Bitcoin Wallets on the Blockchain in 7 Minutes
Blockchain has ushered in a new era of digital trading and presented a novel method of wealth redistribution. Cryptocurrencies are a remarkable achievement that fully deserves all of the accolades and acclaim they have received in recent years. There is, however, a great deal of misconceptions surrounding cryptocurrencies. That is why we will go over the fundamentals and re-explain everything, beginning with the blockchain bitcoin wallet concept.
An Introduction to Blockchain in Four Paragraphs
Despite being a nearly daily issue in the headlines over the last couple of years, blockchain remains a mystery to the general public. Even those who look up the word are frequently left even more perplexed. Existing explanations are muddled and frequently necessitate prior technical knowledge. So, for a change, let's try to keep things simple.
A ledger — a digital diary that keeps track of who owns what — is what blockchain is. You'd wind up with records like "Jane received 2 BTC on June 13, 2018" if you took out all the high-tech nonsense. “On July 2, 2018, Max spent 2 BTC and Jane owns 15 BTC.” Max has 0.5 BTC.” Accounting 101 students handle more complex ledgers.
The blockchain, on the other hand, is not a traditional ledger. It isn't based on any kind of central authority. There is no such thing as a “master copy” of the blockchain; instead, each computer on the network automatically syncs with the others and notifies them of any changes.
EXAMPLE
If I were to send my friend 2 BTC right now, I'd add a new record to my PC's copy of the blockchain (“Damian spent 2 BTC”), followed by another record (“Gary got 2 BTC”). The same record would then be pushed to the other copies. They'd disseminate the word even farther, and within an hour, the entire internet would be aware of a 2 BTC transaction from one address to another.
Of course, it's a little more complicated. The entire chained blocks system ensures that the blockchain is not tampered with. There's a transaction pool, as well as transfer confirmations, miners, nodes, and a slew of other intricacies that deserve their own page. But, for the time being, let's speak about something a little more practical and down-to-earth: how Bitcoins are stored on the blockchain.
NOTE: The blockchain's function as a ledger is not its sole purpose. Blockchain is ideal for notary functions, such as smart contracts, because it is incorruptible.
What Is a Blockchain Bitcoin Wallet and How Does It Work?
Bitcoin isn't literally a "currency" because it doesn't exist in the real world. Even its digital representation on the blockchain is only an abstract unit: a counter, a token. Bitcoins cannot be removed from the blockchain because they have no value outside of it. You may only transfer them between accounts, or wallets, as we call them. A private key and a public key are two characteristics of each wallet.
When you create a wallet, a private key, also known as xPriv, is produced at random. It's used to keep track of the money in your wallet (for example, to send your Bitcoins to another user).
A private key might look like this:
5HueCGU8rMjxEXxiPuD5BDku4MkFqeZyd4dZ1jvhTVqvbTLvyTJ
Using Elliptic curve point multiplication, a public key, also known as xPub, is mathematically produced from a private key. It is used to keep track of the wallet (for example, to see how much Bitcoin it is currently storing). It also allows others to deposit money into your account.
A public key might look like this:
02d0de0aaeaefad02b8bdc8a01a1b8b11c696bd3d66a2c5f10780d95b7df42645c
NOTE: Keys can be presented in a variety of ways. We're going to use the more widely used Wallet Import Format in this example (WIF). There are, however, decimal and hexadecimal forms. Although they are inconvenient to use, some old-school blockchain users prefer them.
5500171714335001507730457227127633683517613019341760098818554179534751705629 5500171714335001507730457227127633683517613019341760098818554179534751705629 550017171433500150773045722712763368
0C28FCA386C7A227600B2FE50B7CAE11EC86D3BF1FBE471BE89827E19D72AA1D 0C28FCA386C7A227600B2FE50B7CAE11EC86D3BF1FBE471BE89827E19D72AA1D 0C28FCA386C7A227600B2FE50B7CAE11
The Blockchain community discovered a problem with public keys at some point. They're more than 60 symbols lengthy, illegible by humans, and not foolproof. They also feature perplexing symbol combinations, such as "l" and "1." This is why the Bitcoin community created addresses, which are simplified versions of public keys that do not have these concerns.
