How to store bitcoin? What are wallets?

[maryyny]

Everyone who enters the crypto-exchange community, first of all, encounters the storage of bitcoin and crypto-currency. And it does not depend on whether you are going to accept coins as payment, use them for calculations or store as an investment.

An important difference between crypto currency in general and bitcoin in particular, from bank money, is decentralization. What does this mean in practice?

Each node of the network (node) keeps a full history of transactions in the network. And each network node can create a transaction on its own and send it to the network. That is, there is no single center that monitors what is happening and conducts payments.

On the one hand, this provides the same security and anonymity. No one can stop the payment or block the user's money. On the other hand, such a system generates some technical problems. Today, the volume of blockchain bitcoin exceeds 120 gigabytes, and it will grow. Such a volume is already problematic to store even on an average laptop, and on mobile devices it goes beyond the real. In addition, the first download of blockchain takes up to several days.

In addition, an important component of any crypto currency is the storage of private keys.

Since crypto currency is different from banks and electronic money, such as webmoney, and wallets for them differ, both technically and their use philosophy.

Conditionally, all decisions for today can be divided into three main categories

-Cases, installed on the computer in the form of a special program

-Online wallets and storage

-Password Wallets

We describe in more detail each of the options and consider its merits and demerits.

Purses installed on the computer in the form of a special program

When creating bitcoin, the developers immediately provided a program through which the user could manage their funds from their computer. The Bitcoin Core team supports and continues to develop the Bitcoin-qt wallet and its "console" version of bitcoind / bitcoin-cli. The latter is more intended for deployment in the Internet of a full node and for IT professionals. The wallet is cross-platform, that is, exists for most common operating systems: Windows, Linux, macOS. You can download it on the official website. Such crypto-currencies as DASH, Litecoin and Bitcoin Cash use almost the same software, with modifications to the corresponding crypto currency.

Also, most serious altcoyins - such as Monero and Ethereum - also have similar programs in their arsenal, created by the developers of these crypto-currencies.

In addition to programs from the developers themselves, crypto currency, there are solutions from third-party developers, such as Electrum, Armory and Jaxx.

The advantages of software purses are, of course, a higher level of security and full control of the user over their means. If you store significant amounts in the crypto currency, then this will be an acceptable solution.

Disadvantages are firstly large amounts of disk space, which is not always convenient. Secondly, this is the big traffic that they create. With mobile connection to the Internet, synchronization of such a purse with the network becomes a very long process. You also need to remember that when you use a local wallet, anyone who gets access to your computer can access your money.

Online wallets and storage

This category includes various services available on the Internet, such as bitgo, xapo, bitpay, blockchain.info, (not to be confused with blockchain technology). Such services allow you to register online-purse, which looks like online banking or electronic payment systems like webmoney or Yandex.Money.

This wallet is usually available from any web browser, and often in the form of a mobile application. When using such a service, you do not need to download the blockchain of the crypto currency you are interested in, the entire infrastructure is provided by the platform creators. Often such wallets support several crypto-currencies, for example, blockchain.info at the time of this writing supports Bitcoin, Ethereum and Bitcoin Cash.

Often, crypto-currency exchanges provide such functionality, allowing you to use your account as a purse.

The advantages and convenience of such services are obvious: when using mobile devices and weak computers, the user still has full access to the capabilities of crypto currency. Also often enough, these services combine the ability to exchange one crypto currency for another. And finally, some platforms offer functional, embedded in the crypto-currency protocol, but not implemented in the basic local purses. For example, for bitcoin it is possible to create wallets with a multi-signature.

But the shortcomings of online storage often can significantly exceed their advantages. The first and most, perhaps, main drawback is that you actually transfer your money to a third party. And if the bank, for example, has licenses, is checked by the state and should have a certain reputation, then in the case of the online wallet, users in the bulk are not even interested in who is the owner, is there a legal design for this enterprise, and how safe is the software for such a service.

The second, obvious minus of such a decision is that all transactions occur through the Internet, and if the creators of the wallet are not concerned with a sufficient level of security, your funds are under threat.

Summarizing, we note that online-purses are suitable for storing small amounts for current expenses, which should be at hand for quick calculations.

Hardware Wallets

This category of solutions is the most reliable in terms of security, and in fact combines the features of local software purses and sometimes online services.

Hardware wallets are special devices, usually connected via USB to a computer. Sometimes such devices are supported by the same smartphones.

Examples of such devices: Trezor, KeepKey, Ledger. The sizes of such devices rarely exceed the size of the credit card.

The main task of such devices is the safe storage of wallet keys. Of course, a small device does not store the entire blockchain, so you need to install special software on your computer or smartphone. Often, such wallets interact with online services. However, private keys never leave the device itself.

This category is perhaps the safest for storing large sums, approaching its "cold storage" security.

The main drawback of hardware wallets is the loss of access to money in case of physical destruction or failure of the device, as well as the possibility of its banal theft. But the same danger exists in the case of a software purse. However, almost all hardware wallets support the technology of archiving and recovery in various ways.


And so, in principle, we considered all the basic solutions for storing crypto currency. I hope that this information will be useful for beginners in the field of crypto-currency and cryptotrading.