Blockchain Wallets vs. Conventional Wallets
Nov 17, 2017 Posted / 5997 Views
To understand better - what is a bitcoin wallet: it’s good to look at the conventional banking system. With everything online now, we all have online banking platforms that allow us to manage our money digitally. We can get paid into these accounts, we can pay out of these accounts and we can also use this money to trade on currency exchanges or stock markets.
The same can be applied to the bitcoin wallet. It’s the application that is used to manage your cryptocurrency. The only difference with the bitcoin wallet is that it is used to store your private keys that are essential for transactions. The bitcoins are not actually “stored” in the wallet as they are not physical things.
If you looking for the answer in just one sentence:
A Blockchain wallet is an online application that is used to manage the private keys needed for online transactions. Let's move towards its difference.
It is essentially a document which contains a public address that can be used to receive Bitcoins and a private key, which allows you to spend or transfer Bitcoins stored at that address. Those are often printed in a form of QR-codes so that you can quickly scan them and add the keys to a software wallet to make a transaction. A paper wallet can be generated using services like BitAddress or Bitcoinpaperwallet that allow users to create a completely random Bitcoin address and a private key to it. The generated document can then be printed, with some services offering a tamper-resistant design or even an option of ordering holographic labels, and it is ready for use.
The main advantage of a paper wallet is that the keys are not stored digitally anywhere, which makes it completely immune to hacker attacks, malware that can log the user’s keystrokes and basically any form of digital theft. However, some precautions when creating a wallet still need to be taken. Obviously, before generating a paper wallet you need to make sure that no one is watching you do it. To rule out the risk of any spyware monitoring your activities, it is recommended to use a clean operating system, such as Ubuntu, running from a USB flash drive or DVD. Furthermore, once the paper wallet is set up, the website code should be able to run offline, which allows you to disconnect from the Internet before actually generating the keys. Finally, use a printer that is not connected to a network.
Moreover, it’s important to understand that you are printing valuable private information on a piece of paper. So, you need to take certain measures to protect that piece of paper. For instance, it is recommended to keep it in a sealed plastic bag to protect it from water, damp and general wear and tear. Some people prefer laminating it and storing it in a safe, a deposit box or entrusting it with a solicitor.
Pre-loaded with a fixed amount of BTC, Physical Bitcoin intention is that its value cannot be spent as long as the private key remains hidden. This is normally achieved through implementation of a tamper-evident seal.
Physical Bitcoins are a very convenient way of storing your funds more safely and can be extremely useful when trading offline. On top of that, they’ve recently become a prized collector’s item. The main disadvantage, however, is a serious one. In November of 2013, Mike Cadwell was asked to cease operations by the Financial Crimes Enforcement Network, as his work was considered a money transmitter. The regulations for this activity were unbearable, so he was forced to stop the sales of items containing digital Bitcoins. As BTC is still a legal grey area in a lot of countries, such items might even be considered counterfeit money by authorities.
For those actively using Bitcoins on a daily basis, paying for goods in shops or trading them face-to-face, a mobile BTC wallet is an essential tool. It runs as an app on your smartphone, storing your private keys and allowing you to pay for things directly from your phone. Moreover, some apps enable users to use their smartphones’ near-field communication feature, which means they can simply tap their phone against the reader, without having to provide any information at all.
Any full Bitcoin client requires access to the entire Blockchain ledger, which is constantly growing and requires several gigabytes of storage. Hence why mobile wallets take advantage of simplified payment verification (SPV) technology. They only work with very small subsets of the Blockchain, relying on trusted nodes in the Bitcoin network to ensure that they have the correct information.
Despite being a convenient on-the-go solution for Bitcoin storage, mobile wallets are very prone to hacker attacks. Moreover, you can lose control of your wallet if someone simply gains access to your mobile device.
Web wallets store your private keys on a server of a company providing such services. The server is constantly online and is controlled by someone else. Different services offer different features, with some of them linking to mobile and desktop wallets, replicating your addresses across the devices you own.
Much like mobile wallets, e-wallets enable their users to access their funds on-the-go from any device connected to the Internet. But unless implemented correctly, the organizations running the website might gain access to your private keys, thus getting total control of your funds. Moreover, some e-wallets are operating on the base of exchanges, and there have been instances of exchanges shutting down and running away with their users’ funds.
A hardware wallet is a rather unique type of Bitcoin wallet that stores the user’s private keys in a secure hardware device. It is the most secure way of storing any amount of Bitcoins, there have been no verifiable incidents of money being stolen from a hardware wallet. Unlike paper wallets, which must be imported into software at some point, hardware wallets can be used securely and interactively. Moreover, they are immune to computer viruses, the funds stored cannot be transferred out of the device in plaintext and in most instances, their software is open source.
Some hardware wallets even have screens, which add another layer of security, as they can be used to verify and display important wallet details. For instance, a screen can be used to generate a recovery phrase and to confirm the amount and address of the payment you wish to make. So, as long as you invest in an authentic device made by a trustworthy and competent manufacturer with a good reputation, your funds will be safe and secure.
Bitindia, India's renowned Blockchain wallet & a crypto exchange platform and is also working in the same direction to make people aware of the potential of the Blockchain technology.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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