Address on the Blockchain
A blockchain address is the RIPEMD-160 hash (mathematical derivation) of the public key's SHA-256 hash. It's used to send money to your blockchain wallet.
1GAehh7TsJAHuUAeKZcXf5CnwuGuGgyX2S is an example of a Bitcoin address.
A public key cannot be created from an address, and a private key cannot be created from a public key. Mathematically, it's impossible.
The terms "addresses" and "public keys" are often used interchangeably. Both provide the same functionality, with the exception that an address can only be used once. There are a variety of reasons for this, the majority of them are connected to privacy protection; nonetheless, for the time being, let's just accept it as is.
Certain software and hardware automate the address-generation process and provide various extra functionalities. So we usually refer to those devices and apps when we mention Blockchain Bitcoin Wallet.
Offline Blockchain Wallets
To process payments, blockchain requires the internet. However, internet connections come with their own set of risks, particularly when huge sums of money are at stake. It is deemed safer to keep keys and addresses off the internet and only connect them when absolutely essential.
The term "offline wallet" refers to this sort of storage. There are three types of offline wallets, each with its own specialty and use case.
Paper Wallets
The most basic method for blockchain wallet management is a paper wallet. It's nothing more than a piece of paper with a Bitcoin address on one side and a private key on the other.
Advantages
Paper wallets provide a number of advantages over more complex designs, including:
Reliable. You don't have to charge them or look after them in any manner. You should laminate your wallet at the very least to ensure that it will stand the test of time.
Unhackable. No one can hack into a bank vault, despite what Hollywood would have you believe. Alternatively, you might use a fire-resistant casing. Alternatively, your lingerie drawer. You won't have to worry about hackers having access to your paper wallet, no matter where you keep it.
Disadvantages
As with paper wallets, there are several disadvantages:
Are available. While hackers will not be able to steal your wallet, ordinary thieves may. Nothing prevents thieves from simply accessing the wallet and stealing the money because the access keys are printed on the wallet without any type of protection. Of course, you could encrypt the keys before printing them, but you'd have to remember the cypher and encryption process.
This code can only be used once. It's not a good idea to reuse blockchain addresses since it puts your privacy at risk. On a paper wallet, because the address is printed on it, there is no way to recreate it. This means you'll only be able to send Bitcoin to it once, and you won't be able to top it up later. Each time you used it, you'd have to print a new wallet with a different address.
They can't be recovered. It's gone — along with all your money — if you lose it. If you forget your private key, you won't be able to access your blockchain wallet. Make a backup and make sure it's hidden well.
The utility of paper wallets is severely limited as a result of all of this. They're safe and stylish, but they're not particularly practical for everyday transactions. As a result, long-term investments are the most common application for paper wallets.
What is the best way to manufacture a paper wallet?
There are a variety of materials available to help you make a paper wallet. Personally, I use WalletGenerator, but other options include Bitcoin Paper Wallet, BitAddress, and other similar services.
To make a paper wallet with WalletGenerator, follow these steps:
1. Go to WalletGenerator.net to get started.
2. Move your mouse around until the right-hand progress bar fills up. The website will read the positions of your mouse cursor (the little green dots in the screenshot) on a regular basis and build a really random private key from them.
3. To print your wallet, click Print.
Now all you have to do is buy Bitcoin, transfer it to your wallet, and keep the wallet safe until you're ready to pay it in. Remember to make a backup and keep it somewhere secure as well.
FACT: The Winklevoss Brothers split their 10,000 BTC private keys into multiple pieces and stored them in various locations across the country. It's a clever idea, and if your Bitcoin fortune allows it, you should take use of it.
Hardware Wallets
When it comes to usability, paper wallets have one major flaw. The hardware blockchain Bitcoin and Ether wallet was created to address this problem without jeopardising security. It's debatable if they were successful or not.
