Storing Bitcoins in a Wallet

Bitcoins have no physical form; they only exist in the online, digital world. When you own a bitcoin you have long strings of numbers that make up the digital keys that define the coin. The fact that the bitcoin belongs to you is recorded in a public ledger called the blockchain. Read more about the blockchain here.

When people send you some bitcoins they need to know where to send them. That place is your bitcoin wallet. The wallet is an address plus the keys that unlock the wallet. The ‘balance’ of the wallet is the net of the transfers in and out, which are recorded in the blockchain.

Your wallet is protected by keys which are used to sign transactions. The keys are like a secret password. Read more about private keys here.

There is a type of wallet called a multi-signature wallet, which needs more than one key to unlock it. This means that no one person can take the bitcoins out of the wallet, it needs more than one person to agree to open the wallet – a bit like the nuclear launch codes! This provides extra security; if a hacker steals somebody’s key they still can’t open the wallet without the other keys.

Types of Wallet

An online wallet is a service run by a third party which you access via their website. It’s easier for beginners to go with an online wallet because they will do the techy stuff for you, and you can access it using a computer, smartphone, or any device that can connect to the web.

Local wallets run on your own hardware. A desktop wallet is software that runs on your home or business computer, whether it’s a Windows, Mac or Linux machine.

If you want to spend bitcoins while you are out and about then having a mobile wallet on your smartphone or tablet is useful. There are a number available for Android, and a few for iOS. For security you need to make sure you can back up the wallet to the cloud, otherwise if you lose the phone, you lose the wallet.

Hardware wallets are dedicated devices that hold your bitcoins and handle the transactions. These can be extremely secure – so long as you don’t lose the device.

You can even print off your bitcoins – yes, you can give your digital currency physical form, using a paper wallet. That means you can store the physical bitcoins in a safe or other secure location. Probably best not to keep them under the mattress, though!

Choosing a Wallet

When deciding which wallet to use, there are a number of things to consider.

The most important is the reputation of the company that provides the wallet. Look for a company that has been around for a while and has built up trust amongst its users, and proved itself to be secure.

A flashy new company may look attractive, but how do you know they haven’t left security holes that will allow hackers to steal the bitcoins – or that they are not crooks themselves?

One way to be reassured about the security of a wallet is if it’s an open source wallet. That means the code is publically available, allowing any developer to review it and verify that it is secure, and to fix any bugs they find.

Whatever kind of wallet you use, you need a way to back it up and keep the backup safe. Make sure the wallet you use lets you do this, so that even if the device the wallet is on gets lost or stolen, you can still access the bitcoins.

It’s a good idea to spread your bitcoins across different wallets provided by different companies – don’t keep them all in one wallet. Use different kinds of wallet to spread the risk. If you are holding bitcoins for any length of time keep them in an offline wallet (hardware or paper) for extra security. Never keep your entire hoard of bitcoins in one place.

List of Bitcoin Wallets

Here are some of the most popular bitcoin wallets currently available – it is by no means an exhaustive list; you will find many more if you search online.

Desktop wallets that run on your computer:

• Bitcoin Core – the first and original. It’s very secure but it takes up a lot of space on your computer because it includes the entire blockchain, with data on every bitcoin transaction ever performed.
• Multibit – a lightweight desktop wallet that connects directly to the bitcoin network, it is very easy to set up use.
• Armory – one of the most popular, fully-featured, and it is very secure, storing its private keys in an offline computer so they cannot be stolen. Aimed at advanced users. It has multi-signature support.
• Electrum – very fast and lightweight, it uses minimal computing resources so is ideal for older computers.

Mobile wallets that run on a smartphone or tablet:

• Mycelium – one of the most recommended, it boasts ‘bank grade security’.
• Wirex – a service provider that offers online and mobile wallets, which are easy to use without compromising security. Multi-sig support.
• Xapo – security-focused, its servers are in the Alps, ‘behind reinforced concrete walls, a steel blast door and radio wave-blocking Faraday cage’.

Online wallets that run on a website:

• info – the most popular. Easy to use, with cross-platform capability and multi-country support.
• Bitgo – good for people who want transactions to be almost instantaneous.
• GreenAddress – offers a watch-only mode which lets you check your balance without compromising safety.
• BitAmp - an open-source, client-side, free Bitcoin wallet which allows you to send and receive Bitcoin instantly on the blockchain.

Hardware wallets that are standalone devices:

• Keepkey – very secure, protected by a PIN.
• Trezor – small, easy to use, secure against malware, offers disaster recovery in case of theft or loss.

Paper wallet that stores your bitcoins in physical form:

• BitcoinPaperWallet – prints tamper-resistant paper wallets so you can keep your bitcoins offline.
• BitAddress – an easy way to generate paper wallets.

Disclaimer: ADVFN provides these links as examples only and does not recommend these wallets over any others. We offer no guarantee about the security of these wallets.