What is Bitcoin? How to Buy it & the Best Bitcoins Wallets to Hold It
What is Bitcoin?
Bitcoin is a new digital currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto.
Bitcoin makes international payments easy and cheap because bitcoins are not tied to any country or subject to regulation.
Benefits of Bitcoin and why people are buying it and using it.
- transactions are made with no middlemen(no banks)
- no transaction fees
- no need to give your real name
- can be used to buy products and services anonymously
- great for small businesses because there are no credit card fees
- more merchants are beginning to accept them. (You can buy web hosting services, pizza or even manicures)
- bitcoins as an investment(hoping that it will go up in value)
Where to Buy Bitcoin with other currencies?
To get started, you need to buy Bitcoin with fiat currency like US or Canadian dollars. There are several marketplaces called “bitcoin exchanges” that allow people to buy or sell bitcoins using different currencies.
How to Transfer Bitcoins between people?
You can send bitcoins to anyone using mobile apps or computers. It’s very similar to sending cash digitally using services like Paypal or AliPay and others.
Where do Bitcoins come from?
Bitcoins are mined by very fast computers working to solve complex math puzzles. This is how bitcoins are created. Currently, a winner is rewarded with 25 bitcoins roughly every 10 minutes.
How can you “own” Bitcoins?
- Bitcoins are stored in a “digital wallet,” which exists either in the cloud on the internet or on your computer.
- The wallet is sort of like of virtual personal bank account that allows you to send or receive bitcoins, buy stuff or to simply save your money.
- **One of the disadvantages of holding Bitcoin in a digital wallet is that they are not insured by the FDIC.
Types of Bitcoin Wallets
There are 3 types of Bitcoin wallets: hardware, software, and paper.
What is a Hardware Wallet?
Hardware Wallets are physical wallets with your private keys encrypted in them. You need a digital signature that is your ID. It’s used to prove that you own a specific key while keeping it private. Your private keys are isolated from your computer, keeping your risk of theft near zero. The only negative is that they cost money.
What is a Software Wallet?
Software Wallets are programs that live either on your computer or on the Internet and most are free to set up. They are still connected to the Internet and expose you to some risk but they are still the most popular choice for most people.
What are Paper wallets?
Paper Wallets are physical documents with private keys like the ones below.
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List of Bitcoin Hardware Wallets
Bitcoin hardware wallets are the most secure type of Bitcoin wallet.
The main difference between hardware wallets and software wallets is that they are completely disconnected and impossible to touch by hackers, trojan viruses, and other malware.
Ledger Hardware Bitcoin Wallet
The Ledger Nano S functions like any other hardware wallet, with a few minor differences.
Advantages of Ledger Wallet
- Setting up the Ledger wallet is pretty simple. All you need is Chrome and a secure computer.
- Ledger comes with a PIN for added security. If the PIN is entered incorrectly three times, Ledger wipes itself clean.
- Ledger allows you to set up a recovery seed to retrieve your private keys if your device is lost or broken. This recovery seed is a set of words that must be put together in a certain order. Ledger allows you to recover all your lost bitcoins with your recovery seed so no need to break a sweat.
- Your private key is stored completely offline and never exposed to your computer, so your chances of getting your wallet hacked are as close to zero as they come. If you lose it, you can restore your wallet to another device or another wallet entirely with the seed. It truly is an investment that could save you thousands down the line.
Dis-advantages of Ledger Wallet
- Cost. you don’t need a hardware wallet to use and hold Bitcoin but it does have some great advantages.
Ledger Rating
Overall, the Ledger wallet functions exactly as you’d want it to. It keeps your bitcoins safe, it’s easy to access but only for you, and is forgiving if your house burns down.
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Trezor Hardware Wallet
Trezor is a hardware wallet that holds your private keys offline, and allows you to sign transactions with your digital signature without having to connect to the Internet.
Trezor is a favorite for many people because it can serve both as an offline cold storage device for Bitcoin and it also allows you to spend your coins.
Advantages of Trezor Wallet
- It’s a small device that you can carry around on a keychain and can potentially hold millions of dollars of Bitcoin in the palm of your hand.
- spend your bitcoins through Tresor’s limited USB connection. A limited USB connection acts like a computer mouse: the mouse communicates its location to the computer, but the computer can’t move the mouse. It’s a one-way connection.
- Tresor can safely interact with computers that may be compromised or infected with malware. This is amazing for safely managing your bitcoins.
