Bitcoin wallet::How to start and which one is the Best
Without a Bitcoin wallet, you can’t send or receive Bitcoin payments. So before you get bitcoins, you’ll need to buy, download, or create a bitcoin wallet.
Are you a new Bitcoin user? We highly recommend the free Breadwallet.
Have you been using Bitcoin for a while and want to upgrade your security practices? Then keep reading!
Types of Wallets
There are many different ways to use Bitcoin and so there are many different types of wallets:
- Online bitcoin wallets. Wallets that can be accessed on the web from any internet connected device.
- Bitcoin hardware wallets. Physical devices designed to secure bitcoins.
- Software wallets. Wallet applications downloaded to your phone, computer or tablet.
- Paper wallets. Bitcoin private keys printed from an offline computer.
By the end of this article you’ll understand Bitcoin wallets and have a better idea about which type is right for you. Here are some factors to consider:
- On the go? If you are making payments in person and not online then a mobile wallet like Copay (iOS & Android), breadwallet (iOS) or Mycelium (Android) is a must.
- Frequency of payments. If you will need to make frequent payments then it will be best to keep your funds in wallet that is easy to use and accessible. Mobile wallets and desktop wallets are good options.
- Amount. If you are dealing with large amounts of bitcoins you will need a secure wallet. Hardware wallets and secure offline wallets like Armory are good options.
- Use combinations. Use a mobile wallet as your checking account, and a hardware or secure offline wallet as your savings account. Mix and match to find a combination that provides both security and accessibility.
Universal Wallets
Copay
Copay is a Bitcoin wallet by Bitpay and available on iOS, Android, Windows Phone, Linux, Max OS X, and Windows. Because Copay is available on multiple platforms, it’s easy to use the same wallet or accounts across multiple devices.
Copay’s simple, clean user interface makes it a good choice for new Bitcoin users. Copay is also a good option for businesses due to a shared account feature, which requires a certain number of users to sign each transaction. Two co-founders, for example, could create a 2 of 2 wallet where both will be required to sign each transaction.
Hardware Wallets
Hardware wallets are small computers or smartcards built with the sole purpose of generating Bitcoin private keys offline. Hardware wallets securely sign transactions in the same offline environment.
Ledger Nano
The Ledger Nano is a smartcard based hardware wallet. Private keys are generated and signed offline in the smartcard’s secure environment. The Nano is setup using the Ledger Chrome Application. A random 24-word seed is generated upon setup and backed offline by writing it down on a piece of paper. In case of theft, damage or loss, the entire wallet can be recreated with the seed. A user selected PIN code is also assigned to the device to protect against physical theft or hacking.
The Ledger Nano may be used on any computer, or Android phones with Mycelium or GreenBits.
TREZOR
The TREZOR differs from the Ledger Nano in that it’s a very tiny computer rather than a smartcard. Private keys are still generated offline.
TREZOR also generates a 24-word seed upon setup. The TREZOR has its own built in screen where the seed is displayed and copied down during backup. Since the TREZOR is an offline device it offers extra security since the seed isn’t displayed on an online computer.
An additional passphrase can be added to the 24-word seed. This provides extra protection, since anyone who finds someone else’s 24-word seed is free to access the funds. If the optional passphrase is added, an attacker still wouldn’t be able to access funds without both the seed AND the passphrase. If the passphrase is forgotten, it cannot be recovered.
OPENDIME
The first Bitcoin Bearer Bond or called a Bitcoin Stick. Opendime is a small USB stick that allows you to spend Bitcoin like a dollar bill. Pass it along multiple times. Connect to any USB to check balance. Unseal anytime to spend online. Trust no one.
Acts like a read-only USB flash drive. Works with any computer, laptop, and phone.
A QR Picture and Text file inside contain Bitcoin address and support.
The private key is generated inside the device, and is never known to any human, not even you!
The Bitcoin world changes fast but Opendime is built on the fundamental Bitcoin features that have not changed in five years.
Give an Opendime to anyone and they don't need to worry that you can take back the funds later.
You have got the private keys in the device. This is physical Bitcoin as it was meant to be to just hand it to someone and they have got it.
Pass it on multiple times! Simple as a handshake. No miner fees, no confirmation delays.
Uses Bitcoin message signing, normal (non HD) bitcoin payment addresses and private keys in WIF format.
Ledger HW.1
The Ledger HW.1 is a more affordable version of the Ledger Nano.
Ledger Unplugged
The Ledger Unplugged is a credit card-size wireless hardware wallet. Private keys are generated offline. Transactions are signed on the device and sent to a mobile phone via NFC.
