Unlike the actual coin, bitcoin also called “cryptocurrency”, is an innovative digital currency that is held and transacted electronically. Traditionally, people use currencies like Sterling Pounds, Euro, or a Dollar to buy goods and other services online.
These kinds of currencies are controlled and coordinated by central monetary authorities located in different countries. It highly uses the internet as an avenue supported by the popular technology called peer-to-peer network. In general, bodies like central banks do not centrally manage the managing of transactions, worldwide payments and issuing of bitcoins, it is facilitated by the network.
What are Bitcoin Wallets?
Ideally, people use the digital money to purchase or pay. Regardless of which electronic payment you prefer, you need a digital wallet for saving and bitcoin management. As said earlier, Bitcoin lacks a central provider and therefore, there are many internet gurus who have built Bitcoin wallets. As a result, several wallets have emerged having unique features and various levels of security.
For instance, some websites have bravely and publicly started to offer Bitcoin services making it easier for users. Basically, they offer functions such as sending or receiving features. Additionally, some companies have introduced advanced options like customer transaction or customer support. These wallets are basically allowing users to store funds, send or receive digital currency.
History of Bitcoins
In 2008, S. Nakamoto, a great scholar and a philosopher, invented Bitcoin in his research paper, which featured ‘peer-to-peer payment system’. In this paper, Nakamoto outlined how it works, what advantages it has and how it will make online transactions easier. The idea grew bold in people’s minds, especially internet gurus. At the dawn of 2009, the open source code was generated and immediately released. Initially, it was popularly called cryptocurrency or decentralized online currency.
The famous Programmer and SEO expert, Hal Finney was embraced by the contributions Bitcoin currency brought into online payment systems. He adopted the idea, supported it and tried to renovate the digital payment system. Hal Finney together with Wei Dai became the first users of Bitcoin software, and they both received 10 bitcoins each from Nakamoto, the pioneer.
One year later, the number of users significantly increased, and many cryptocurrencies began to emerge giving way to many internet users to take part. As a result, a bad chain was created where everyone, including online scammers was able to build the software. In 2011, artificially created bitcoins, especially those that did not embrace the original software, were professionally eliminated.
The year 2013 ushered in a technical glitch causing complications whereby many networks piled up in one version. On the long run, it caused confusion, and many people began to develop a negative attitude towards digital payment systems. The core developers of the time temporarily halted most of the transactions until everything was fixed. Later, many countries, especially from the western parts of the globe, legalized the purchase of goods using virtual currency. In British Columbia and Canada, Bitcoin ATM was installed and people can purchase real-world goods using virtual currencies.
Today, different States have established new policies governing the operating of Bitcoin. For instance, in New York, it remains necessary for companies, which plan to build bitcoins to acquire a special license called Bitlicense.
Types of Bitcoin Wallets
This kind of digital payment system comes with two major key: private and public. The public key allows users to send Bitcoins directly to a receiver without incorporating the services of Middle men. Private keys are meant for securing the stored coins, in case a person knows your private key, he or she can easily assess your wallet. We have different types of wallets:
- Web wallets
- Software wallets
- Cold wallets
- Hardware wallets
- Paper wallets
The Web or Online Wallets
Online or web wallets are always flexible, but they vary in their capabilities and functionality. Since these wallets are available in many online platforms, it becomes absolutely flexible because users can transact at anytime from anywhere.
Online wallets store and run private keys on a computer that has an internet connection. Basically, the system is virtually operated by an expert. Today, most of such services are linked to personal computers and smartphones making it easier to a user to access the wallet at any time. In addition, websites that store private keys for their members are considered to be online wallets too. Visitors are required to sign-up and provide genuine personal information. Coinbase and blockchain.info are other prominent online wallets. Although they can be easily accessed from different devices like mobile phones and computers, online wallets have one pitfall. When an individual does not take precautions, some organizations will be running your private keys; thus, controlling your bitcoins.
If you really need to launch your online wallets, try famous companies like Blockchain, Xapo, Circle, and Coinbase.
Software wallets are fully controlled by the user. A special application of the wallet is installed in your device whether a mobile phone, personal computer or laptop. An individual is only who accesses and store private keys. Indeed, it means your wallet is completely secure.
Since there are several bitcoin applications, you can easily pinpoint one. You can find great software on , Bitcoin Core, Blockchain and many more. Compared to web wallets, software wallets are secure and comfortable especially when using. However, once malware begins to attack your computer, scammers can easily steal your private keys if you don’t install strong internet security systems. Hint: do not install applications you aren’t familiar with; they might be used to snatch your passwords and private keys.
For those who need to pay for real-world services and goods using bitcoins from a physical store, he or she must download a mobile wallet. Basically, they operate similarly to desktop wallets. Desktops and laptops cannot assist you, especially when you are out there in the streets; mobile wallets allow individuals to pay for goods directly through a smart phone.
It means smart phones store personal information regarding bitcoin addresses and private keys. Of late, we have near-field communication, which enables users to pay or transact without entering any information. They additionally use simplified payment verification that makes bitcoin transactions quick and comfortable.
This is a special Bitcoin software that is fully installed on your computer in order to relay transactions, create Bitcoin addresses, send and enable receiving of Bitcoins from peers. In addition, through the software, one can store his or her private keys. Different companies have special applications that are compatible with Windows (both 7, 8 and professional), Linux, and Mac OSX.
The installed applications are designed in a way that they enhance strong security. For instance, there are multiple keys and passwords an individual is required to insert before accessing the virtual currencies. Examples of such applications include; Multibit, Darkwallet, Armory, and Hive wallets.
In this type of wallet, private keys are printed out on paper. Experts also call it ‘cold’ wallet, as it becomes hectic for the hacker to steal password through the internet. Although security is strong, this type remains ineffective especially when you do daily purchases. The paper is supposed to be stored properly because you should produce the private key before transacting online.
Hardware or ‘holy grail’ wallets are absolutely secure and convenient for daily transactions. One major problem with bitcoin storage is security; computers connected to the internet always can be used to steal private keys once somebody is logged in. However, hardware devices are secure and convenient for many people out there.
Why a User Needs Bitcoins?
The technology in these digital payment systems allows individuals to bank their funds without the services of banks. In addition to eliminating of fees that banks could charge, the user can access the funds at any time.
There is no need for official request as it is in banks. Secondly, it increases financial privacy. Users send, receive and purchase goods without a third party who monitors your transactions. In Bitcoin transactions, companies cannot trace your transaction histories. Thirdly, it allows low transaction costs.
Popular Bitcoin Wallet Providers
Blockchain: They host online wallets and a special type of wallet called a hybrid wallet. The hybrid wallets allow users to encrypt their private keys before sending them to servers. In such a way, it enhances security. Blockchain also hosts hardware wallets with other unique features.
Coinbase: This is an integrated bitcoin exchange, which operates across the world. Europe and US residents can buy bitcoins directly from exchange services.
Xapo: This organization aims at two aspects: convenience and security. It has introduced a simple bitcoin wallet as well as cold-storage wallets. Simple systems can make it easier for even illiterate people use the system comfortably.
Is Bitcoin Secure?
The issue about Bitcoin security has greatly affected the mass adoption of this payment system. Recently, there has been a lot of frauds and hacks, an aspect that has brought tension to bitcoin users.
Although many hackers have emerged to steal people’s funds, there is a need to take care on which type of wallet you should use. For instance, you need reliable, stable and secure software that has implemented strong security systems. Finally, individuals should be responsible for their private keys. They need to be careful on which provider to choose, how to install or store personal information.