A Bitcoin wallet is a piece of software which conceptually houses Bitcoin. Every individual who owns a Bitcoin wallet is provided with a private key (password) and the public key (username) corresponding to the Bitcoin address of that wallet.
These wallets facilitate the entire process of sending and receiving cryptocurrencies with great efficacy. Every cryptocurrency transaction is recorded in a conceptual book which is digitally programmed as a database encoded with strong cryptography. This retains the transaction records and ensures topmost safety.
While the concept of Bitcoin is still new for some, it remains the world’s most popular cryptocurrency since its release in 2009. Bitcoin wallets hold the owner’s Bitcoin balance but don’t contain it directly. In order to access the bitcoin blockchain (Bitcoins work on distributed public ledgers known as ‘blockchain’ that tracks all the transactions made by the crypto holder), one needs access to the public address and the private key. Say, if a person is making payments, these bitcoin wallets digitally sign the transactions rendering ownership of their coins known as “Unspent Transaction Output ” or UXTOs.
The bitcoin wallets are of four major forms: Desktop, Mobile, Web and hardware bitcoin wallets. Here, we’re primarily focusing on hardware wallets and web wallets. So, what exactly are these?
- Hardware wallets: These are really safe. And they are generally seen as the safest wallets to use. Hardware wallets are digitally processed series of programs generally conceived as a device to store, receive, send or spend your crypto. It stores your public address and private key, acting as a kind of flash drive. The most popular hardware wallets are Trezor Model T, Ledger Nano X, Coolwallet S, Trezor One Black and others.
- Web wallets: As web wallets do not store your password, your private key is always secure even if the wallet is hacked. However, these are managed by third parties. These are generally the easiest to set up and simplest to use. Although they cannot be physically stolen, they are only as secure as the provider who’s hosting the web wallet. This means if something goes wrong with the provider (a security violation), your Bitcoins might be compromised. Some leading web wallets are Electrum, Exodus, Jaxx, Copay and others.
Bitcoin hardware wallets store your private keys in a secure physical device. This device is secure enough that you can even use them with devices you don’t trust. They have many advantages over standard software wallets or web wallets. Here we put you through some of the major attributes of Hardware wallets and why you should choose them over Web wallets.
- Private keys are stored in a secured area of a microcontroller. The device is completely isolated, and your keys cannot be transferred out of the device even if the computer or the smartphone containing the wallet is vulnerable to viruses. In opposition to software wallets, hardware wallets are designed specifically to make your cryptocurrency storage options more secure.
- Hardware wallets can be utilized securely and interactively, and because it stores your private keys on a hardware device, you don’t have to leave them on the computer itself which might be hacked into. Also, it allows the holder to bear witness to the entire procedure of the device.
- Hardware wallets support various currencies, and it’s compatible with several web interfaces providing great interface and compatibility. All you gotta do is plug in the hardware device to any internet-enabled machine, enter the pin, make the transaction, confirm it. And bingo!
- Bitcoin hardware wallets are ridiculously easy to operate, and the installation doesn’t require much of your sweat. These wallets provide transparent security and don’t hide anything from their users.
- Hardware wallets have physical buttons, an LED screen and have the capability to back up and recover the private keys stored on it.
- Hardware wallets operate on RNG or Random Number Generator which is installed in the hardware to provide maximum safety of the keys. Sometimes, it might be difficult to locate the randomness of the RNG which might be re-located by a hacker. Hence, the quality of implementation needs to be perfect!
When it comes to storing your cryptocurrency, hardware wallets are considered gold standard all over the world. Generally, hardware wallets are of two major types- Hot wallets and cold wallets.
Hot wallets: These are cryptocurrency hardware wallets that are actively connected to the internet. However, they might be prone to viruses or hack attempts. But you can always make the content offline and be safe.
Cold wallets: These are cryptocurrency hardware wallets that are totally offline and does not use internet. Hence, safe from viruses or any hacking attempt.
The other kind of crypto-wallet is the Web wallet. These are non-physical programs that you can download onto your computer or smartphone. This is encrypted, and like every other bitcoin wallet or crypto-wallet, it requires a password to access the coins stored in it. A hardware wallet is way better as it provides enhanced security against Web wallets in cases of scams or theft. Aforementioned, even if someone stole your hardware wallet, your coins are safe. You can easily restore them later, but with Web wallets, you can’t. With literally no access to your private keys, nobody can transfer Bitcoins or other coins from your hardware wallet. Moreover, no spy recorder or Trojan can track what’s happening on your bitcoin wallet as it has a dedicated LCD screen and is not using your system resources. Some of the advanced hardware wallets come with a digital screen which helps the user to verify the payment.
Important point: After setting up your bitcoin wallet, you should write down the recovery phrase on a piece of paper and keep it in a safe place so that you can use it later. Try making 2-3 copies and distribute them at secret and safe places. This may help you later to recover your bitcoin.