After having purchased your first bitcoin, the next step is to find ways to securely store them. This is where so-called bitcoin wallets come in. A bitcoin wallet is essentially a bank account that allows you to store, send and receive bitcoin.
It is important to note that since bitcoin is essentially lines of code, it is not possible to actually store the bitcoins. What is stored in a wallet, however, are the digital keys that are used to authorise and sign transactions as well as provide access to its associated bitcoin wallet address.
Types Of Bitcoin Wallets
There are a number of different types of bitcoin wallets. However, all wallets are classified as either hot wallets or cold wallets. A hot wallet is one that is connected to the internet while a cold wallet is one that is not.
A hot wallet is convenient as the bitcoin stored therein are easily accessible when you want to make bitcoin transactions. However, there is an associated security risk with hot wallets as hackers can technically gain access and steal your coins as these wallets are connected to the Internet.
Hot wallets are, therefore, better used as a storage for small amounts of bitcoin that is to be used as spending money. A cold wallet is deemed the safer option for larger bitcoin holdings that are being kept as an investment as it is not connected to the Internet. This makes it impossible for hackers to access your coins.
A desktop wallet is one that was created for laptops or PC’s. It allows easy and convenient access to bitcoin holdings through a simple download of the software.
The original bitcoin wallet, BitcoinQt, was the first desktop wallet. These clients downloaded the entire bitcoin ledger and were used to verify transactions and keep the network in good working order. The clients were also able to create an address for transactions while providing storage for the digital keys as well.
Today’s desktop wallets, however, are easier to use and do not require as much storage space as was the case with the original bitcoin wallet.
Different desktop wallets are available for different operating systems and come with different features. Armoury, for example, is considered as the most secure desktop wallet while DarkWallet is favoured by those who want to further protect their anonymity.
Though desktop wallets provide quick and easy access, they are not very effective when it comes to making transactions on the go. Mobile wallets make this possible. Mobile wallets typically function as a downloaded application on your smartphone. The application stores private keys linked to a bitcoin address that are used to authorize transactions.
Mobile wallets also come with QR code functionality that allows transactions to made in one easy step as well as enhanced security features. Popular mobile wallets include Mycelium, Blockchain, and Jaxx.
Online wallets leverage the cloud to stores private keys for their users. Some of these wallets also link to mobile and desktop wallets thus enabling easy access from different devices.
Though these wallets provide quick and easy access to bitcoin, they are also quite risky as the user does not necessarily have control over the private keys associated with the address and does, therefore, not really own his or her bitcoin. Hence, it is important to do adequate research before entrusting your bitcoin to an online wallet.
All the above wallets are examples of hot wallets as they all have internet connectivity. A hardware wallet is a cold wallet. They are typically small devices that resemble regular USB sticks. They allow for secure storage of private keys as well as facilitating transactions.
Hardware wallets, such as Trezor or the Ledger Nano S, feature top notch cryptography and other recent developments in security technology in order to ensure enhanced security as they are generally used to store large amounts of bitcoin.
Paper wallets are another form of cold storage. A paper wallet is just that, a piece of paper that has two QR codes that represent your private keys and your bitcoin address. There are several platforms that offer this service online. Once printed, the paper wallet can be stored away with other valuables
This is the method most people find easiest and cheapest to store large amounts of bitcoin. If done correctly, it is very secure as the private keys are not stored online thus hackers cannot gain access to it. It is important to keep the paper locked away to prevent theft of the paper or any kind of damage.
Recent advancements in technology have enabled many bitcoin wallets to become more secure. Mobile wallets, for instance, use cryptography for enhanced security during transactions while many hardware wallets employ Multi Signature protocols in the transaction authorisation process.
The BitcoinIRA Wallet
BitcoinIRA uses an exclusive cold storage wallet from Bitgo. Bitgo is a trusted service provider utilized by many institutions and bitcoin startups due to its superior security features.
The cold storage wallet from Bitgo uses Multisig to enhance security. Multi-signature transactions require authorisation from more than one private key. The number of keys required is determined beforehand. This is similar to having a bank account that can only be used if more than one signatory signs off on the transaction.
The BitcoinIRA wallet utilises 3-key authentication for its Multisig feature. Three keys are generated and kept in cold storage at three different certified and insured depositories. In order to approve a transaction, two of the three keys must be used. To further enhance security, the wallet also utilises ID and voice verification to authorise transactions to ensure all bitcoin stored in the wallet are safe.