A hardware blockchain Bitcoin and Ether wallet is a customised device designed exclusively for managing blockchain wallets. It does not connect to the internet on its own; rather, it allows transactions carried out on computers or mobile devices. The wallet manages all addresses and keys; the user only needs to submit a PIN to access the device.
Advantages
As a hardware blockchain Bitcoin and Ether wallet, this solution has a lot going for it:
Unhackable. Hardware wallets were created to do only one thing: manage blockchain keys and addresses. This allows wallet designers to create 100% locked-down systems with zero vulnerabilities, then release software updates if some pop up anyway.
Closed. Even if someone steals your wallet, they won’t be able to get your money. Of course, you won’t be able to, either (see below for a workaround).
Relatively easy to use. Using hardware wallets is as easy as operating an ATM. You just need to remember your PIN and know your way about the interface — everything else is done for you.
Disadvantages
As with paper wallets, there are several disadvantages:
Are available. While hackers will not be able to steal your wallet, ordinary thieves may. Nothing prevents thieves from simply accessing the wallet and stealing the money because the access keys are printed on the wallet without any type of protection. Of course, you could encrypt the keys before printing them, but you'd have to remember the cypher and encryption process.
This code can only be used once. It's not a good idea to reuse blockchain addresses since it puts your privacy at risk. On a paper wallet, because the address is printed on it, there is no way to recreate it. This means you'll only be able to send Bitcoin to it once, and you won't be able to top it up later. Each time you used it, you'd have to print a new wallet with a different address.
They can't be recovered. It's gone — along with all your money — if you lose it. If you forget your private key, you won't be able to access your blockchain wallet. Make a backup and make sure it's hidden well.
The utility of paper wallets is severely limited as a result of all of this. They're safe and stylish, but they're not particularly practical for everyday transactions. As a result, long-term investments are the most common application for paper wallets.
Which Hardware Wallets Are the Best?
There are a lot of hardware wallets on the market, and it might be difficult to decide which one to use. The situation isn't helped by populist pronouncements from individuals like John McAfee, who promote dangerous items.
That's why you should stick to tried-and-true options – at least until you're confident enough to make your own decisions.
For Newbies, the Best Hardware Wallets
Trezor Model T/Trezor ONE An open-source solution with a big online peer review community. This is both a benefit and a drawback. All vulnerabilities are discovered and patched in a couple of days, but they are also made public. As a result, ignoring a software update increases the risk to your pocketbook exponentially.
Nano S Ledger A closed-source wallet with high-security hardware from a bank. Ledger has a significant community as well, but peer reviews of its architecture or code are not possible. The flaws are swiftly addressed and rarely made public, but the development staff is still small, and there's always the danger that something slips between the cracks.
Blue Ledger A touchscreen wallet featuring Bluetooth, two-factor authentication, and other modern features. The price is exorbitant, and all of the criticisms made about the Nano S still apply, but full smartphone support is something to think about.
PiTrezor. The Trezor wallet code has been ported to the RaspberryPi Zero, a DIY computer board. If you don't trust Trezor hardware and want a completely safe solution, this is a decent choice. It's also a fun summer hobby for those who are handy with their hands.
KeepKey. This hardware wallet provides worry-free security, simple backup and recovery, a sleek and simple display, and the ability to easily convert coins via ShapeShift.
For individuals who are just starting started with Trezor, I recommend the original Trezor ONE. While the functionality stays largely the same, a $79 price tag does not seem as as outrageous as the $150 for the Ledger Nano S or Model T. The bells and whistles of the next-generation wallets, on the other hand, are entirely worth it if you are of the buy-it-for-life mentality.
Wallets for software
The majority of issues with hardware wallets stem from the fact that they are standalone devices that require the use of a computer or smartphone to work. What if, instead, we used real computers and smartphones?
Back when no one believed in Bitcoin's potential, software wallets existed before hardware wallets. The original community, being privacy nerds, didn't care for them and created hardware alternatives, but today's consumers prefer applications owing to their convenience.
