What is a Crypto Currency Wallet Seed Key
A Bitcoin wallet is a digital wallet: the keys and addresses for the cryptocurrencies are stored on the wallet.
What is a Bitcoin Wallet?
A Bitcoin wallet is computer software that manages the private keys for your Bitcoin. Whoever controls the private key via the wallet is in possession of the coins. Therefore, dealing with wallets is essential for the use of Bitcoin and Co.
Bitcoin wallet basics
Bitcoin wallet software, the user interface to the Bitcoin protocol. It manages the generation of addresses, the grouping of the UTOXs assigned to the wallet and signs outgoing transactions using the private key. There are different types of wallets, which have advantages and disadvantages depending on the application.
The user has the following options for storing digital currencies:
- Desktop wallet
- Mobile wallet
- Online wallet
- Hardware wallet
- Paper wallets
Strictly speaking, you don't keep Bitcoin on your wallet, but rather the digital keys with which you can access a public Bitcoin address and sign a transaction. The program with which you manage your keys is called a wallet. Bitcoin wallets can be divided into five different categories as shown above.
There are basically two types of wallets: 1. Nondeterministic wallets and 2. Hierarchical deterministic wallets.
Since actually all modern wallets belong to the second category, we will concentrate on that. With hierarchical deterministic wallets (HD wallets for short), all keys are derived from a so-called master key. This master key, also known as seed, restores all keys if the wallet is lost and can thus save the entire Bitcoin fortune. It is therefore essential to keep the seed safe.
What is a desktop wallet?
A desktop wallet is a Bitcoin wallet that is installed on the computer. Anyone who has installed the original Bitcoin Client (Bitcoin Core Wallet) is already using a wallet - perhaps without knowing it. In addition to forwarding transactions in the network, the software can generate a Bitcoin address in order to receive and send Bitcoin credit and store the associated keys. Bitcoin Core is also a full node. Anyone who installs Bitcoin Core should have plenty of hard drive space. Finally, the wallet synchronizes the entire blockchain history and checks whether the network rules are being adhered to.
The Bitcoin Core Wallet is a highly technical wallet that includes all functions. But many users feel overwhelmed by the complexity. There are plenty of alternative desktop wallets that offer different features.
- Electrum is a desktop wallet that runs on all popular operating systems (Windows, Mac OS X and Linux). Electrum is completely sufficient for the vast majority of applications. The advantage is that the user does not have to download the entire blockchain and thus saves storage space. Electrum can also be used in combination with a hardware wallet (more on this later).
Advantages of desktop wallets:
- Many functions (possibility of full node, custom transaction fees, MultiSig)
- supports SegWit addresses
Disadvantages of desktop wallets:
- Not easy for beginners
- Virus-infected computers pose a security risk
- Not suitable for in-store purchase
- Less secure than hardware wallets
What is a mobile wallet?
Desktop wallets are very impractical when it comes to paying with Bitcoin in shops or on the street. This is where mobile wallets come into play. Mobile wallets are installed as an app on the smartphone and store the private key directly on the mobile device. This means that BTC can be received and sent with the mobile phone in seconds.
Some mobile Bitcoin wallets even support near field communication technology (NFC). The smartphone only has to be held up to the terminal and there is no need for a scanned QR code or a Bitcoin address. Many mobile wallets support multiple cryptocurrencies. That's why we're also talking about multi-coin wallets here. The mobile wallet should definitely be secured with a strong password.
Our recommendations for iOS and Android are:
- Breadwallet is a clear, open source multi coin wallet. In addition to Bitcoin, it also supports Ethereum, Bitcoin Cash and a number of ERC20 tokens.
- BlueWallet: The BlueWallet is developing into one of the most popular mobile wallets on the market. No wonder: BlueWallet is Bitcoin only and thus eliminates various sources of error. It also has a Lightning implementation and a watch-only function that can be used to monitor cold wallets.
- Exodus Wallet: Versatile, user-friendly wallet with an attractive user interface. With the Exodus Wallet you can also stake and earn rewards.
Advantages of mobile wallets:
- Easy handling
- Support of many common cryptocurrencies
- Mobile use
Disadvantages of mobile wallets:
- Some risk with large sums (smartphone could be lost / stolen)
- Almost always online (hot wallet)
- Hardware wallets are better suited for large sums of money
What is an online wallet?
Web-based wallets store the private keys online on a server that is managed by an external party. A big advantage of online wallets is their availability. All that is required is internet access on a mobile device. A disadvantage of online wallets, on the other hand, is that the keys are managed by external companies. Accordingly, users cannot check for themselves whether the provider's servers are adequately secured. In addition, the external provider theoretically has full control over the users' Bitcoin stocks. Availability therefore costs security, large amounts should not be stored on an online wallet.
