keys are not always online and unless you lose the device, you will always have access to them as long as you connect it to a computer or smartphone.
Advantages of using Hardware Wallets
It is always disconnected and offline
One of the biggest advantages of using Hardware Wallets is that they are always disconnected from the internet. This means that it is perpetually impossible for a hacker to penetrate the device and steal your private keys unless they get a hold of the actual device. And even so, they will still have a hard time figuring out the password and the user ID for them to open the cold wallet.
It is easy to use
Hardware Wallets are designed so that they are portable and can be carried in your pocket or inside your bag, The infrastructure works by simply connecting the device to a computer, a tablet, or a phone to start spending cash. Once you connected the device to a computer, all you need to do is to access it through a PIN and authorize a transaction to start making transactions with your bitcoin.
Lesser margin of error
Since Hardware Wallets don’t exist online, there is always lesser margin errors. You can always disconnect the device from the computer every time you’re done with your transaction. Cold wallets are also designed to provide user with ease of back up and heightened security to protect users whenever they commit an error in making a transaction.
Using Bitcoin in making transactions is one of the most secured ways of sending, receiving, and storing money. However, the degree of security that Bitcoin can offer depends highly on the type of storage wallet you use. While hot wallets are ideal for those who have smaller funds and need instant access to their coins all the time, the most secure way of storing coins is still through hardware wallets. Since Hardware Wallets are always offline, you run lesser risks of losing your coins. With a cold storage, all you need to do is connect the wallet to a computer, tablet or phone, key in your PIN, and authorize a transaction to start spending your coins.