Tag Archives: cold wallet

Bitcoin Basics For Beginners

What are bitcoins?

Bitcoins are decentralized, purely digital virtual coins exchanged directly between two parties online with no middle man. Unlike modern fiat money, Bitcoin, is not controlled or backed by any bank or central government authority.

Are bitcoins anonymous and untraceable?

No, contrary to popular belief, they aren’t. A traceable trail of each Bitcoin transaction is left behind in a public log known as the blockchain. The public record prevents people from spending the same bitcoins more than once.

How does Bitcoin work?

Each bitcoin is a computer file stored in a digital wallet on a computer or smartphone. To understand how the cryptocurrency works, it helps to understand these terms and a little context:

  • Blockchain: Bitcoin is powered by open-source code known as the blockchain, which creates a shared public ledger. Each transaction is a “block” that is “chained” to the code, creating a permanent record of each transaction. Blockchain technology is at the heart of more than 10,000 cryptocurrencies that have followed in Bitcoin’s wake.
  • Private and public keys: A bitcoin wallet contains a public key and a private key, which work together to allow the owner to initiate and digitally sign transactions, providing proof of authorization.
  • Bitcoin miners: Miners — or members of the peer-to-peer platform — then independently confirm the transaction using high-speed computers, typically within 10 to 20 minutes. Miners are paid in bitcoin for their efforts.

Bitcoin value follows the law of supply and demand — and because demand waxes and wanes, there’s a lot of volatility in the cryptocurrency’s price.

Besides mining bitcoin, which requires technical expertise and investment in high-performance computers, most people purchase bitcoins as a form of currency speculation — betting that the U.S. dollar value of one bitcoin will be higher in the future than it is today. But that’s difficult to predict.

How to store the Bitcoin?

Bitcoins can be stored in two kinds of digital wallets:

  • Hot wallet: Digital currency is stored in the cloud on a trusted exchange or provider, and accessed through a computer browser, desktop, or smartphone app.
  • Cold wallet: An encrypted portable device much like a thumb drive that allows you to download and carry your bitcoins.

Basically, a hot wallet is connected to the internet; a cold wallet is not. But you need a hot wallet to download bitcoins into a portable cold wallet.

How bitcoins are purchased?

There are four ways to get bitcoins:

  • Cryptocurrency exchanges – There are a number of exchanges in the U.S. and abroad. Coinbase is the largest cryptocurrency exchange trading more than 30 cryptocurrencies.
  • Investment brokerages – Robinhood was the first mainstream investment broker to offer Bitcoin and other cryptocurrencies (Robinhood Crypto is available in most, but not all, U.S. states). Tradestation, eToro, and Sofi Active Investing also offering cryptocurrency trading in most U.S. states.
  • Bitcoin ATMs – There are more than 7,000 bitcoin ATMs in the U.S. 
  • Peer-to-peer purchases – True to its original spirit, you can buy bitcoins directly from other bitcoin owners through peer-to-peer tools like Bisq, Bitquick, and LocalBitcoins.com.
  • Bitcoin mining – You can earn bitcoins through mining, but the technical expertise required and computer cost put this option out of reach for most.

Which companies accept Bitcoin payments?

Thousands of businesses throughout the world currently accept Bitcoin as a form of payment, including reputable e-commerce businesses like:


Burger King
Overstock
Microsoft
Subway
AT&T
KFC

Bitcoin is an incredibly speculative and volatile buy. It’s worth remembering that stock trading can give you a similar thrill — and picking stocks of established companies is generally less risky than investing in Bitcoin. 

How to store the cryptocurrency safely? – Brief guide

Getting cryptocurrency is one thing while storing it safely requires entirely different skills and knowledge. This guide teaches you how to protect your funds, choose the right wallet, and avoid the most common hazards of crypto security.

Crypto Wallet

A cryptocurrency wallet is a software program designed to store your public and private keys, send and receive digital currencies, monitor their balance, and interact with various blockchains. You need to have a cryptocurrency wallet to manage your crypto assets and keep them secure.

There are many cryptocurrency wallets out there, but the essential distinction between them is whether they are hot or cold.

Hot wallet

Cold wallet

Hot wallet – A hot wallet is connected to the internet and can be accessed at any time. It includes all online cloud wallets, most mobile, and software wallets, and exchanges.

Cold wallet – A cold wallet is not connected to the internet and allows you to store your funds offline. You can still receive funds at any time, but no one can transfer them out. Cold wallets are hardware wallets, offline kept paper wallets, USB and offline similar data storage devices, and even physical bearer items such as physical Bitcoins.

Most cryptocurrency holders use both cold and hot wallets. Hot wallets are handy for frequent trading, while cold wallets are better for long-term holding of crypto assets.

Types Of Cryptocurrency Wallets

There are four distinct categories of cryptocurrency wallets

Paper Wallets

Cloud Wallets

Software Wallets

Hardware Wallets

Paper Wallets

Paper wallets are generally classified as cold storage. The term “paper wallet” generally refers to a physical copy or paper print of your public and private keys. Other times it means the software is used to generate a pair of keys along with a digital file for printing. Whichever the case, paper wallets can grant you a relatively high level of security. You can import your paper wallet into a software client or simply scan its QR code to move your funds.

If a paper wallet is available for the cryptocurrency of your choice, you’re likely to find a guide on how to make one on the project’s website or community page.

Although paper wallets are cold, they come with their share of risks, too. For instance, paper wallets can be easily damaged, burned, easy to copy and take pictures, and require mutual trust if you’re not making one yourself. To make paper wallets less fragile, sometimes people laminate them, create multiple copies and store them in different locations, engrave them on pieces of metal or other sturdy materials, etc.

Cloud Wallets

Online wallets, by definition, are hot. Using a cloud wallet, your funds can be accessed from any computer, device, or location. They are super convenient, but they store your private keys online and can be controlled by third parties. Therefore, they are more vulnerable to attacks and theft by design. 

A safer version of cloud wallets is non-custodial online wallets. They are accessible via the web and apps but the service provider does not have access to your private keys. In most cases, not custodial wallets are a part of the exchange platform, meaning that they let you trade your coins in a safe and secure manner.

Software Wallets

Software wallets are downloaded and installed on a personal computer or smartphone. They are hot wallets. Both desktop and mobile wallets offer a high level of security; however, they cannot protect you against hacks and viruses, so you should try your best to stay malware-free. As a rule, mobile wallets are way smaller and simpler than desktop wallets, but you can easily manage your funds using both of them. Besides, some software wallets allow you to access funds via multiple devices simultaneously, including smartphones, laptops, and even hardware wallets.

Hardware Wallets

Unlike software wallets, hardware wallets store your private keys on an external device like a USB. They are entirely cold and secure. Also, they are capable of making online payments, too. Some hardware wallets are compatible with web interfaces and support multiple currencies. They are designed to make transactions easy and convenient, so all you need to do is plug it in any online device, unlock your wallet, send currency, and confirm a transaction. Hardware wallets are considered the safest means of storing crypto assets. The only drawback is that they aren’t free to use.

Bottom line

Typically, your wallet choice depends on your portfolio. Every serious project should have its native wallet which should be found on its website, but sometimes it may be more convenient to have a multicurrency wallet. Keep in mind that not all multicurrency wallets support all coins. Even hardware wallets have a limited amount of coins they support. On the other hand, there’s no shortage of wallets for popular cryptocurrencies like Bitcoin or Ethereum.