Perhaps you’ve looked into Bitcoin after hearing about it for the millionth time. After all, news coverage about the revolutionary digital asset in late 2017 made it seem like everyone who held it was getting rich. While that was (and remains) far from the truth, what is true about Bitcoin is that maintaining some exposure to it as an investment doesn’t hurt.
The only problem is that learning to use Bitcoin seems complicated. With cash, you simply withdraw some from the ATM and hold it in your wallet. Digital money is much the same way except you hold it in your PayPal or digital banking account. Bitcoin isn’t much different. Just like cash, you hold it in a wallet – a Bitcoin wallet.
There is one big difference between a Bitcoin wallet and a digital banking wallet, however. A bitcoin wallet is encrypted using a private key and owned by you, whereas a digital banking wallet is owned by the bank. Bitcoin has introduced an era of financial autonomy that enables people to finally take control of their finances without third parties like banks, governments, and other financial services institutions hanging out in the middle.
Without further ado, let’s take a look at the first step in using Bitcoin – creating a Bitcoin wallet.
Choosing a Bitcoin Wallet
With so many choices available, choosing the best Bitcoin wallet can be a tough and time-consuming task. There are several types of wallets to choose from:
- Paper wallet: An early and basic form of cryptocurrency wallets. Rather than store your private key (your password for opening the wallet) and your public key (your address for sending and receiving Bitcoin) on your computer, a paper wallet is a printout of your keys which you keep somewhere safe. Paper wallets are secure since they are offline, but are easy to lose if you aren’t careful. Ease of use 2/5, Security 4/5
- Hardware wallet: Hardware wallets are USB-like devices which store your cryptocurrency offline. These are the best wallets for security and allow you to create a backup keyphrase which you can use in the event that you forget your password or lose the wallet altogether. That’s great news for people who tend to lose important things. Ease of use 3/5, Security 5/5
- Software wallet: Software wallets are online wallets which keep your bitcoin safe and sound as long as you are careful with where you place your private keys and make sure to choose a legit provider. Some software wallets have fallen victim to hacks, so going with a software wallet provider with a strong reputation for security is key. Ease of use 4/5, Security 3/5
- Exchange wallet: Cryptocurrency exchange wallets get a lousy reputation since exchanges are prone to hacks. However, there are some exchanges, such as Coinbase, which insure customer wallets up to six-figure amounts. Storing your BTC on an exchange isn’t recommended unless you use one that is insured. The advantage of using an exchange wallet is that they are often the easiest to use. Ease of use 5/5, Security 2/5
Once you’ve decided which wallet suits you best and has the best trade-off between ease of use and security, you can go ahead and create your wallet. Make sure to triple check all of the steps as you go through them, and most importantly, create backups of your private keys which you can store very securely in places that only you have access to.