- There are no usernames or passwords for Tresor accounts, so it’s very difficult to hack. Your Tresor device is all you need. Unless someone has physical access to your device, there’s no way your account can be accessed. That being said, Tresor offers passphrase protection for Bitcoin access. This passphrase should be purely memorized and not written down anywhere.
Disadvantages of Trezor Wallet
Same as other Hardware wallets. The only real disadvantage is the cost. you don’t need a hardware wallet to use and hold Bitcoin but it does have some great advantages.
Tresor Rating: Overall, I like the TREZOR a lot. It’s extremely secure and intuitive. The price is a bit higher than most wallets but the features, TREZOR team, and accessibility of the product justify it.
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KeepKey Hardware Wallet
KeepKey is hardware wallet that’s almost twice as big as the Trezor or Ledger hardware wallets.
- comes with a pin code and number randomization to guard your coins.
- use it on compromised or malware-infected computers, although not recommend.
- Keepkey supports Bitcoin, Litecoin, Dogecoin, Namecoin, Testnet, Ethereum, and Dash.
- great for users that want to keep their altcoins off the grid.
- ability to store a wide variety of altcoins is very appealing.
- Keepkey is larger than other hardware wallet but isn’t much of an issue.
- Keepkey security is top notch.
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List of Online Bitcoin Wallets
Online wallets are programs that run in the cloud, so you can access them from any computer, anywhere in the world.
- Online wallets are the most convenient to access
- They are easiest to set up compared to hardware bitcoin wallets.
- Online wallets are ultimately controlled by a third party that you need to put your trust in. These companies are constantly improving security and taking proactive measures to keep your wallets safe but there’s still an inherent risk.
The main difference between hardware wallets and online wallets is a trade-off flexibility for security. The tradeoff with online wallets is security for flexibility. You can’t have it all but at least there are options.
Coinbase Online Bitcoin Wallet
Coinbase is one of the fastest and easiest ways to buy and store your bitcoins.
It’s one of the most popular options for people just getting started out in the crypto world and most recommended.
- Coinbase is a brokerage, exchange, and wallet and is the world’s largest Bitcoin exchange.
- Buy, sell, trade, and store your coins all on the one platform.
- Access your Coinbase wallet via web, or through the Coinbase iOS and Android apps.
- Coinbase provides a level of flexibility that hardware wallets just don’t offer.
- Coinbase’s digital currency is insured by Lloyd’s of London. If the platform were breached (physical security, cyber security, or employee theft), Coinbase’s insurance policy would cover any of your money lost.
- Coinbase only holds less than 2% of customer funds online. All funds are placed in cold storage, adding more credit to their security.
- U.S. resident Coinbase walles are covered by the FDIC insurance for up to $250,000 of your fiat.
- Multisignature Vault – The Multisignature Vault for securing larger amounts of bitcoin. This Multisignature Vault is a 2-of-3 wallet. This means Coinbase has one key, you (the account holder) have a second key, and one key is shared. Any two of the trio of keys allows funds to be spent.
- 48-hour processing time for all withdrawals from Vaults for added security and it allows you to cancel any faulty withdrawal request within this generous period.
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Blockchain.info Online Bitcoin Wallet
While Blockchain is far from the best option, I wanted to include it anyway.
My main beef with Blockchain is that all transactions need to be routed through the company’s servers, and they’ve gone through a disconcerting number of outages over the past years. If you’re equally uncomfortable with the thought of your account being inaccessible at any random time, you’ll probably want to pass on this one. Bitcoin, to many people, is about full control anywhere anytime. Blockchain seems like a step back.
Blockchain.info can be accessed either in a browser or via mobile, which would be very convenient if there weren’t so many server issues. You can access Blockchain wallet from any browser with your wallet address and you can back up on mobile. There are two additional layers of security: The web version has 2FA (two factor authentication), meaning Blockchain notifies users with a text when someone tries to log in. Mobile users can also set a four-digit password requirement for the app.
Blockchain.info Rating: For now, Blockchain.info is a good plan B but shouldn’t be your first choice. The security is top notch, but its lack of reliability and convenience raises red flags.
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Paxful Online Bitcoin Wallet
Paxful is an online peer-to-peer marketplace with over 300 different ways to purchase Bitcoin. You can purchase Bitcoin using gift cards, other online wallets, credit cards, or even cash deposits from over 1,200 trusted vendors on the site. Even better, you usually receive your coins within 5 minutes of purchasing them.
The online platform also includes a wallet that you can use to store your coins. Although there are fees when purchasing Bitcoin on the site, the Paxful wallet is essentially free to use. The only fee you incur is the blockchain network miner fee charged to you when you move your Bitcoin out of the wallet.
