Chapter 3 - Bitcoin Wallet and choosing the right one for you!
A Bitcoin wallet is just like it sounds. It is a wallet to hold all of your Bitcoins. Now while this seems like a simple enough concept, it does get a bit more complicated than that. You see in its young history, Bitcoin has been plagued by a few controversies and one of the big ones being Bitcoin’s being stolen from wallets. But as with any new technology, the wallets have received significant upgrades.
First lets take a look at what a Bitcoin Wallet would look like. When you go ahead and sign up for a Bitcoin Wallet, you will see that your wallet is comprised of two key components:
Your Public Address
Which would look something like – 1MimqryDErRv5DJiud2VQ8Xp4SoUYHjNzo
Your Private Key
Which would look something like – 3feiDdRDvjRivdK938HDKJdk9876D847Ob
What the heck are those!? Believe it or not, but those random numbers, upper and lowercase letters are your wallet addresses. Your public address is what is shared with the world. Whenever you buy or sell bitcoins you would use your public address. So, for instance if I were to put my address on a website as an example…..I would put up my real public address and a made up private key 🙂
The purpose of your private key is to keep your bitcoins secure. Without the private key you will not be able to spend (buy or sell) your bitcoins. Think of it as being similar to the two step verification process. Every time you would want to spend or send or sell your bitcoins, you will need to have your private key. When you sign up for a bitcoin wallet, most places will give you the following option of storing your private key:
Store it with your public key in the same location – usually not the suggested method as if your account is hacked then you would lose all your bitcoins!
Download your private key locally to your computer – a safer method but it still leaves a few chances open.
Save your private key in an encrypted vault which is password protected – safest method by far, this method is virtually un-hackable and is what I would recommend you choose!
Now that you have a good understanding of how the bitcoin wallet works, lets get to the fun stuff and get you going with your own bitcoin wallet! Bitcoin wallets come in the form of the web and physical hardware. Below are a few options (both web and physical) for you which I have laid out. I will give you the pro’s and con’s of these wallets and leave the final decision up to you! Lets get this party started!
Coinbase is one of the most secure web options out there. Coinbase has many layers of security for you. To log into your account you will have to provide your cell phone number which they will either text you or call you with a passcode. Once you have logged in you have the option to set up a vault. This vault will keep your private key safe from potential hackers. Coinbase will also provide you with option of purchasing bitcoins. The one downside, which in my mind really isn’t a downside, is coinbase provides no anonymity. They will ask you for your name and your address and if you wish to purchase bitcoins from them, your bank information. If you want a piece of mind and not worry about your bitcoins and your transactions, I would say coinbase is the way to go!
StrongCoin is another web option which takes security to another level. With StrongCoin they do not store your private key on their servers. They allow you to download a pdf with your private key. Whenever you decide to make a payment or send bitcoins they will encrypt your private key, which adds another layer of security. StrongCoin also gives you the option of anonymity. All you will need is an email to sign up for a wallet. Another feature that I like about StrongCoin is that they provide you with the option of creating multiple public keys. One shortcoming of StrongCoin is to pay or send bitcoins they will charge you a 1% fee.
KeepKey is a physical bitcoin wallet. What this means is that you will be purchasing a physical device which will contain your public and private key. This completely eliminates the need of a third party company to manage your keys. Once you receive your device you will set a pin number as well as a security phrase. These two will keep your bitcoins protected and without providing these two key pieces of information, the bitcoins in your account cannot be accessed. This also means that if you were to forget your pin and/or phrase you will lose your bitcoins forever. If you want a physical wallet, KeepKey would be the way to go!
TREZOR is another physical bitcoin wallet. TREZOR is an isolated environment for offline transaction signing and using a small display you can visually verify the transaction contents. That’s why all operations using TREZOR are entirely safe. TREZOR uses state of the art cryptographic algorithms and practices, but you don’t have to read long manuals or to be a crypto-expert in order to use them properly. TREZOR is Windows, OS X and Linux friendly. All you need to do is to connect your TREZOR to the computer and follow the instructions. There are only two buttons, to confirm or to deny the action, so using TREZOR is as easy and as intuitive as it can be. Users can backup the whole TREZOR contents on a small piece of paper and use this backup to regain access to all their coins in case of disaster, loss or theft. Can’t really go wrong with TREZOR!