Advantages
Software wallets are useful for a variety of reasons:
Free. It is not necessary to purchase a separate gadget in order to use them. You don't even need to buy an app; any wallet worth its salt is open-source and free to use.
Always by your side. You may simply instal your wallet on your PC or laptop if you are making payments from them. You can also use your smartphone if you're travelling. The important thing to remember is that your software wallet can always be ready to use.
It's simple to use. Because of their larger screens, cleaner interfaces, and more consistent design rules, they are even more user-friendly than hardware wallets.
Disadvantages
However, software wallets aren't all rainbows and sunshine:
You're only as safe as the device you're using. Unlike hardware wallets, which safeguard all interfaces, software wallets rely on your hardware and operating system to protect you. Check out the list of Android, Windows, and Mac OS vulnerabilities to see how shaky security may be for such massive projects.
Backdoors are permissible. Software wallets, like hardware wallets, might have flaws and malicious tools included in by the creators to take your money. Because it is far easier to create a software wallet than it is to create a hardware wallet, there are many more scammers in this field. Closed-source wallets are particularly problematic since they cannot be peer-reviewed.
Count on the help of the developers. It should go without saying, but if the wallet developer abandons a project, you're in big trouble. You'll need to move to a new solution right away, which is inconvenient. So choose wallets that have a large enough fanbase to sustain continued development.
They can't be recovered. Make a note of your private key and keep it secure once again. It will be the only method to save money if your equipment fails.
Despite their drawbacks, software wallets are growing in popularity because to their ease of use and low entry cost. Even seasoned Bitcoin users are gradually adapting them to handle their emergency funds.
Which Software Blockchain Bitcoin Wallet Is the Best?
Each major operating system has dozens, if not hundreds, of software wallets. As with hardware wallets, though, you should adhere to the most popular and supported alternatives.
Bitcoin Central (Windows, MacOS, Linux). The initial Bitcoin blockchain wallet. Requires a colossal amount of disc space (145+ GB). It actually includes the entire blockchain's history dating all the way back to 2008. It is open-source, entirely safe, and runs on an eight-year-old laptop; nevertheless, the storage required may provide a challenge.
The Exodus (Windows, MacOS, Linux). The current Bitcoin wallet on the blockchain. It is a "thin" client, which implies that it does not keep the blockchain on its servers and hence does not require a large amount of storage. However, it is a little less secure solution.
Wallet for Bitcoin (Android). A simple and effective programme that enables easy validation. Blockchain.info and BTCX both run on the same software, but restrict you to their respective services.
Space.Coin (iOS, Android). This is a "lightweight" client that utilises centralised payment validation. Regrettably, this is the only option to use a blockchain Bitcoin wallet on a restricted platform like iOS. Apart from that, Coin.Space is a really sturdy and well-made application.
Online Bitcoin Blockchain Wallets
A single sentence sums up the 21st-century attitude toward software development: "Let's put it on the cloud." As a result, it's unsurprising that several blockchain wallet developers have followed suit.
Blockchain technology in the cloud Bitcoin wallets are simply software-based wallets that are not device-specific. They've grown in popularity over the last two years, and one could argue that it isn't just marketing, as they:
device agnostic. Your electronics are not indestructible and will eventually fail. For instance, if your phone's battery runs out, you will be unable to utilise your software wallet. With online wallets, you can make a payment by just pulling out another device or requesting to use another person's computer. Indeed, some services allow you to utilise virtually any device that connects to the internet and has a keyboard – including a Kindle.
Are simple to operate. They are even more streamlined than certain software wallets, as developers can conceal unpleasant back-end functionality from customers.
Are recouped. If your identity has been validated with a wallet provider, you can simply regain access to your lost wallet.
Increase the number of characteristics. Certain wallets include account co-management, transaction verification, push notifications, and the option to purchase Bitcoin directly.
Disadvantages
Despite this, online blockchain wallets are not the optimal solution because they:
Are located in the cloud. This means that you do not own anything; rather, you are granted access to "your" currencies. If your wallet provider fails, your money is lost – and many providers do not compensate you.
