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One of the main features of Bitcoin, like any other cryptocurrency, is the lack of physical form. The coin is a special asset that exists only in virtual space and operates on the blockchain. Those who are just starting to get acquainted with these tools have logical questions. Where can you store crypto then, and how to make transactions? The answer is simple – a crypto wallet. In this article, you will learn what a Bitcoin wallet is, what formats it is presented in, and how to use it.
What is a Bitcoin wallet?
Since the advent of blockchain technology and Bitcoin, developers have been able to create dozens of wallets for the coin. These are special storages (software or hardware) that are suitable for placing a certain amount of Bitcoin cryptocurrency, as well as performing transactions with it.
The most common formats of Bitcoin wallets are software and a device. People who are accustomed to a physical wallet where fiat money is stored may not always find this easy to understand. But, you can simplify the task if you compare a Bitcoin wallet with a regular mobile banking application. It does not have physical money, but it has access to it.
All funds are stored on a regular bank card, from which you can transfer and receive them online. A software Bitcoin wallet works on the same principle. But, unlike a regular mobile banking application, access to the wallet is given to digital assets. In this case, it is a Bitcoin coin.
Wallets (in particular, hardware ones) store the most important information that makes it possible to manage the Bitcoin coin. This is possible thanks to a special private key. It can be compared to a regular password for a bank card. It allows you to access the cryptocurrency on the balance, and then perform certain transactions with it in the wallet.
In its full form, it consists of a large number of digits. A huge code is not convenient to use, so Bitcoin wallet developers suggest using a simplified tool – a special phrase (secret phrase or seed phrase).
The phrase is used if you need to restore the Bitcoin wallet on another device and continue using the coins. It is important that it cannot be transferred to anyone. Only the owner should know the information, since this allows you to perform transactions with the Bitcoin cryptocurrency in the wallet. Experts recommend storing a unique phrase on a piece of paper that is hidden in a safe place. This significantly reduces the risks associated with fraud, theft of cryptocurrency and hacking.
You can also use the cloud backup system, which is available to Bitcoin Wallet owners. Another important concept of a Bitcoin wallet is the public address. It can be compared to a bank card number.
What types of Bitcoin wallets are there?
You can store BTC cryptocurrency in different types of wallets. They differ in their operating features and format. To choose the most suitable wallet for storing Bitcoin, you should first familiarize yourself with the main features.
Hardware wallets
The hardware type of Bitcoin wallets is one of the safest. This is due to its special format. A hardware (cold) wallet is a special device that resembles a flash drive. It can be connected to a mobile gadget or computer using radio signal technology or a USB input. Using hardware wallets is very easy.
The device is connected to the gadget, and then the user can transfer Bitcoin cryptocurrency to it. Storing data on a hardware wallet is safer due to the lack of an internet connection. After transferring Bitcoin coins, the device is turned off. It is important to choose a reliable place to store the hardware version to eliminate risks.
Software wallets
This type of Bitcoin wallet is the most common. This is due to its ease of use and quick access to funds that have been moved for storage. Software wallets, unlike hardware wallets, are a platform that can work in a desktop and mobile version. This is a regular program that shows the balance and allows you to perform transactions with cryptocurrency. You can make automatic withdrawals and transfers of Bitcoin. But first, the software wallet is downloaded. Installation and creation usually takes a few minutes.
Paper wallets
This is a non-standard, but quite reliable type of Bitcoin wallet. The essence of paper options is that you do not need the Internet and equipment to store coins. They are simple sheets of paper with a QR code or private keys to the wallet. Among the main advantages of paper wallets are simplicity, reliability, no risk of program failures, as well as a high level of security.
Custoid wallets
Paper, software and hardware wallets are classified as non-custodial. This means that only the owner has access to them. But, in addition to them, there are also custodial wallets. Such wallets are used on exchanges (except for decentralized platforms). The operator also has access to the funds that are transferred to the account for use or storage. In this case, a commission is charged for replenishment and withdrawal, which depends on the amount. This is the main difference from hardware and other options mentioned above.
How to create a Bitcoin wallet?
The process of creating a Bitcoin wallet depends on its format. The most common are software options, so we can consider the algorithm for opening them. It includes:
- selecting an application;
- downloading and installing a software solution;
- launching and creating a software wallet (at this stage, a private key is generated).
The user needs to follow the instructions and get a seed phrase. The private key from the software wallet must be written on one or even several sheets of paper and ensure their safe storage. Hardware ones only need to be purchased and connected to the gadget.
How to top up a Bitcoin wallet in Ukraine?
The most profitable and simple solution for topping up a wallet with a certain amount of coins is an exchange point. Using the service, you can quickly and effortlessly transfer regular currency to Bitcoin on a software or hardware wallet. This can be done using a bank card or cash. In any case, you first need to choose a reliable exchanger, and then leave a request on the website, following the instructions.
How to start using?
If you have chosen a software wallet, then you need to start by getting acquainted with the functionality. In most cases, developers create an intuitive interface. It is worth studying the withdrawal and transfer functions of the software solution separately. They are usually located on the main screen. In any case, you must check the network and the amount during each transaction in the software wallet. If this is a paper version, you need to scan the code.
Which Bitcoin wallet to choose?
To choose a suitable Bitcoin wallet, you need to consider several criteria at once. Among them are convenience, security level and type of investment. For short-term transactions with coins, you can use the custodial option on exchanges. If you plan to store large amounts for a long time, then it is better to choose hardware (cold) wallets or paper sheets with keys. As for software wallets, they are a universal option, protected by a key, so they are suitable for both medium-term and long-term storage of coins.
