In the 21st century’s digital world, a new type of currency has been gaining popularity over the past few years. As it’s known, Bitcoin functions similarly to physical cash money in ways that you may buy things and services with it and store them in your wallet until you choose to spend them later. But what exactly is Bitcoin? What makes this online currency so unique and different from other forms of payment? Are Bitcoin wallets safe? Here are some answers to these underlying questions. Read on.
What Is Bitcoin?
Bitcoin is a cryptocurrency and a payment system, first proposed by an anonymous person or group of people under the name Satoshi Nakamoto in 2008. Network elements verify transactions via encryption and are recorded in a distributed public ledger known as a blockchain. Bitcoin wallets are used to store this digital cash and facilitate the sending and receiving of bitcoins. Furthermore, untraceable Bitcoin wallets that don’t reveal your identity made it possible for users to be guaranteed that they’d remain anonymous during each transaction for added security.
3 Things You Should Know Before Creating A Bitcoin Wallet
Being anonymous does not guarantee the safety of your wallet. Here are a few things you should know about Bitcoin wallets and how to protect them from hackers and avoid losing your cryptocurrency.
Number 1. There Are Two Sub-Categories Of Bitcoin Wallet
Hot and cold wallets are the two popular types of bitcoin wallets. Both wallets have their benefits and drawbacks, so it’s essential to consider their differences before choosing a wallet type.
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- Hot Wallets
A bitcoin wallet that is connected online is known as a hot wallet. Hot wallets are useful because they allow you to send and receive bitcoins quickly. However, because they are accessed online, hot wallets are more vulnerable to hacking. Malware or hackers can steal your private keys from your computer if you are not cautious.
The best approach to keep your bitcoins safe when using a hot wallet is to keep your device protected with antivirus software and constantly updated. You should also encrypt your device so that no one can access your bitcoins without the password if it is lost or stolen. Splitting your money into multiple hot wallets is another technique for keeping them safe.
- Cold Wallets
A cold wallet is a cryptocurrency wallet that stores your private keys offline. Notably, cold wallets are considered more secure than hot wallets connected to the internet. Moreover, cold wallets can be paper or hardware wallets. Hardware wallets offer extra security because they’re not dependent on software quality. You can only access your funds in a hardware wallet by using physical buttons on the device. These devices also typically come with display screens and other features that make them easy to use.
Number 2. Only Use Exchange Wallets From Trusted Companies
A third party typically holds exchange wallets or custodial wallets. It is the easiest way to buy and sell bitcoins, as you don’t have to deal with storing them on your own. They are controlled by an intermediary, who manages all the trading activity and ensures that only verified users can access their funds. However, exchange wallets may also face risks such as hacking, withdrawal limits, downtime, and high fees. That’s why it’s crucial to use exchange wallets from trusted companies.
How can you tell if an exchange wallet is trustworthy? Before choosing, read reviews about the company and how they handle customer complaints. Researching information about the people behind the exchange will also help you determine if it’s reliable. Another thing to look for is whether the company offers insurance against hacks. If so, this should be reassuring when deciding whether to use an exchange wallet or not.
Number 3. Encryption And Backup Procedures
A good Bitcoin wallet should offer encryption and backup procedures to ensure the safety of your coins. When it comes to encryption, you’ll want to choose a wallet that offers two-factor authentication (2FA). This means that in addition to entering a password, you’ll need to re-confirm your identity through a fingerprint or code sent to your phone.
As for backing up your data, a good Bitcoin wallet will provide you with the option to back up your private key(s) so that even if something happens to your computer or mobile device, you won’t lose access to your funds.
Conclusion
Overall, a Bitcoin wallet’s safety depends on how Bitcoin investors use it. Understanding how hot and cold wallets work will help you pick the correct type of wallet that suits you. Having the right type of wallet, encrypting, and backing up private keys, will help keep your Bitcoins safe. One last thing to remember is not to forget your password and never store all your Bitcoins in one place.