Utilize a single wallet to do all transactions. To expedite payment processing, online wallets do not offer individual wallets for each consumer. Rather than that, all users share the same wallet, and the provider interface manages coin distribution between user accounts. “Dangerous” does not begin to characterise this solution.
Backdoors are permissible. Due to the closed-source nature of the majority of online wallets, you can never be certain that your money, financial information, and personal data are totally secure. Perhaps the project is rife with flaws. Perhaps the developer collects and sells your data to advertising organisations. Or perhaps everything works exactly as intended — but you will never know.
Verification of identity is required. The majority of online wallets demand you to verify your identity before you can use them. This runs against to the blockchain's philosophy of anonymity and liberty, but such is the cost of convenience.
In the grand scheme of things, online blockchain wallets are not wicked — they are simply untrustworthy, which is detrimental in a community founded completely on trust. The majority of Bitcoin veterans either avoid online wallets entirely or use them only for day-to-day transactions, storing the majority of their currency elsewhere.
Veterans, on the other hand, are a distinct minority. Coinbase, the most popular online wallet, claims to have 13 million active users. According to BitInfoCharts, there are only 22 million active Bitcoin wallets worldwide. To be sure, the data is incomplete, as 13 million users on a single exchange would appear in BitInfoCharts data as a single wallet.
What Is the Difference Between Refrigerated and Dehumidified Storage?
Not all online cryptocurrency wallets are created equal. There are two distinct approaches to storing customer data properly in online banking systems: hot storage and cold storage.
Hot storage refers to the storing of all your personal and financial data on a server that has direct internet connection. This enables the system to work much more quickly, as all of the data is immediately available for use. Additionally, it leaves the system particularly vulnerable to assault, as all data is stored in one location.
All customer data is stored in cold storage on a separate, isolated server. It's more time consuming but significantly more secure - even if hackers gain access to the operating system, they will be unable to access client data.
Never use a hot storage wallet. It is simply not worth the effort, particularly for the end user. Fortunately, the majority of online wallets now use cold storage. However, you should ensure that your wallet supports it prior to opening an account.
What Are Cryptocurrency Vaults?
Vaults are merely fancy online wallets designed for entrepreneurs that manage significant sums of Bitcoin on a daily basis. They are more expensive (particularly when you consider that the majority of wallets are free) and have additional security features.
For instance, if you selected account protection at Coinbase Vault, your account manager will personally contact you to confirm each transaction. If your account has many users, no transactions will be processed until each user confirms them. None of these qualities are critical or even necessary, but they are all nice to have in a business context.
INTERESTING FACT. Additionally, there is another type of cryptocurrency vault. Swiss Crypto Vault is a military-grade nuclear-resistant bunker that rents storage space to Bitcoin users for the purpose of storing their keys and other sensitive data. It's absurdly impractical, but a clever public relations trick.
Why You Should Avoid Using Exchanges to Store Your Cryptocurrency
Exchanges are essentially online wallets with trading capabilities. Because the "wallet" component is not a main source of revenue for the organisation, it is frequently overlooked by developers.
Additionally, exchanges utilise the same single-wallet system for customer account management. When an exchange is defrauded (often through a 50% attack), it technically forfeits its customers' coins. While the majority of exchanges will absorb the fees and repurchase the coins, this is still not an ideal situation.
Additionally, exchanges hold billions of dollars in cryptocurrency on their accounts, making them prime targets for hackers. An attack on the Coinrail exchange resulted in a loss of $40 million USD to the firm's customers. In January, Japan's Coincheck suffered a loss of $500 million USD to hackers.
Finally, keeping coins on an exchange is a pointless risk. You should, at the very least, migrate your funds to a dedicated online wallet. Certain exchanges, such as Coinbase Pro, actually encourage you to do so and will not charge you any fees for doing so.
Which Online Wallets Are the Best?
