How to store bitcoins safely is of utmost importance but before you can figure what kind of storage method would be appropriate for you, you need to understand how bitcoins are essentially stored. Your bitcoins have two kinds of addresses – public address and private address. Public addresses are public record and are they are what you use to send and receive bitcoins over the network. Private addresses are private and they are what you use tp give consent or sign those transactions.
If that sounds confusing or vague, let’s break it down and make it even simpler. Think of the public addresses as your own personal safety Walt with a glass front. People can see what is in the vault but cannot access the vault until you open the lock with a key. i.e In our case, your private address. Now, if you’ve purchased bitcoins via any bitcoin exchange and are wondering where’s your private key, then let us tell you that the exchange stores your private key for you. The exchange address you use to send and receive bitcoins is the public bitcoin address.
Now that you have a basic understanding of private keys and public keys, let’s have a look at the different types of wallet options, how they work and how secure can they be.
1. Desktop wallets
Desktop wallets are nothing but software which can be downloaded and installed on your computer. These wallets are accessible only from the desktop they are downloaded on. Your private key is stored in a wallet.dat file and you have to make sure that you keep taking regular backups of the .dat file to ensure that your bitcoins don’t get lost because the loss of that file can result in permanent loss of your private key and in turn your bitcoin. With regards to security, desktop wallets are secure unless your computer gets compromised by malware.
Protip: Desktop wallets are best for storing a small portion of your bitcoins to make the transaction but shouldn’t be used to store all your bitcoin
s because of the vulnerability that comes along with it.
2. Online wallets
Online wallets store your private key in the cloud and can be accessed be accessed from anywhere. While these wallets offer more convenience compared to desktop wallets in terms of accessibility, they are more susceptible to hacking and thefts than the desktop wallets.Incumbent exchanges like Polynex and Bitrex are all examples of online wallets and they function as a marketplace as well as wallets.
3. Mobile wallets
Mobile wallets are apps that run on your smartphone and store your private keys. Mobile wallets are one step ahead of desktop wallets in terms of accessibility since they are stored on the phone. However, just like online wallets, mobile wallets are also vulnerable to hacking attacks and thefts. If you choose to store your bitcoins
in a mobile wallet, make sure choose a solid and trusted mobile wallet. You should also run through a background check of the founders. While these activities might also not guarantee complete safety, at least you’ll know that your bitcoins lie in the hands of a credible source.
4. Hardware wallets
Hardware wallets refer to physical devices like USB flash drives and CD-R’s which can be used to store your public keys. While hardware wallets do enable online transactions, they add another layer of security since the private key is stored offline.
Of all the wallets we’ve seen until now, hardware wallets can be stated as the most secured ones. The only drawback associated with hardware wallets is that they can get expensive if you opt for some of the best and specially made bitcoin hardware wallets out there
5. Paper wallets
Paper wallets are easy to use, cheap and provide the highest level of security. A paper wallet is a tangible document which stores your private and public key in the form of QR codes which can be scanned to facilitate transactions. Since the keys are stored offline and not digitally, paper wallets are the safest haven available for your bitcoins.
Depending on your convenience, the manner of usage (Trading/Holding) and the number of bitcoins you hold, you can choose the wallets which best cater to you.