We need a digital wallet to store Bitcoin or other cryptocurrencies when we buy them. The digital wallet is web-based or can be accessed using the Internet. Through the digital wallet, we can send and receive Bitcoin and other cryptos from any address.
The storage or transaction of cryptocurrencies is based on digital keys, addresses, and digital signatures. These keys are basically your “bank account” the private keys are not stored online, but are created and stored in the wallet.
The keys are created independently of the various protocols and are managed by different wallet software. The scope of this article does not cover the detailed technology. However, we will address some basic terms such as private key, public key, and public address. In fact, a wallet contains a collection of key couplings that include a private and public key.
A private key is a random number that uses a one-to-one mathematical function to generate a public key. The private key is the way that cryptocurrencies are held since only the private key holder can send and sign transactions in the wallet.
What is a public address?
To receive cryptocurrencies, you need to provide the sender with a public address. That is a sequence of 27 to 34 characters, English letters, and digits. The address is like a bank account number.
To prevent confusion, addresses may not have the letters ‘o’ ‘O’ ‘I’ and – ‘l’ (uppercase i, and lowercase L).
Block Explorer: The Transparency of the blockchain
The addresses are public, and anyone can view the history of each address via the Block Explorer. The last address also reveals the current balance each address holds. The inscriptions are entirely anonymous which means that it is impossible to know who owns a particular address.
If the wallet creates a new address for every transaction, can I use the old addresses?
By contrast, the public key derived from it can be given to anyone to receive funds into the wallet. Like the public key concept, addresses also allow funds to be obtained for the same wallet because they are derived (utilizing another one-to-one mathematical function) from the public key. The purpose of this paragraph is to emphasize the importance of keeping the private key outside the boundaries of the network, since control over the private key, not necessarily the wallet, will determine who controls the capital contained within the wallet accessed by that key.
What is the private key and seed?
To access and control a wallet, you need to provide its private key. A private key is a phrase made of random letters and numbers that uses a one-to-one mathematical function to generate public keys or addresses. The key is often presented by a sequence of 12-24 English words, which are together known as the seed. Without the private key, you won’t be able to access the wallet’s funds; hence, you will have to back-up your private key in a safe place. More on securing your wallet can be read in this guide.
Is it possible for there to be two identical private keys?
We’ve answered this question separately, but the short answer is that the chance is rare as 2^128, a lot rarer than winning the lottery. Hence, this situation is almost impossible.
What are Hot Wallets?
Hot wallets are digital wallets that are connected to the Internet. These allow quick and immediate access to your digital currencies, but because these wallets are constantly connected to the network, there is a risk of the wallet being hacked by exposing the private key. The primary use is for ‘everyday’ money when high liquidity is needed. It is recommended that hot wallets use a PIN password as well as second layer authentication (2-FA).
What are Cold Wallets?
Cold wallets are wallets that are not, and have never been, connected to the Internet (offline) or have been created using a PC that was never connected to the network. Cold wallets have a high level of security for maintaining digital crypto assets. Therefore, cold wallets are recommended when storing large amounts of crypto assets. However, a problem arises because the higher the level of security, the less the liquidity and ease of use. In the cold wallets category, you can find paper wallets, brain wallets, and hardware wallets (HD) such as Trezor and Ledger.
However, it is important to note that the use of paper wallets and brain wallets also involves the risks of unprotected production, loss or forgetfulness of the private keys, and therefore hardware wallets such as the following are recommended.
What are deterministic wallets (HD)?
A deterministic wallet can recover all derivative keys, so backing up the seed alone is enough to restore activity to a new wallet. The next generation of wallets is called hierarchical deterministic wallets (HD).
These wallets contain keys in a sort of hierarchical tree-like structure, so a parent key can produce a sequence of child keys, each of which can produce a series of “grandchild” keys, and so on, into an infinite chain of key generations. One of the most critical advantages of HD wallets is their ability to create a new public address for any transaction without risking the exposure of the private addresses. It also allows the holder to track the transactions of the tree for various purposes and uses one-time addresses without exposing the activity of the transactions
Digital Bitcoin & Crypto Wallets: Recommended wallets for beginners
MyCelium: An open source Android wallet, very easy to use. It is protected by a PIN code, has a built-in address book, and great UI/UX. MyCelium is an HD wallet, which is a wallet that generates a new address every time it sends or receives digital assets, and increases the privacy level. It also has an option to create cold-storage paper wallets and also has integrations to the Trezor and Ledger hardware wallets.
Recently we added a dedicated guide to Mycelium, follow this link.