When it comes to online wallets, only reputation and experience should be considered. Otherwise, you'll be inundated with hundreds of dubious solutions that tout advanced features and celebrity endorsements, only to vanish with your money afterwards. Personally, I recommend two alternatives:
CoinPayments is a comprehensive platform that supports the storing and payment of bitcoin and over 1,200 more cryptocurrencies.
Coinbase. Bitcoin's most popular online blockchain wallet. Since 2011, it has operated in San Francisco as a sister exchange to Coinbase Pro. The majority of Western users regard it as the industry standard.
Wallet on the blockchain. Another relatively new service, having begun operations in 2011. It too has a sizable customer base, but lacks Coinbase's breadth of functionality and interconnections.
You can use any service with confidence. While they are not flawless, and there will be minor difficulties, sluggish transactions, and other server load-related concerns, they operate really well for the most part. And, while lesser-known wallets such as Strongcoin may be speedier, they lack the security of industry heavyweights.
Alternative Cryptocurrency Blockchain Wallets
Bitcoin is not the only type of cryptocurrency. Other currencies, coins, and tokens exist: Bitcoin Cash, Ripple, Ethereum, and EOS, to name a few. The majority of cryptocurrencies are not based on Bitcoin and require specialised software wallets due to their architecture differences.
IMPORTANT. This is a problem that is unique to software wallets. All popular cryptocurrencies are already supported by hardware wallets, Coinbase, and Blockchain Wallet.
The Most Effective Blockchain Wallet BTC Cash
Bitcoin Cash (BCC) is a fork of Bitcoin that features a larger block size. This enables the processing of more transactions per second and reduces prices, according to the company.
Bitcoin's relationship with Bitcoin Cash is tense as a result of a fundamental disagreement in development philosophy. At the moment, the developers of Bitcoin Core have refused to support the fork in their official blockchain wallet. Bitcoin Cash is not alone in this; other forks, such as Bitcoin Gold, are also being ignored.
At the present, there is no official Bitcoin Cash blockchain wallet, and users must rely on third parties. Jaxx is the most intriguing of them all. While it lacks Bitcoin Core's heritage, it is a blockchain wallet that supports Bitcoin Cash and works well on PCs, Android, and iOS.
The Best Ethereum Blockchain Wallet
Ethereum is a distributed computer platform based on smart contracts that serves as the foundation for a large number of cryptocurrency currencies. Additionally, it has its own cryptocurrency, known as Ether (ETH).
The Ethereum wallet blockchain (blockchain Ethereum wallet) bears just a passing resemblance to Bitcoin and so cannot be used with Bitcoin Core or similar wallets. There are examples of such blockchain Bitcoin and Ether wallets, including Jaxx and Exodus, although they fundamentally use two separate designs.
That is why, if you are seeking for a blockchain Ethereum wallet in particular, you should download MyEtherWallet. It was created exclusively for Ethereum and serves as the foundation for other wallets. This implies that it is always the first to support new patches, updates, and features for Ethereum. Additionally, it can be used straight in your browser, which is rather cool.
NOTE: All ERC-20-compliant wallets support ETH as well.
Which Blockchain Bitcoin Wallet Is the Best?
There is no such thing as the "best" cryptocurrency. Different approaches have varying advantages and disadvantages. All you have to do is choose the compromise that is most acceptable to you.
When it comes to casual cryptocurrency use, the optimal approach is one of "combined arms":
Maintain the majority of your cryptocurrency assets in a bank cell using a paper wallet. These are the long-term investments you're making.
Invest 20% of your Bitcoin in a hardware wallet. Keep the wallet in your home or a location that is easily accessible. This is an emergency fund that you can rapidly liquidate.
Maintain a mobile or online wallet for your monthly spending budget. If you do not spend cryptocurrencies on a regular basis, you may omit this step.
This solution combines the benefits of paper, hardware, and online wallets with the fewest possible drawbacks. If it does not work for you, however, feel free to modify it or create your own. After all, liberty is a fundamental right, and cryptocurrency is evidence of that.