Bitcoin Basics: Wallet Roundup

Wallet  

If you're new to Bitcoin, you should start with our first post: What is a Bitcoin?

A Bitcoin Wallet is where you store, spend and receive bitcoins. At its core, a Bitcoin Wallet is a pair of tokens (long strings of characters). One is a public address like this, 1tinKeRXU3Um35ar884RqRaepQeuxX9R6, which is what other people use to send you bitcoins. The other is a secret key like 5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF, which allows you to send bitcoins from your wallet. To manage your wallet, you can run a desktop program on your own computer, or use one of the many online wallet services.

NOTE: Never give anyone your secret key, or they will be able to steal all the bitcoins in your wallet!

Desktop Wallets

Running a Bitcoin wallet on your own computer is the purest form of owning bitcoins. It's like keeping cash in your home instead of relying on a bank to keep it safe for you. While you have total control, you are also directly responsible for the security of your bitcoins. There are two main things which could go wrong: theft or loss. If someone manages to install a virus on your computer, then they can easily steal your bitcoins. Or, if you accidentally lose your wallet's secret key, those bitcoins are gone forever. So, desktop wallets are not for the faint of heart, but they do give you much more control if you are willing to accept the technological risks.

When to use a Desktop Wallet

  1. You want to store between 0 and 100BTC.
  2. You are technically savvy and are not afraid of accidentally losing your bitcoins.
  3. You want to protect yourself from theft.
  4. You only need access to your bitcoins from your computer.

Desktop Wallet Options

  1. MultiBit - the recommendation that Bitcoin.org makes for desktop wallets.  This is a "lightweight wallet" which means you don't have to download the entire blockchain (almost 9 Gigabytes now) and you can get started very quickly. MultiBit is built for ease of use.
  2. Bitcoin-QT - the original and canonical bitcoin wallet. It has more features than MultiBit but takes a while to get started because you have to download the blockchain.

Online Wallets

Online wallets are doing to Bitcoin what Gmail did to email way back in 2004. These wallets are run by a third-party company, who lets you use your bitcoins through their website. They are very easy to get started, and let you use your bitcoins from any computer or smartphone. The downside here is that you are trusting someone else to take care of your bitcoins, which has sometimes turned out badly. Online wallets are targeted by cyber-criminals because they have a lot of bitcoins in one place. On the upside, you are less likely to lose your bitcoins accidentally with an online wallet than a desktop wallet. If your hard drive crashes, your bitcoins are still going to be safe.

You can think of an online wallet as having your Bitcoin in a checking account.

When to use an Online Wallet

  1. You want access to your bitcoin wallet from any computer.
  2. You are needing to store between 0 and 20 BTC.
  3. You want to access a wallet from your computer and your phone.
  4. You are more scared of accidentally losing your bitcoin as opposed to them being stolen.

Online Wallet Options

  1. Coinbase 
  2. Blockchain.info

Paper Wallets

Paper wallets are only used for semi-permanent storage of bitcoins. The idea is that you "export" your bitcoins to an address that isn't attached to the Bitcoin network. With a paper wallet you can receive bitcoins but you cannot send them. When you  want to use the bitcoins from your paper wallet, you import it into a regular desktop or online wallet, where you can then use the bitcoins normally. The reason for this offline storage is security. If you set up the wallet properly (see note below), no one will be able to steal your bitcoins without the secret key printed on this physical piece of paper.  You can keep this in a safety deposit box or safe for maximum protection.

You can think of a paper wallet as a savings or investment account for Bitcoin.

When to use Paper Wallets

  1. You want a safe place to send and store bitcoins
  2. You have bitcoins you don't plan on spending immediately.
  3. You want to store between 20 and 21,000,000 bitcoins.
  4. You have access to a safe, safety deposit box or some kind of secure physical storage.

Paper Wallet Options

  1. Coinbase Paper Wallet Generator - if you have a Coinbase account with Bitcoin you can export your bitcoin from coinbase into a paper wallet.
  2. Papercoin.org - Papercoin will give you a sheet with 3 fresh bitcoin wallets with addresses to which you can send Bitcoin.  The easiest way to get started with paper wallets.

NOTE: when printing and generating paper wallets, make sure you use a computer and printer that is not connected to the internet. This removes any possibility of the secret key being stolen during the process.

Myself and the other founders of Tinker use Coinbase for our day-to-day balances (under 10 bitcoins), and keep any larger savings in paper wallets.

If you have any more questions, or would like other topics about Bitcoin covered, feel free to tweet me at @rossrobinson, or send me an email at ross@tinkercoin.com. If you don't own any bitcoins yet, check out our new project, Tinkercoin. It helps you get started in the Bitcoin world, buy your first bitcoins and start spending them in under fifteen minutes.