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Many are joining the bandwagon that is cryptocurrency trading However, many are baffled to find that buying Bitcoin is not as easy as it seems. Apps need to be installed first before you can buy Bitcoin. One of the apps that you need in order to buy Bitcoin is a digital wallet. This article is a Bitcoin for beginners guide to the Bitcoin wallet and its different types.
First off, you must learn what a cryptocurrency wallet is. It is actually unlike a real-world wallet where money and other personal stuff are stored. A Bitcoin wallet does not actually hold Bitcoin. All 21 million coins issued by Bitcoin from the start are stored on the blockchain and nowhere else. What a wallet does is it connects to a specific address in the Bitcoin blockchain indicating ownership of coins. The blockchain is a public database containing a record of all Bitcoin transactions. A Bitcoin wallet is primarily a tool that interacts with the blockchain to facilitate the sending, receiving and managing of Bitcoin.
Different Types of Cryptocurrency Wallets
- For those of you who do not want to install an app or software, you can just use web wallets. Some cryptocurrency exchange websites offer web wallets. You can send, receive and manage Bitcoin through a browser and Internet connection. The risk here is that some websites store private keys and addresses on a centralised server, and are prone to hacking.
- The desktop wallet is more secure than the web-based one. Software is downloaded and installed on a desktop computer or laptop and it allows you to fully manage and control your private keys, addresses and funds. You just have to be extra careful because viruses and malware infecting the computer may make it vulnerable to hacking. A huge problem may occur if the hard drive is damaged and cannot be accessed anymore. In this case, the stored keys and addresses will be lost, meaning proof of ownership to Bitcoin is also lost. The solution is easy enough: just make sure to backup your data.
- Mobile wallets are usually the ones preferred by the majority. It is convenient and you can manage your Bitcoin anywhere by installing an app on your cellphones or tablets. Almost all digital devices are prone to hacking through the Internet and all experience technical errors as the gadget become older and more used. Just remember to always keep a backup of your data and beware of malware and viruses.
- There are also offline hardware wallets that are external digital devices that use a random number generator to generate public and private keys. These keys are stored in the device. This acts as a vault and offers more security. It just has limited accessibility as the device needs to be connected to a computer to get to the keys. This is recommended for those who have large amounts of Bitcoin.
- The paper wallet is probably the most secure way of storing Bitcoin. A program generates private and public keys and they are printed out on a piece of paper with a QR code. The paper just has to be kept secure and backups may exist through photocopies. Because once the paper is lost and no copies are made, you also lose your Bitcoin.
Based on the information provided above, you can just choose which one is suitable for you. This Bitcoin for beginners guide to the Bitcoin wallet is just the tip of the iceberg. There is more to learn when trading cryptocurrency. It is highly recommended that you research and learn so you can make informed decisions.