The Ledger Unplugged is ideal for everyday use, since the device fits perfectly into wallets and no OTG cable is required.
Software wallets make it easy to securely spend and receive bitcoins to a hardware wallet. The image above shows how Ledger's desktop wallet provides the interface to receive payments to a Ledger Nano or HW.1.
USB stick style software can makes it easy to load Bitcoin into hardware wallets without having to install any software or apps.
Online Bitcoin Wallets
Online Bitcoin wallets, or web wallets, store your private keys online. Wallets can only be accessed with a user-set password.
GreenAddress
GreenAddress is a multisig web wallet, with apps available for Chrome, iOS, and Android.
SpectroCoin
SpectroCoin is an all-in-one solution for Bitcoin. Services offered include a wide range of Bitcoin solutions, from exchange to Bitcoin e-wallet.
Mobile Wallets for Android
Mycelium (Android)
Mycelium is a favorite among experienced Bitcoin users. It’s an HD wallet with many advanced features, like support for hardware wallets TREZOR and Ledger, watch-only accounts, cold storage spending, and Tor.
Bitcoin Wallet
Bitcoin Wallet was the first Bitcoin wallet for Android. It’s simple, easy to backup, and connects directly to the Bitcoin network with SPV.
Airbitz
AirBitz is another Bitcoin wallet that’s great for everyday use. It’s integrated with Fold, meaning you can get 20% discounts at Starbucks from within the wallet.
Airbitz manages accounts with usernames and passwords, but doesn’t have access to your funds. This type of account creation is easier for less technical users who may have trouble backing up or understanding HD seeds.
GreenBits
GreenBits is the native version of GreenAddress. It’s fast, simple, and supports hardware wallets TREZOR and Ledger Nano/HW.1.
Mobile Wallets for iOS
breadwallet
Breadwallet’s combination of simplicity and security has made it the most popular iOS wallet. iPhone users in search of their first Bitcoin wallet should find Breadwallet easy to understand.
Copay
Copay is available in the App Store. Click here for more details.
Airbitz
AirBitz is also available in the App Store.
Desktop Wallets
Desktop wallets are software wallets that are downloaded and installed on your computer. The desktop wallets below are available on Mac OS X, Windows, and Linux.
Armory
Armory is the most mature, secure and full featured Bitcoin wallet but it can be technologically intimidating for users. Whether you are an individual storing $1,000 or institution storing $1,000,000,000 this is the most secure option available. Users are in complete control all Bitcoin private keys and can setup a secure offline-signing process in Armory.
Bitcoin Core
Bitcoin Core is the “official” Bitcoin client and wallet, though isn’t used by many due to slow speeds and a lack of features. Bitcoin Core, however, is a full node, meaning it helps verify and transmit other Bitcoin transactions across the network and stores a copy of the entire blockchain. This offers better privacy since Core doesn’t have to rely on data from external servers or other peers on the network. Bitcoin Core routed through Tor is considered one of the best ways to use Bitcoin privately.
Electrum
Electrum may be the most popular desktop wallet, due to its speed and ease of use. Electrum can also be used as cold storage if you have an extra computer that can be used offline. Additonaly, Electrum offers other features like connecting through Tor, multisiganture wallets, integration with hardware wallets, and more.
MultiBit HD
Multibit HD is a fast and straightforward desktop wallet with support for hardware wallets TREZOR and KeepKey.
Paper Wallets
Paper wallets were the standard method of cold storage before hardware wallets were built. Paper wallets are private keys printed out on a piece of paper. If generated and printed with a secure, offline computer, paper wallets are secure cold storage.
The main problem with paper wallets is it can be inconvenient to create and print a new wallet each time you send funds to cold storage. However, it’s possible to bulk print paper wallets to save time and eliminate address reuse. Our cold storage guide explains step-by-step how to create a secure paper wallet.
Best Practices
Bitcoin lets you control your money, meaning you are responsible for both your money’s security and your financial privacy. Here are some steps you can take to ensure your privacy and security:
Control your private keys
Services like Coinbase and Circle offer “Bitcoin wallets”, but in reality control your private keys. It’s best to use a wallet where you control your private keys. This is the only way to have full control of your funds and not have to rely on third parties for security.
Protect your privacy
Each time you request blockchain data from a wallet, the server may be able to view your IP address and connect this to the address data requested. Each wallet handles data requests differently. If privacy is important to you, use a wallet that downloads the whole blockchain like Bitcoin Core or Armory. Tor can be used with other wallets to shield your IP address, but this doesn’t prevent a server from tying a group of addresses to one identity. For more information, check out the Open Bitcoin Privacy Project for wallet rankings based on privacy.
