Cryptocurrency Course Part-5 (Storing Bitcoin)

Where are bitcoins stored?

Bitcoins and other cryptocurrencies are stored in digital wallets.

The following are the differant types of cryptocurrency wallets that exist at the time of writing:

Hot wallets (Web), Desktop, Mobile, HD wallets, Hardware, and Cold Storage (Paper wallets). We will learn about these in a moment.

First, I want you to understand wallet keys.

Your Wallet Keys

A bitcoin wallet contains a public and private key for each bitcoin address.

The private key encryptes bitcoin transactions and allows bitcoins to be spent. A private key is mathematically related to a wallet address, but it cannot be revealed using a wallet address.

The private key is used to authorise access to the bitcoin on the wallet, so it needs to be kept secure. Do not share your private key with anyone. If anyone has your private key, they will have access to your bitcoins.

You will not be able to access your bitcoin or spend them if you do not have the private key.

The public key decryptes bitcoin transactions. A public key is 256 bit long and is mathematically derived from the private key.

The address is a form of the public key. The wallet address is 160 bits long.

Your bitcoin wallet has a wallet address which you can use to receive bitcoins. You will have a scannable QR code version of your wallet address too.

A wallet address is a hashed version of your public key. The public key proves that you are the owner of the wallet address.

Even though the private key and public key are mathematically related, it's virtually impossible to get the private key with just the public key.

If you use an online wallet, you may be trusting a 3rd party company with your private key.

Depending on the type of wallet, it may also store details of your transactions and other prefrences.

For details on how to import a private key to a wallet, click here.

Hot Wallets

Hot wallets are basically online wallets provided by a bitcoin service like an exchange or marketplace.

If you use a hot wallet, you are trusting a 3rd party with your private keys. It is therefore important to use one that is reliable.

The most popular ones are Blockchain.info and Coinbase.

Desktop Wallet

You can download a desktop wallet to your computer. You would have to download the whole bitcoin program onto your computer, which can take a lot of time. You will also need to make sure your computer is secure and free from malware.

Your bitcoin wallet will generate a back up file called 'wallet.dat'. You need to store this file securely. If you lose your bitcoin wallet, you can restore your bitcoins to a new wallet by importing the 'wallet.dat' file.

You can find the file in the location below:

C:\User\Yourname\Documents\AppData\Roaming\Bitcoin\folder

Electrum is a popular desktop wallet.

Exodus is another web wallet that is grown in popularity. It is the first desktop multi-asset wallet with ShapeShift built in.

Exodus currently supports Aragon, Augur, BAT, Bitcoin, Decred, Dash, EOS, Ethereum, Gnosis, Golem, Litecoin, OmiseGo and Qtum. These are all different cryptocurrencies that you will learn more about later.

Mobile Wallet

You can download a mobile wallet to use on your mobile device. The private key is stored on your mobile. Although mobile wallets are convenient, they are risky. What if your phone gets lost or stolen?

If you do use a mobile wallet, make sure that you are using multi-factor authentication, that your mobile is password protected, and free from malware. It also important to create a backup of your private key.

Breadwallet provides an Android and an Apple version.

Mycellium is a HD wallet for mobile.

Hardware wallet

The private key is kept securely on an offline device. You can even be connected to a computer with malware on it, even then your private key will be safe.

The safest way to store your bitcoin is by using a hardware wallet.

The hardware wallet I use is called Ledger Nano S and stores Bitcoin and other cryptocurrencies.

The Ledger Nano S is a HD wallet (Short for Hierarchical Deterministic). These wallets generate child keys from a master key. You only need to back up the master key once and it generates new wallet addresses everytime.

You can buy yours for around 69 euros from LedgerNanoS.com.

I highly recommend buying from the actual website and not from Amazon or eBay, as there are fakes going around.

You will need to set a Mnemonic Phase, which is a secret list of words used in sequence to get access to your cryptocurrencies.

When you set up your hardware wallet, you will be asked to set this up by writing down the phrases that appear on the screen, and then verifying them.

Paper wallet

A paper wallet is a copy of your private and public key on a printed on a piece of paper. Because the keys are offline, it is secure from online threats.

However, you must make sure the paper wallet does not fall into the wrong hands. If you leave it lying around, anyone can scan the the QR code and take your bitcoins from it within seconds.

To create a paper wallet:

Go to bitaddress.org
Move your mouse around on the screen untill the randomness reaches 100%
Click the paper wallet button.
Type '1' in the Addresses to Generate field.
Click the Generate button.
Click the Print button.

Security Tips

1.Keep passwords secure
2.Use a new email account
3.Enable 2 Factor Authentication.
4.Use the latest security/antivirus software.
5.Be cautious of phishing emails and websites.
6.Always type address instead of searching for it.
7.Diversify and hold crypto in more than one wallet.

If you enjoyed this post would you please give it an upvote, like, and follow me @cryptoplayer

All the information and facts were correct and up to date at the time of writing.

I hope that you find the course useful and enjoyable.

Kind Regards,
Cryptoplayer