Bitcoin is the first-ever established cryptocurrency established in 2009. During that time, it was the only cryptocurrency introduced in the market. Satoshi Nakamoto, the developer of Bitcoin, still remains anonymous. They stated in an interview that the motive behind creating Bitcoin was to introduce “a new electronic cash system that is completely decentralized, with no server or central authority.”
Bitcoin is a digital currency, so you don’t have to print bills or mint coins. It is decentralized, which means no government or other institution has any authority over it. Bitcoin uses Blockchain technology. Encrypted keys protect the data of both parties involved in a transaction. One of the best features of owning bitcoin is that it is totally anonymous. There are no details of the owner’s names, account numbers, social security numbers, identity cards, or any other crucial information that might connect bitcoin to its owners.
Bitcoin is to be mined by humans or extensively capable and power-consuming computers. At the time of its introduction to the people, the developers said they capped the upper limit to 21 million bitcoin. With 19 million bitcoin already present in the market, only 2 million are left. The mining process requires computers to solve an extremely difficult mathematical problem that keeps getting progressively more challenging over time. With each problem solved, the owner mines a block of bitcoin which means he owns a bitcoin. Each bitcoin can split into smaller fragments. The smallest it can go is the hundredth million of a bitcoin. It is named ‘Satoshi’, after the founder of bitcoin.
Bitcoin Wallets Functioning
A bitcoin wallet is an intermediary between the owner and the funds that live on the blockchain. There are different types of wallets for your bitcoin. Each kind of wallet serves a specific purpose. These wallets can store, share and swap your bitcoins. These wallets exist in online as well as physical forms. There are bitcoin wallets called ‘Paper wallets’.
When a bitcoin wallet originates, a lengthy sequence of alphanumeric keys originates along with it. You will get two keys, one public key, and one private key. The public key is like your account number. You can share this public key with people to send and receive bitcoin. Similarly, you can use other’s public key to make bitcoin transactions.
However, the private key is somewhat like your account’s pin. You should never disclose it to anyone. Whenever a transaction takes place, it needs to be signed by the private key. Anyone having access to your private key has access to your bitcoin wallet and all your funds. It makes it essential to use the wallet of a company you can fully trust. There are different types of wallets present for special intentions.
Types of Bitcoin Wallets
Using a bitcoin wallet would mean you trust a third-party application with your private key. So before picking up any wallet, you must figure out which developers and applications you can trust.
There are two types of cryptocurrency wallets, Custodial and Non-Custodial Wallets. With custodial wallets, a third-party application is responsible for the safety of your private key. That means every time you want to make a transaction using bitcoin. The application will sign it on your behalf. It is a great reason to make someone uncomfortable. So, instead of putting all your trust blindly in some application, you can use a non-custodial wallet.
A non-custodial wallet does not ask you to give up your private key to them. It means the user will have complete control of their account and funds. The only downside is if the private key gets lost or leaked, their account details are compromised, and any transaction will be irreversible.
There are several different types of wallets with various features. Some prioritize the account holder’s convenience, while others focus on account safety. You must choose a wallet that fulfills your requirements.
Mobile Wallets are apps that focus on your convenience. They store your private key in your mobile device, making it handy for transactions using bitcoin anytime you want. Mobile wallets integrate safety methods like two-factor authentication. It provides an extra safety layer, but once your mobile phone gets lost or stolen, a lot can happen, and you cannot do anything about it.
A desktop wallet encrypts the user’s private keys into a drive. Desktop wallets are convenient for someone who transacts in bitcoin daily. Desktop wallets are comparatively safer than mobile wallets as they are on a desktop, and you don’t have to fear someone stealing or losing your desktop like your phone. The only problem is they’re always connected to the internet, making them vulnerable to hackers. Also, it requires a virus-free laptop to store the private key, which is very uncertain.
Provided by third-party, Web Wallets store your private keys on servers they control. These websites are not safe because they can declare bankruptcy out of nowhere. If they become bankrupt, they take the user’s funds with them. But these wallets are easy to use which makes them the first choice for newbies as they allow spending accessible.
Hardware wallets resemble a Pendrive designed specifically to store your bitcoin private key. The hardware wallet is the most secure way to store your private key because they are online only when they are connected.
In the new age of technology, paper currency has fallen out of the loop. Storing sensitive data on paper doesn’t make any sense because paper can get lost or stolen very easily. But for a low-effort solution to store all your private keys, paper wallets are the way to go. In a paper wallet, all you need to do is write down the private keys and store them in a safe place, a safety deposit, or a locker, preferably the ones provided by banks.
Choosing a bitcoin wallet involves many factors. You need to be clear about your needs first and then search for the option available to satisfy your requirements. If you are looking for easy-to-use, accessible and flexible wallets, then online wallets like mobile wallets are the ones you should go for. But if you prioritize the safety of your funds, account, and private key above anything else, offline wallets like Hardware wallets and Paper Wallets are the solution you’re looking for.