Don’t reuse addresses
Most Bitcoin wallets today automatically create a new address for each transaction. Since all Bitcoin transactions are public, address reuse makes it easy for others to group transactions and understand which payments are connected to one identity.
Use different wallets for different sums of money
Just like you don’t walk around with your savings account as cash, there are different Bitcoin wallets that should be used depending on how much money is being stored or transferred. Secure wallets like paper wallets or hardware wallets can be used as “savings” wallets, while mobile, web, and desktop wallets should be treated like your spending wallet.
Create multiple secure backups
Users should create multiple backups of their wallets. Backups should be kept in separate physical locations in the case of fire or water damage. Paper wallets can be laminated or written in metal for extra protection.
How to Store Bitcoins
Earlier it was mentioned that there are four types of Bitcoin wallets: online wallets, hardware wallets, software wallets, and paper wallets. These four categories can be broken down further into different kinds of storage and security:
Hot Wallets
Hot wallets refer to Bitcoin wallets used on internet connected devices like phones, computers, or tablets. Because hot wallets run on internet connected devices there is always a risk of theft. Think of hot wallets like your wallet today. You shouldn’t store any significant amount of bitcoins in a hot wallet, just as you would not walk around with your savings account as cash.
If only used with small amounts, hot wallets should be used for your everyday Bitcoin needs. One may, for example, want to keep $200 worth of bitcoins in a hot wallet for spending, with $10,000 locked away in cold storage.
Custodial Services
Although often called Bitcoin wallets, services like Coinbase and Circle aren’t true Bitcoin wallets. Customers private keys are held by these third party services, meaning users don’t really have control of their money.
As Bitcoiners often say: “if you don’t control the keys, you don’t control the coins”. Mt. Gox is an extreme example, but one that illustrates the importance of holding private keys. Gox was the first and largest Bitcoin exchange up until 2013. Thousands of users stored more than 800,000 bitcoins in their Gox accounts.
At the time, one may have claimed to have 1,000 bitcoins in a Gox account. While true at the time, as soon as Mt. Gox claimed to have been victim of theft users with bitcoins in their accounts were left empty handed.
Services like Coinbase and Circle may in fact use good security practices and there’s a chance your bitcoins are safe. But by storing bitcoins with a third party you are always taking on additional risk.
Cold Storage
Cold storage is achieved when Bitcoin private keys are created and stored offline. Private keys stored offline are more secure since there is no risk that a hacker or malware could steal your coins.
There are three ways to create cold storage: paper wallets, hardware wallets, and software wallets run on offline computers. Think of cold storage as your savings account. Use it to securely store bitcoins that you don’t plan to spend.
Multisignature Wallets
Multisignature wallets like Copay make it easier to share control of bitcoins between multiple parties. If created offline, multisig can also make cold storage more secure.
Multisignature wallets require multiple parties to sign transactions in order for funds to be spend. In a 2-2 wallet, for example, both parties must sign a transaction. In a 2-3 multisig wallet, two of the three co-signers must sign each transaction.
Armory Multisig: Armory offers a Lockbox feature that requires any amount of up to seven co-signers to approve shared transactions. A Lockbox is created by one party who adds additional public keys as co-signers. This solution provides a mix of flexibility and security for personal use or organizations.
Armory’s fragmented backups is another useful feature. Instead of requiring multiple signatures for each transaction, fragmented backups require multiple signatures only for backups. A fragmented backup splits up your Armory backup into multiple pieces, which decreases the risk of physical theft of your wallet. Without a fragmented backup, discovery of your backup would allow for immediate theft. With fragmented backup, multiple backup locations would need to be compromised in order to obtain the full backup.
Here's a look at some everyday use cases for multisig:
2-2 Wallet: Two business partners work together at a startup. They create a 2-2 multisig wallet so that no funds can be spent without the permission of both founders. If one tries to create a transaction, the other partner will be required to sign off on the transaction before money can be moved.
2-3 Wallet: A 2-3 multisig wallet could be used to create secure offline storage with paper wallets or hardware wallets. Users should already backup their offline Bitcoin holdings in multiple locations, and multisig helps add another level of security. A user, for example, may keep a backup of a paper wallet in three separate physical locations. If any single location is compromised the user’s funds can be stolen. Multisignature wallets improve upon this by requiring instead any two of the three backups to spend funds--in the case of a 2-3 multisig wallet. The same setup can be created with any number of signatures. A 5-9 wallet would require any five of the nine signatures in order to spend funds.
Written by Jordan Tuwiner on weusecoins.
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