What are the benefits of using a Bitcoin wallet, and why should you use a Bitcoin wallet?
Bitcoin is known as digital gold. It holds value thanks to Bitcoin's algorithm and finite supply. Many investors like to buy Bitcoin for its ability to hold value and for its ability to be traded easily.
As more and more people are becoming aware of Bitcoin and cryptocurrency, the need for a secure wallet to store your coins is essential. Hardware wallets are one of the most popular types of bitcoin wallets, but there are also software-based options available. You must find the best bitcoin wallet for your needs to enjoy the benefits outlined in this article.
What is a Bitcoin Wallet?
Most people buy their Bitcoin and other cryptocurrencies on exchanges. After buying, they decide to keep the Bitcoin on the exchanges as well because it is convenient. What most people don't know is that keeping Bitcoin on exchanges is a big risk. Exchanges can go bankrupt, get hacked, or turn into a scam. When these events happen, all of your Bitcoin stored in the exchange will disappear. In 2022, a famous exchange calls FTX became bankrupt, and the majority of the users lost their money.
Bitcoin wallets are a much safer alternative for investors to store their Bitcoins and other cryptocurrencies. They are either software or hardware devices created especially to store cryptocurrency. By using wallets, you have full custody of your Bitcoin.
There are two types of Bitcoin wallets:
Hot wallets are software wallets. These are usually mobile or computer APPs that you can download to use for free. Great examples of hot wallets are Trust wallet, Atomic wallet, and Meta Mask.
Cold wallets are hardware devices that are manufactured especially to store Bitcoin. You will need to purchase them as they are actual devices. Great examples of cold wallets are ELLIPAL, Trezor, and Ledger.
Cold wallets are the most secure way to store your Bitcoin. While hot wallets are secure to a certain degree, they are still susceptible to risks such as online hacking. Cold wallets generally are very secure and protect your Bitcoin from almost every kind of risk. The most experienced traders and investors all use cold wallets.
Why use a Bitcoin Wallet?
When you store your coins on exchanges, the main disadvantage you have is that you do not have actual custody of your Bitcoins. The real custody of the Bitcoins belongs to the exchange. This is why when the exchange collapses, your Bitcoins go with them. For investors, it is a terrible plan to entrust your assets to a third party like this.
On the other hand, a Bitcoin wallet gives you the ability to have full custody of anything deposited into the wallet. Your wallet is registered on to the blockchain, it belongs only to the creator, and unless the whole blockchain goes down, your wallet will never disappear.
The decentralized security that Bitcoin wallets can offer is what makes it much better.
How do you create a Bitcoin Wallet?
Creating a Bitcoin wallet is very simple.
1) Download a hot wallet or buy a cold wallet.
2) Open the wallet, and you will see an option to create a new account.
3) Input your account name and also your account password.
At this point, the wallet will use your username and password to randomly generate a set of a private key that is unique only to you. The private key is your access to the blockchain.
4) The wallet will not outright give you the private key but it will give you a set of 12 or 24 words called the mnemonics or the seed phrase. This is the simplified version of the private key. You must write it down on paper.
5) Re-enter the mnemonics onto the wallet as a re-confirmation that you have noted it down.
6) Your first wallet account is now ready! Now you can start depositing Bitcoin into your wallet.
Are there any risks in using a Bitcoin Wallet?
There are risks to using Bitcoin wallets but they are very small. For example, if you are using a hot wallet APP on a smartphone or a computer that has malware, your hot wallet might get hacked. Smartphones or laptops can also easily be stolen or hacked remotely by a skilled hacker.
The biggest risk of using a Bitcoin wallet comes from the user. As a Bitcoin wallet is fully decentralized, the user must be very responsible for their assets. If they accidentally deposit their Bitcoin to the wrong address or if they lose their mnemonics, the Bitcoin might be lost forever.
Bitcoin wallet is a very important tool for Bitcoin traders and investors to secure their Bitcoin. It is a much better alternative than exchanges that do not give full custody of your Bitcoins.
Famous hot wallets include Atomic wallet, Trust wallet, and Metamask. Famous cold wallets include ELLIPAL Titan, Ledger Nano, and Trezor.