Bitcoin is a digital asset and a payment system invented by Satoshi Nakamoto. Transactions are verified by network nodes through cryptography and recorded in a public dispersed ledger called a blockchain.
Bitcoin is unique in that there are a finite number of them: 21 million.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services.
As of February 2015, over 100,000 merchants and vendors accepted bitcoin as payment.
A wallet stores the information necessary to transact bitcoins. While wallets are often described as a place to hold[93] or store bitcoins, due to the nature of the system, bitcoins are inseparable from the blockchain transaction ledger. A wallet is more correctly defined as something that “stores the digital credentials for your bitcoin holdings”
There are four main types of wallet: paper, software, web and hardware.
Paper wallets are simply Bitcoin private keys printed on a piece of paper. By printing out your own tamper-resistant bitcoin wallets and generating QR codes you can minimize your exposure to hackers as well as untrustworthy people in your home or office. Just use the open-source BitAddress.
org or blockchain.info paper wallet generator tool.
Software wallets are installed on your computer and they give you full control over your Bitcoin balances. Some popular lightweight wallets are Multibit and Electrum while Bitcoin Core – the full node client – is also available for Mac, Windows and Linux.
If you want extra security and control over your funds then go with Bitcoin Core but remember it requires more space (over 20GB) and time to sync so if you’re short on either go with one of the lightweight clients mentioned above. Armory is another secure software wallet that features cold storage (meaning it cannot be hacked even if someone has physical access to your computer).
Web-based wallets store your private keys online on a server controlled by an entity like GreenAddress or Coinbase which makes them easier to use but less secure since the entity running the server could potentially steal your coins if they wanted to (although this is unlikely). GreenAddress provides multi-signature wallets which require multiple independent approvals to make a transaction – making it much more secure than traditional web wallets but still not as secure as software or hardware wallets since you’re trusting someone else’s server with your private keys (although multiple signatures make this exponentially more difficult). Coinbase also provides an online wallet but it’s really just a custodial account where they hold your private keys for you (they have insurance in case they get hacked but that doesn’t help you if their servers get hacked).
They also offer an ” Vault ” which adds extra security by requiring multiple independent approvals to withdraw coins from it (again this makes it more like a bank account than a true wallet). If you’re looking for an online wallet I would recommend either GreenAddress or Armory but understand the risks associated with web-based services before using them .
Hardware wallets are by far the most secure type of Bitcoin wallet as they store Bitcoins on a physical piece of equipment that is usually encrypted with a PIN or other form of biometric security . Trezor was one of the first hardware wallets on the market and remains one of the best thanks to its ease-of-use, support for multiple cryptocurrencies , and robust security features . Ledger Nano S is another popular hardware wallet that supports multiple altcoins including Ethereum , Litecoin , Dogecoin , Zcash , Dash , Stratis , Ripple , Bitcoin Cash , Ark , Expanse , Ubiq , PIVX , Vertcoin , Viacoin , Neo , Stealthcoin , Stratis , Hcash & Komodo . KeepKey is another hardware wallet that supports multiple cryptocurrencies including Ethereum, Bitcoin, Litecoin, Dogecoin, Dash & Namecoin .
Hardware wallets offer Cold Storage meaning they cannot be hacked because they’re not connected to an internet connection . The only downside is that they cost money so if you’re not careful with your coins you could end up losing money . .
If you want maximum security then go with a hardware wallet but if you don’t mind sacrificing some security for convenience then go with one of the other three options mentioned above .