Where to store Bitcoins

4 Months ago / Wiki / For beginners

Preface

Lets look what should you know about cryptocurrency wallet before using it.

These 3 numbers are common for every cryptocurrency wallet and are very important

  • 1.             Private key: Randomly generated. This is a 256-bit number. Usually it is written in hexadecimal format, for example 
  • 2.             Public key: is generated from a private key (cryptographic elliptic equation is solved). This is a 512-bit number. Usually it is written in hexadecimal format, for example
  • 3.             Address: is generated from a public key using hashing functions. It consists of 27-34 Latin letters or numbers (yes, it can be of different lengths), for example:
  • 1CC3X2gu58d6wXUWMffpuzN9JAfTUWu4Kj

With a private key you can get a public key and address, but doing the same backwards does not work. with the address, the public key and private can not be found.

You would question - Does anybody can generate exactly the same private key, as I am? Maybe, but the probability of this is monstrously small. Look at how BIG the number is

  • The number of atoms in you ~ 1026
  • The number of atoms in the planet Earth ~ 1050
  • The number of atoms in the Sun ~ 1057
  • Number of possible key pairs ~ 1061
  • The number of atoms in the Galaxy ~ 1069
  • The number of atoms in the observable universe ~ 1080

So you get the idea about the keys and adress, lets proceed to the wallet.

 

What is the wallet itself?

Wallets secure funds by guarding your private keys,

A wallet is basically the equivalent of a bank account. It allows you to receive bitcoins, store them, and then send them to others. You can think of a wallet as your personal interface to the Bitcoin network, similar to how your online bank account is an interface to the regular monetary system.

There can be many such pairs private and public keys in one wallet, as well as addresses.

You can get many different addresses to each Bitcoin wallet. We generally recommend to use the new address every time for a new transaction

 

Types of wallets

Wallets are usually classified as follows:

  1. Exchange
  1. Paper
  2. Online
  1. Cold / hot (there is or there is no access to the Internet)
  2. Thick / thin (depending on there is or there is not a complete copy of the blockage) 
  3. Hardware

Thick

A thick client is a wallet that has a full node (According to the initial idea, each user of crypto currency must have on his computer a complete copy of the block, it is called a node of the network). Such wallet can check the transactions by itself, determine that someone really has 0,5 BTC on the account, having tracked the full path of the Bitcoins to the user’s address.  

Advantages  Disadvantages:  We recommend:
Regarded to be safer than thin one
The size of the uploaded data. Now for Bitcoin is almost 200 GB. 
It takes a lot of time for wallet synchronization
Bitcoin Core which is the main thick client for Bitcoin

 

Thin 

Thin clients (they still call them light) do not store the blockchain. They use their servers. So, for example, the Electrum wallet, has special servers that index the entire blockchain accorfing to addresses. The client communicates with 10 different, randomly selected servers, and the connection is secured with SSL

Advantages Disadvantages: We recommend:
Easy and convenient - it uses remote access from the blockchain
Possibility to restore private, or private key
Can be used as a "cold" wallet
You can see all the addresses to which transactions occur
Requires the presence of a third party,  and makes it necessary to store personal data on third-party server servers vor verification 
Servers do not always provide the optimal speed for the transaction, and can provide up-to-date information with delay
Electrum

  

Online

The online wallet stores your private key. You log into the online wallet using your login / password + two-factor authentication

Advantages  Disadvantages:  We recommend:
Easy access

You give your your private key to the Internet service

BitGo

   

Hot and Cold 

All of the above wallets are hot. They have access to the Internet, theoretically, someone can steal your private key, for example, if you go to all sorts of sites which contains viruses and download suspicioussoftware 

A cold wallet is installed on a computer without access to the Internet. You can sign a transaction on an offline computer about transferring your bitcoins, copy the transaction text to a USB flash drive, transfer it to a computer with Internet access and send the transaction to the network. It sounds difficult, but it is not. And it gives the maximum security

 

Paper 

Paper wallet is an analog of any online wallet, which also provides the security of crypto currency by "cold storage". To acquire it, you need to print out the secret key on paper and ensure the safe storage of this information.

Advantages  Disadvantages:  We recommend:
Secret data is not stored in the global network

The need to keep away from water and fire for understandable reasons

       

Someone can take possession of your wallet

https://www.bitaddress.org

  

Hardware

A hardware wallet is a "flash drive" that plays the role of an offline computer with your private key. This is an ideal option for storing keys. Even if you connect the hardware wallet to the computer, no one can steal your private key. The wallet is protected by a pin code, if someone steals your hardware wallet, he will not be able to do anything. It is believed that such purses are the safest, but there is still a risk:

The hardware wallet has a recovery mechanism in case the wallet is broken or is lost. For recovery, a special set of words (a seed) is generated. If someone stole these words – your bitcoins are slolen too. If you lost the hardware wallet and had forgotten the words, bitcoins are lost for ever. 

Advantages  Disadvantages:  We recommend:
Full security Risk of losing or forgetting a special set of words (a seed) Ledger Nano S/KeepKey/Trezor

   

Exchange

On the crypto-exchanges, you can create a wallet, for almost any crypto currency, in one second. But you will have only address. It is only used to receive bitcoins, exchange them for another crypto currency and withdraw it.

Advantages  Disadvantages:  We recommend:
Very fast and easy Maximum risk do not store any funds on the exchange!

 

In short: Bitcoin wallet is simply an app, website, or device that manages Bitcoin private keys for you. 

In reality, it’s not bitcoins that need to be stored and secured, but the private keys that give you access to them. 

Remember:

Your bitcoins are only safe if the private key was generated securely, remains a secret, and most importantly - is controlled only by you! 



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