Bitcoin is a cryptocurrency that is created, held and exchanged electronically. Bitcoins are intangible, you can’t hold them in your hand or put them in your pocket. Essentially, they are just lines of code that represent currency. As such, a digital asset like Bitcoin needs a digital method to store it. Bitcoin wallets were introduced as a secure method to store, send and receive bitcoin.
Bitcoin wallets are a unique and innovative form of technology. You don’t store the currency itself in the wallet, but rather in digital keys, which are used to authorize and sign transactions as well as provide access to its associated bitcoin wallet address.
There are a number of different types of Bitcoin wallet and numerous providers from which to choose. Here’s a general summation of the types of wallets and factors to consider.
Types Of Bitcoin Wallets
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 held offline.
A hot wallet is convenient as the bitcoins are easily accessible when you want to make transactions; however, there is an associated security risk with hot wallets, because the internet provides a way for hackers to gain access and steal your coins.
Best practice for a hot wallet is to keep the number of Bitcoins it holds small, with only the amount you need for daily spending money. The bulk of your nest egg should be kept in a cold wallet for more secure storage. 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. A lack of an internet connection makes it impossible for hackers to access your coins.
A desktop wallet is used on laptops or PC’s (personal computers). It allows easy and convenient access to bitcoin holdings through a simple software download.
The original bitcoin wallet, BitcoinQt, was the first desktop wallet. Clients downloaded the entire bitcoin ledger and were used to verify transactions and keep the network in good working order. They 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.
There are a number of desktop wallets available for a variety of operating systems, each with their own unique features. Armoury, for example, is considered one of the most secure desktop wallets, while DarkWallet is favored by those who want to protect anonymity.
Desktop wallets provide quick and easy access, but they don’t work for transactions on the go. Mobile wallets, however, can be downloaded as an app to your smartphone and taken anywhere. 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 be 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.
These wallets provide quick and easy access to bitcoin, but they are also quite risky because the user does not have control over the private keys associated with the address. In essence, it means that the user doesn’t really own his or her bitcoin. Hence, it is important to do adequate research before entrusting your bitcoin to any online wallet.
Desktop, mobile, and online wallets are all examples of hot wallets, because they connect to the internet. Conversely, a hardware wallet is stored offline and is thus considered a cold wallet. A hardware wallet is typically a small device that resembles a USB stick. 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 simply a piece of paper with 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 most inexpensive to store large amounts of bitcoin. If done correctly, it is very secure as the private keys are not stored online. It is important to keep the paper locked away to prevent theft or loss 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 multisignature protocols in the transaction authorization process.
The Bitcoin IRA Wallet
Bitcoin IRA uses a “cold storage” wallet from its exclusive partner, 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 multisignature encryption to enhance security. Multisignature transactions require authorization 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 Bitcoin IRA wallet utilizes a 3-key authentication for its multisignature 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 utilizes ID and voice verification to authorize transactions to ensure all bitcoin stored in the wallet are safe and secure.
A Bitgo wallet is the widely considered the most secure wallet on the market today.