Jaxx – the Jaxx app offers a wide range of options: it can be used as both a web and an app wallet. Jaxx supports a wide variety of currencies and allows you to exchange them in your wallet (using the ShapeShift Exchange service). Although the wallet is very easy to use and has gained its reputation among crypto users, it has been criticized because its code is not entirely open source and in the crypto world, that is significant.
Bread – Bread has become a successful wallet for IOS devices, although it is now also available for Android. It is very user-friendly and supports Bitcoin, Bitcoin Cash, Ethereum (as well as ERC20 tokens). The wallet is very convenient and simple to operate without compromising on the level of security (which includes fingerprint identification and PIN code).
Edge – a new Android and IOS based wallet with a security model that generates keys locally on the device and encrypts them together with a user name and password on the company’s server. Edge was developed by the AirBitz wallet’s team. An additional layer of security can be added for the average user, such as PIN code, fingerprint, and 2fa, offering high security and privacy. Using SegWit technology, you can also buy Bitcoin with a credit card and even convert to other cryptos using the provided ShapeShift exchange.
Recommended Hardware wallets
Trezor One & Trezor Model T
Trezor One is a compact and easy-to-use hardware wallet that connects both to a PC or smartphone. The Trezor supports the storage of Bitcoin, along with the top Altcoins such as Ethereum (ERC-20), Litecoin, Bitcoin Cash, Dash, Zcash, and more. The wallet commissioning mechanism can also be adjusted, and the wallet supports the SegWit technology and offers advanced features for any ledger, like transaction history export and more. Click here for the complete Trezor One guide. The Trezor is manufactured by SatoshiLabs (based in the Czech Republic).
The Trezor Model T offers an elegant, informative LCD touch-screen, which is wider than the Trezor One’s screen. Click here for the Model T’s guide.
Based in France, Ledger Nano S is a well-known hardware wallet, just like Trezor. Just like the former, Ledger Nano supports a variety of cryptocurrencies and also SegWit technology. It should be noted, however, that in March 2018 the wallet was severely criticized for security breaches discovered by a 15-year-old security researcher. Despite this, the Ledger team handled the situation, and since then no new exploits have been found.
The Nano X is similar to the S version; however, Ledger X offers Bluetooth integration.
Keepkey is a relatively new wallet among the HD wallets led by the above two. It securely stores Bitcoin, Bitcoin Cash, Ethereum (as well as ERC-20 tokes), Litecoin, Doge, Dash, and more. The Keepkey fee calculation mechanism is predetermined, and the wallet can also be used to export historical data.
Other Recommended Bitcoin & Crypto Wallets
Electrum is a veteran software wallet with an excellent reputation. Easy to use, very fast, and can also be used as a cold wallet using a PC which is not connected to any network. Electrum also connects to hardware wallets and offers the possibility of creating multi-sig wallets. Electrum is a veteran, well-known software wallet; however, it doesn’t have the best user interface.
Bitcoin Core – Any review of wallets without including BitcoinCore would be considered an amateur review! Bitcoin Core is the original software that comes very close to a full node – That is, installing Bitcoin Core comes along with the entire Bitcoin blockchain and allows the end-user to approve the transactions themselves, regardless of a third party’s trust level. However, it requires constant syncing and needs lots of free space and memory.
Exodus – A software-based wallet with a very convenient and intuitive interface that is suitable for storing a wide variety of cryptocurrencies as a multi-currency wallet. Exodus allows you to exchange cryptos within the wallet itself and gets a lot of praise for its user experience.
Copay is the multi-currency wallet by BitPay, with an excellent reputation. The mechanism for calculating its fees is fixed and cannot be changed. The wallet has software and app versions and is considered very secure and relatively easy to use.
Samourai is a relatively new Bitcoin wallet in the field of app wallets. Samourai emphasizes privacy, and it is the first wallet to implement BIP47, which is an extension of BIP32 and allows users to stay anonymous. At the time of writing, the wallet is still under development and is available in an alpha version for Android users only – an IOS version is already on the way.
Blockchain Info is a wallet that many like to denigrate and is associated with the category of hybrid wallets where access to the wallet is made via the web. The private keys are encrypted and stored on the central wallet’s server, and access to the wallet is only made possible through a password and 2FA. Keep in mind, that if you have no control over the private key, you do not fully own your Bitcoin. On the positive side, the Blockchain.Info wallet offers unique features for advanced users.
* If you want to store other cryptocurrencies than Bitcoin (such as Ripple, Ethereum and Litecoin), make sure the intended wallet you install supports the cryptocurrency type.