Coinbase is a global Bitcoin exchange and a Bitcoin wallet at the same time. Users from the USA and Europe can buy and store Bitcoin here. Circle also offers its users the opportunity to buy and store Bitcoin worldwide. In the US, users can connect their bank account directly to the platform to buy Bitcoin. Users from Europe can purchase Bitcoin with a credit card. In other words, every exchange is already an online wallet.
Advantages of online wallets:
- Accessible from anywhere with internet access
- Intuitive use with login process and password
Disadvantages of online wallets:
- Insufficient security as third parties control the private keys
- Strictly speaking, you are not in possession of the BTC if it is on an online wallet
What is a hardware wallet?
Hardware wallets offer the option of storing private keys on a physical device and making payments. They are considered to be one of the safest ways to store digital currencies.
The specialty of hardware wallets is that the private keys never touch the computer or mobile phone. This means that even if the computer is infected by a virus, the attacker has no access to the cryptocurrencies on the hardware wallet. Hardware wallets are usually special USB sticks on which the keys to the Bitcoin are stored. Only those who want to send BTC need to connect the device to the computer. Hardware wallets are accordingly well suited for the long-term storage of cryptocurrencies. In our guide we took a closer look at some models.
Ledger Nano S
The Ledger Nano S is one of the most popular hardware wallets. The Ledger Nano S is above all beginner-friendly, as it has a clear user interface and comes with native software. One of the points of criticism is above all the negligent handling of customer data. If you want to know more, you can find our guide here.
As already mentioned, the ledger can also be used with other wallets, such as MyCelium and Electrum. A personal full node can also be linked to the Ledger Nano S.
The Trezor One is the common alternative to Ledger. The development team attaches great importance to transparency and security. The wallet is usually operated via the Trezor website. Here you can find our advice article on the Trezor One.
The BitBox02 is one of the most secure hardware wallets on the market. It is considered the Swiss bank account of the Bitcoin Wallets and impresses with its simple operation and a slimmed-down, clear range of functions.
Here you come to the advisor entry.
Cold card wallet
The Cold Card Wallet is the cypher point edition among the Bitcoin wallets. The Cold Card Mk3 is not really intuitive to use. Hardcore bitcoiners still appreciate it because of its unsurpassed security. Here you come to the advisor contribution.
Advantages of hardware wallets:
- High security, as private keys never leave the hardware wallet
- Well suited for long-term storage
Disadvantages of hardware wallets:
- acquisition cost
- Acquisition is only worthwhile from a relevant amount of BTC
- Personal responsibility for the coins
What is a paper wallet?
The cheapest methods for the safe custody of Bitcoin are so-called paper wallets. A paper wallet is a piece of paper on which, for example, a seed phrase is noted. With this seed phrase, Bitcoin addresses can be restored. Paper wallets have almost completely disappeared from everyday use; they are only used as a backup for the seed phrase.
All of the aforementioned wallet options ultimately have a paper wallet as a security backup. So if you lose your cell phone or hardware wallet, everything can be restored with the paper wallet. The backup seed is therefore the final key for every wallet and must be kept safe.
Paper wallets can also be stand-alone Bitcoin wallets that work without a hardware wallet. If you want to create such a paper wallet, you can either use Electrum or run the BitAddress.org application on your computer. Paper wallets and seed phrases should never be created online. It is therefore advisable to download the ZIP and run it locally in the browser.
Paper wallets are particularly suitable for HODLn. Anyone who makes a transaction more often drives better with desktop and mobile wallets.
If you want to be on the safe side, you should generate the seed phrase completely offline. The following process is available for this (two USB sticks required):
- Save the ZIP from BitAddress.org on a USB stick.
- Install a live distribution of Linux (Ubuntu / Debian) on another USB stick.
- Start Linux from the USB stick.
- Do not connect the computer to the Internet, but start the ZIP from the first USB stick.
- Use the tool to generate the secret key and write it on a piece of paper.
- Send Bitcoin to the QR code (share) displayed and keep the paper wallet safe.
We only recommend paper wallets to experienced Bitcoiners. There are simply more user-friendly alternatives such as hardware wallets that are at least as secure.
Advantages of paper wallets:
- High security through offline creation
- Easy storage
- Ultimate recovery key for a wallet
Disadvantages of paper wallets:
- Not very beginner friendly
- Transactions require an additional wallet application
- Susceptibility to errors
Are Bitcoin Wallets Safe?
How secure a Bitcoin wallet is depends on its type. Online wallets are the least secure because a third party holds the private keys. The security of desktop wallets depends heavily on the security of the respective desktop. If the computer is infected by a virus, there is a risk that the desktop wallet is also unsafe. Mobile wallets are generally considered to be more secure because the operating systems are less susceptible to viruses.
In the end, it depends on what the personal circumstances are like, what the knowledge of Bitcoin is like and which attack vectors you want to exclude. Hardware wallets also have a single point of failure: the user himself.
Which alternative you choose is up to you and depends on your needs. There is no one-size-fits-all answer here.
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