One of the most important points about trading cryptocurrencies is security. For this reason, they have mechanisms to build safety and prevent personal data from being openly accessible to and by everyone.
In this blog post, we will detail what this software is and how it protects the people who negotiate. Knowing this is critical if you are well aware of the potential that crypto has and want to invest more in this universe. So, follow closely!
You will check out the following topics
- How does the Bitcoin wallet work?
- What are the types of Bitcoin wallets?
- How to evaluate Bitcoin wallets and make the best choice?
1. How does the Bitcoin wallet work?
Imagine our common money, the physical banknotes and coins. In order for people to be able to navigate the financial sphere normally, they need to save their money somewhere, right? This could either be a purse or in a wallet. The important thing is to store that amount so it is not vulnerable or easily lost.
This is, more or less, the main function of the Bitcoin wallets. In virtual context, the purpose of the portfolio is to protect cryptocurrencies and owner’s information in one place, by using a specialized software. But remember the following fact: the system does not contain the value in BTC, but a reference to the public address of the transactions registered in the network.
Because of this, the application saves the private key (which is the private data) linked to the public key (which is the address). This is what allows you to save, send, receive, and query the quantity available to each user. If you put this password (the private key) at risk, you will lose access to your bitcoins.
Just like almost everything in the modern world, we have a number of Bitcoin wallet options out there. The buyer can therefore choose the one that best fits their profile. Yes there are a few to choose from, but do not get too overwhelmed. We will discuss all of the major ones, highlighting their benefits and drawbacks.
2. What are the types of Bitcoin wallets?
Just like any other app, the Bitcoin mobile wallet is one that can be installed on your smartphone. It is ideal for fast transactions, because it proves great agility and practicality. The user does not have to be sat down at their desk on the computer or other device. Just access your smartphone from your pocket and have the QR code required to perform the move.
However, this software model is questionable because of its security levels. It’s safer than the online application (which we’ll discuss below), but it still puts the information at risk if, for example, the owner simply loses access to their smartphone.
If practicality is the factor that matters most to you, definitely consider this wallet style. But we recommend that this from of wallet is only used for small negotiations, precisely because of this possibility of loss.
Among the safer options is the desktop software. This is ideal especially for those looking for stability and reliability. Generally, they are free, simple to handle applications that require the user to be connected to a physical computer.
The danger lies in the fact that computers can be affected by a variety of things, such as installing a malicious system or accessing any malicious websites. In this scenario, bitcoins can be hacked and controlled by some hacker. The precaution should be the use of software in order to prevent this, such as a good antivirus, and to follow good practices when browsing on the internet.
- Bitcoin Core.
According to most people, this is the most vulnerable and least reliable wallet type. The main reason behind this is because the owner depends on the company hosting the application in the cloud. However, the fact that the wallet is actually distributed through the internet rather than on a local machine is a relief to man.
This option usually involves friendly and intuitive interfaces, and most of the alternatives are free. It is also very good for practicality and freedom, since the software can be accessed by any device, at any time, and the cloud is guaranteed speed and good performance.
The cloud portfolio is like a reference to an application, which is a reference to transaction logs. That is, the control is a little further from the user, which is worrying in the view of many. However, it should be noted that this technology involves protection mechanisms as well, such as backups.
The wallet in the form of hardware is a kind of USB peripheral. This hardware can be loaded everywhere and plugged into the computer for the negotiations to take place. Hence, it is the safest option mentioned so far, and for this precise reason, it is also called the “cold wallet” precisely because it stores the data offline and does not depend on the connection of the worldwide network.
Because of this feature, the hardware is immune to viruses and common forms of virtual attacks. That’s a big advantage, is it not? They still have a security number, which works as a password.
Its configuration also does not involve technical knowledge, being accessible to all. This option unites the benefits of others aswell: it is portable, it is not limited to barriers and borders of space, it is simple and safe.
But, of course, there is risk as well. If you lose the USB or it is stolen, you will no longer have access to the cryptocurrencies if you have not recorded your seed (set of words with which you can recover your wallet). However, this is more unlikely to happen than the other cases already discussed.
Some examples of Bitcoin hardware portfolio are:
The paper wallet is considered to be even safer than the hardware option. After all, they are physical, as they are literally sheets with the important data in QR code format. The owner then only needs to keep this material somewhere safe and accessible only when it is convenient and needed.
It does not involve access to the internet, not even connection to computers, which could be a risk factor in some scenarios as well. The user must also take care that their information is not seen by anyone they do not want and that they print on disconnected equipment from the network.
The risk involved is that it is possible to lose a paper more easily than a USB device. In addition, it is a bit less intuitive to perform transactions on the internet, because you need some equipment that scans the information or typing the data manually.
3. How to Evaluate a Bitcoin Wallet and Make the Best Choice?
As we have previously said, the choice depends on your trading profile. It’s important to analyse which aspect interests you most: practicality? Velocity? Safety? Availability? Connectivity? Mobility? It is important to plan well in order to avoid regrets in the future.
If the security factor is above all else, hardware may be a good choice. If the goal is to carry out transactions without a high frequency, the paper wallet is ideal. If the main factor is portability, consider the mobile option.
Or if you are looking for reliability and a friendlier interfaces, the desktop version is by far the optimal option. But if an easy-to-manipulate application is what you’re after, online can be an interesting option due to its fast and available elements.
There are several types of Bitcoin wallet out there, so it pays to research and learn about each one, to make a choice in an educated manner. Safety is a guarantee in each of them, even though it is shown in different ways, but it is also important to opt for great protection practices.