ScaredyCatGuide to Bitcoin and Other Cryptocurrency – Part IV – Storing Bitcoin Using Wallets
Now that we know how to buy and sell bitcoin (BTC) we must learn how to store it and keep it safe.
This post is part of a running series on bitcoin and blockchain basics
What is a Bitcoin Wallet?
A Bitcoin wallet is where we keep all the information relevant to our bitcoins. We use the wallet to store bitcoin and send and receive them, as well.
When it comes to bitcoin (and all cryptocurrencies) your wallet information is the most important thing to safeguard.
When you open a bitcoin wallet you will get a wallet address. Look at this like your bank account number. You will also receive security keys that are akin to a password for your bank account.
Before we get into the security keys, let’s first learn about the two main types of wallets.
Two types of wallets:
- Hot Wallet (also referred to as a soft wallet)
- Cold Wallet (also referred to as a hard wallet)
Let’s talk about the difference between the two...
Hot Wallet (Soft Wallet)
A hot wallet is basically a software wallet. You download the wallet software on your machine and the wallet information is stored there.
There are many different wallet types, both software and web browser based. An example of a software wallet is https://www.exodus.io/ and it’s what I use for most of my crypto holdings.
There is also https://www.myetherwallet.com/ if you want to use a wallet through your web browser.
Think of your soft wallet as the checking account for your bitcoin. It’s readily accessible and can be used to make daily transactions.
With that said, this is possible because your soft wallets are basically connected to the internet 24/7.
If you have your software wallet closed and your machine is not connected to the internet, then it would be offline in those instances until you reconnect.
What about holding bitcoin on exchanges?
In the last post we discussed how to buy bitcoin using an exchange. At this point you have bitcoin sitting on the exchange and they will happily store it for you there. This is equivalent to a hot wallet, you have access to transact readily.
However, you also have put the security of your bitcoin in the exchange’s hands. If they get hacked or wallets get breached you can easily lose your bitcoin.
Plus, exchanges are much bigger targets than the single wallet on your machine for attackers and malware.
Outside of the bitcoin you are using to transact or trade with regularly - I do not suggest letting your bitcoin (or other cyrptos) sit on the exchange. The exchanges take security seriously, but it’s an unnecessary risk you are taking.
Cold Wallet (Hard Wallet)
Look at a hard wallet the way you would a savings account. You keep bitcoin there you do not plan to transact with regularly.
There are different types of hard wallets, but in the end they are used for cold storage. Meaning the wallet and information is offline a vast majority of the time.
I will focus on hardware wallets as that is the main point of hard wallets. There are several brands, but https://trezor.io/ is a known and respected device.
You bitcoin information is kept on the hardware device and is only connected to the internet when you plug it in.
Furthermore, hard wallets are even safer because as you make transactions it requires you to physically push a button on the device.
That is pretty difficult for a hacker to replicate. Hard wallets are the safest form of security for your bitcoin.
In the next post we will discuss wallet addresses and security keys
Some things I use:
- https://1broker.com to trade stock and currency using bitcoin
- https://bitconnect.co to earn daily interest lending bitcoin (my speculative investment)
Best Regards,
Disclaimer: All content in this post is my opinion and for informational purposes only.
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Great addition to the series @scaredycatguide. I use and recommend the KeepKey hardware wallet. The big screen allows for easy recovery phrase generation and cycling PIN management.
Interestingly, hardware wallets can even be used safely when connected to an infected machine. Transactions are sent to the device to be signed with the private key. As the private key never leaves the device, the wallet is never compromised.
Of course replay attacks are still possible as they utilize validly signed transactions and require other means of security beyond the scope of any wallet.
Thanks for the ongoing info. It's filling a much needed role. What's the next topic in the series going to be?
👍
Thanks for the additional wallet info. Gonna talk about private keys and addresses in the next post :-)
That's getting interesting. Keep up the great work!
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Excellent tutorial. Thanks for the basics...I appreciate this.
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Can a device like the Trezor hold any kind of crypto or only specific ones? I want to diversify into some solid altcoins, but worry that a cold device might not accommodate the crypto I am looking to invest in.
Trezor hold specific coins from what I know...you can see the list on their website.
Gotcha, thanks!
Excellent article @scaredycatguide. I started up Exodus wallet a couple of days ago and love it.
Nice! Yes, I have liked exodus so far too.
I will need a hard wallet for sure once I get down to my long term investments, which I hope to be completed before Christmas if we can get past this BTC Fork and come out ahead on the other side. 😎
Two types of coins I will be keeping regularly online will be BAT and Steem, most everything else will be short term positions and coins for every day use which can rest in my Exodus wallet.
Yes, similar set up for me. Exodus has been great for that.