To store cryptocurrencies we need something that we call wallets.
In this article we will share the most important and elementary information you need to understand what wallets are and how they work.
Essential information about a wallet
The wallet has many similarities to your current bank account. The difference compared to a bank account is that with a wallet we have full control of our cryptocurrencies and we can send and receive money freely, autonomously and without intermediaries.
In short: wallets are very basic computer programs that allow you to safeguard your bitcoins or other cryptocurrencies and connect with the Bitcoin network through the internet to authorize a monetary transaction.
As you are probably already aware, Bitcoin and other cryptocurrencies are based (as their name suggests) on cryptography. In the digital age, this field is concerned with achieving unequivocal standards of communication encryptions made through computer equipment. Bitcoin uses protocols and algorithms that were already established and internationally recognized for the encryption of information. You do not need to know the great technicalities to handle a wallet, but we think this information is important to understand Bitcoin technology.
With respect to all of this, it is essential to know that for the protection, custody, and transaction of bitcoins you need two unique keys that your wallet will generate in a random and automatic way:
The public key has the property of an address that we can share with whomever we want and allows us to receive coins.
We can match the public key with your bank account number: anyone who has it can send you money but cannot access your funds.
However, the public key depends on the private key. The private key is a password that we should never share, since it gives complete access to the stored cryptocurrencies.
We can match the private key with your password to access your bank account or your credit card PIN: If someone had them, they could access the funds in your wallet.
When you have the two keys it doesn’t matter if your computer breaks, phone falls into the water and short-circuits, or your tablet stops working … You simply need to install the program or application (wallet) on a new mobile or computer and restore your account by entering your private key.
It is important to note that we use a wallet application to generate one or several bitcoin addresses to send and receive money. That is why it is vital that you understand that a Bitcoin wallet can contain several addresses of your property.
The public and private keys consist of a series of alphanumeric characters that are hard to memorize. An interesting improvement that was made in Bitcoin to improve this aspect was to implement a seed.
What is this?
The seed is a series of words (normally 12, but can be more) that when introduced in the proper order within a wallet restores an address or series of addresses associated with that seed.
In summary, the seed is a standard form of coding the keys of your wallet so they are remembered easily.
Types of Wallets
Additionally we can distinguish between two large types of portfolios:
The hot wallets are those that are always online, they are always connect to the blockchain through the internet and an electronic device.
Cold wallets are those that are not connect to the Internet and therefore are not connected to blockchain network.
Cold wallets are used to protect funds that do not want to move at a certain time or simply do not want to be put at risk. It is a way to prevent attacks, accidental or erroneous deletions, or computer formats without a backup…
Types of Hot Wallets
- Online: These wallets allow some web pages to store our cryptocurrencies. With this option many times we are delegating the custody of the private key to a said company and keeping our funds safe will depend on the security and seriousness of the company.
- Computer: The majority of cryptocurrencies offer their own software that acts as a wallet. With these types of wallets, all responsibility for the custody of the funds rests with the user.
- Smartphone: Many smartphone applications exist that act as a wallet and allow you to make payments within establishments that allow you to pay with cryptocurrencies. We must also maintain the privacy of the key.
Types of Cold Wallets
- Physical: There are special USB drives used for storing cryptocurrencies. The most popular ones are those developed by Ledger, which guarantee that our currencies are safe, since in addition to the private key, they allow us to program a pin to ensure that only those authorized can access the coins.
- Paper: These usually occur in ATMs that allow you to exchange fiat money for cryptocurrencies. They usually carry a code or QR code in order to access the coins, either by smartphone or computer.
Recommended Wallets for Bitcoin (BTC)
There are currently more wallets than days in the calendar, however from Bit2Me we recommend the following.Every individual is free to manage their cryptocurrencies and to choose the wallet they want. The following information is only advice, and it is in no case imperative to use only the following wallets:
Online / Web
-BitGo: Probably the best online wallet that exists. Intuitive, clear, and completely functional.
-Blockchain.com: A pioneer and solvent company. It is safe and valid to store your bitcoins in the cloud.
-Electrum: A wallet that has been the most solvent for years, it is a complete and secure wallet that we are able to install in your computer.
Hardware Wallet (physical)
-Trezor: Physical electronic device to guard and manage your transactions.
-Ledger: Like Trezor, Ledger is a brand of high confidence and value within the Bitcoin world.
-KeepKey: It is the third brand of hardware market wallets and is currently competition for Trezor and Ledger.