How to store Bitcoins? - Essay Example

It is crucial to secure and back up your bitcoin wallet. Bitcoin VOX recommends that you use back up including paper storage. First you must encrypt your wallet with a strong password, secondly back it up, keep separate wallets and use a Two-factor authentification.

We Will Write A Custom Essay Sample On
ANY TOPIC SPECIFICALLY
FOR YOU

For Only $13.90/page


order now

Bitcoin wallets store the private keys that you need to access a bitcoin address and spend your funds. They come in different forms, designed for different types of device.

5.1 Desktop wallet

Hardware wallet

If you have already installed the original bitcoin client (Bitcoin-Qt), then you are running a wallet, but may not even know it. In addition to relaying transactions on the network, this software also enables you to create a bitcoin address for sending and receiving the virtual currency, and to store the private key for it. There are other desktop wallets, too, all with different features. Multibit runs on Windows, Mac OSX, and Linux.

Mobile Wallet

A mobile wallet runs as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay directly with your phone. Examples of mobile wallets include the Android-based Bitcoin wallet, Mycelium, and Blockchain (which keeps your bitcoins encrypted on your phone, and backed up on a web-based server).

Desktop-based wallets are all very well, but they aren’t very useful if you are out on the street, trying to pay for something in a physical store.

5.2 Online wallet

Web-based wallets store your private keys online, on a computer controlled by someone else and connected to the Internet. Several such online services are available, and some of them link to mobile and desktop wallets, replicating your addresses between different devices that you own.

One advantage of a web-based wallet is that you can access it from anywhere, regardless of which device you are using. Coinbase, an integrated wallet/bitcoin seller operates its online wallet worldwide but only allows people to buy bitcoins in the US. Blockchain also hosts a web-based wallet.

5.3 Offline wallet

If you afraid of storing your bitcoin keys digitally, for fear that they may be stolen by hackers, there is another option: cold storage. Cold storage wallets store private bitcoin keys offline, so that they cannot be stolen by someone else on the Internet. There are several sites offering paper bitcoin wallet services. They will generate a bitcoin address for you and create an image containing two QR codes: one is the public address that you can use to receive bitcoins. The other is the private key, which you can use to spend bitcoins stored at that address.

It makes sense to use cold storage for the major part of your Bitcoin fortune which you want to hold on a long term period, and to have another wallet to pay for things on a regular basis.

Some people are developing hardware wallets which are designed to hold private keys electronically and facilitate payments. Trezor is a hardware device designed to store a master key for accessing your bitcoin wallet, which never divulges any secrets to the host machine. Hearn hopes that this product, or successors to it, will evolve into more general security tools in future

Another example of a secure cold storage wallet is something called a ‘brain wallet’. This is essentially a secret combination of words and numbers you carry around in your head. When you enter your passphrase into a site like brainwallet, it will unscramble it so you can obtain your private key.