Fund safety is one of the highest priorities of Paxful. The company’s servers are highly protected matching the same level of security as top banks. On par with other online systems, your wallet is secured by a password in combination with 2-factor authentication. Paxful supports Google Authenticator, Authy, and other SMS based 2-factors.
Unfortunately, Paxful doesn’t have an iPhone or Android app and hasn’t stated any plans to develop them.
Paxful Rating: Paxful is a great way to buy Bitcoin through unconventional means. The wallet is fairly secure, but if you’re holding a significant amount of cryptocurrency, you should consider using a hardware wallet.
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Bitcoin Paper Wallets
When it comes to securing your bitcoin, paper wallets aren’t exactly Fort Knox. Paper wallets, handwritten or physical copies, are easy prey for Malware if you’re not extremely careful generating them on an online PC.
Paper wallets are one of the riskier ways to store your bitcoins, but they are still an option. If they’re unencrypted, you‘re basically a tourist carrying load of cash and expensive jewelry on vacation.
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What is a Bitcoin Client?
You’ve probably heard the term “Bitcoin client” tossed around a few times. A Bitcoin client is a software that facilitates private key generation and security, as well as payment, on behalf of a private key.
You might be asking yourself, What’s the difference between a Bitcoin client and a Bitcoin wallet?
Well, a wallet is technically the data necessary to spend and receive bitcoins. This includes a private key, public key, and the address from the public key.
A client, however, is the interface to the network. A client is the hardware and software on a device that makes it possible to connect to networks. It handles all the communication, and updates your wallet with incoming funds. It also uses information from the wallet to sign outgoing transactions. A client is just a device, not a corporate entity.
If you’re still confused, don’t worry. The terms overlap. It certainly doesn’t help that most companies are clients and wallets, and market themselves as “wallets.” For example, popular Bitcoin wallet is Airbitz synergizes its “wallet” and “client” functions so you can store the right data and interact with the network in an intuitive and safe way. For potential users, “wallet” seems to be easier to understand in relation to their money than “client” is.
Exodus Wallet Review
The Exodus wallet is best described as a “Blockchain assets wallet” because you can store a variety of cryptocurrencies like Bitcoin, Litecoin, Dogecoin, Ethereum, and Dash. If you’re actively investing in altcoins, the Exodus wallet is very appealing. I’m a fan of its circular design and intuitive interface, but Exodus launched in July 2016 and is still a relatively new wallet.
Exodus’s built-in exchange feature allows you to trade your altcoins for bitcoins and bitcoins for altcoins. Thanks to Shapeshift, it’s easy to trade cryptos from within the wallet, a feature very few wallets have.
Keep in mind that Exodus is connected to the Internet and therefore inherently riskier than a hard wallet.
Jaxx Wallet Review
Jaxx is another software wallet that poses a great option for altcoin enthusiasts.
Jaxx is available on Windows, Mac, and Linux desktops. It’s also accessible on Android and iOS mobile and tablets, as well as through Chrome and Firefox extensions. The wallet functions as well as any other bitcoin wallet, and its simple interface makes looking through your portfolio a breeze. I enjoyed the ability to use different exchange rates, set a PIN, and set up different transaction fee sizes (how quickly your transaction gets processed).
Jaxx is also integrated with Shapeshift—like Exodus—so you can exchange altcoins within the app. This is pretty sweet, given that Jaxx currently supports Bitcoin, Litecoin, Zcash, RSK, Augur (REP), Dash, and Ethereum (ETC and ETH).
Keep in mind that Jaxx also functions online and is inherently riskier than a hardware wallet or cold storage.
Airbitz Bitcoin Wallet Review
Airbitz is all about security. It’s decentralized, secured, and backed up. Neither Airbitz nor any other third party can access your coins. Airbitz offers you independence.
Airbitz is also active in the Bitcoin community and has a directory of businesses that accept bitcoin. The Airbitz user interface is also pretty easy to use, making it a top choice for beginners looking for an element of security.
MyCelium Bitcoin Wallet Review
MyCelium is popular among more intermediate Bitcoin users due to its robust advanced privacy and security features. It tends to be a bit tricky for beginners, but users appreciate its open source software program and transparency.
Perhaps the greatest highlight of the MyCelium wallet is that the advanced privacy features allow you to stay anonymous while the advanced security features keep your bitcoin safe. Unfortunately, MyCelium is only accessible via smartphone as there is no web or desktop interface.