In 2009, a group of people came together and anonymously created the cryptocurrency Bitcoin. This type of cyber currency allows users to make payments and trades without the need for a bank or a middle man. Users keep their currency in different types of wallets and love the fact the currency has added privacy benefits that cash, check, and credit cards do not offer.
A Big Perk of Bitcoin is The Privacy
Something to know about your bitcoin wallet is that a big perk is privacy. When a person purchases with a debit or credit card, the bank or financial institution keeps a record of that purchase as well as every single other purchase made. Bitcoin takes the paper trail out of money. Due to the fact that there isn’t a bank involved, big brother isn’t watching every financial transaction and purchase made. Many users use this currency for this purpose, as they like their financial matters private.
Certain financial transactions through a bank, such as large deposits or withdrawals over a specific dollar amount, are automatically reported to the Internal Revenue Service. This is due to the Bank Secrecy Act of 1970 that was passed to fight money laundering. Even people who aren’t doing anything illegal, who deposit large amounts of cash will have their transactions flagged and reported. Currently, this does not happen with this type of virtual currency. Transactions are not flagged and the IRS is not notified of large sums of currency being moved.
Types of Bitcoin Wallets
A bitcoin wallet is exactly what it sounds like, a place to hold currency. Just as cash and coins are stored in a wallet or purse, a user stores their digital currency into their preferred type of bitcoin wallet. There are many types of digital wallets, each with their own perks and drawbacks.
Types of wallets include:
- Online or Web-Based
- Paper wallets
Online or Web-Based Wallets Can Be Accessed Anywhere
An online wallet is used by someone who wants to be able to access their funds wherever they go and no matter which of their devices they are on. All a user needs are their mobile phone with internet access, an iPad, or a computer and they can access whatever program they are using to store their virtual money. This type of wallet can offer additional access options, such as cloud-based mobile app access on top of traditional website access.
A downside of using an online or web-based wallet is that there are many companies out there claiming to be reputable wallets that aren’t. Finding a reputable wallet provider can take some research. It’s important to know that many people have been swindled out of their currency after choosing a shady service, so choose one with a strong history of good service.
Mobile Wallets Via a Smart Phone or Device
Unlike an online wallet where the user can access their funds in any online manner, a mobile wallet can only be accessed by the user’s mobile phone. Traditionally, the user downloads a special app, and that’s where the funds sit. Without direct access to the app, they can’t use or spend their funds. This type of wallet is very convenient though, as it allows users to spend their funds on the go. If the person has their phone with them, they have their funds available for use.
What’s the downside to this type of wallet? If the user loses their phone or loses access to their app, they lose access to their cryptocurrency. Also, all it takes is the phone getting stolen and the funds can be stolen right along with the device. Hackers can also access mobile wallets, which is a drawback for some.
Desktop Wallets Stored on a Computer
Many people choose to use a desktop wallet over a mobile wallet, as it feels more secure. While a phone can get dropped in the toilet or lost on a train, most people don’t lose or break their computers that often. Desktop wallets require internet access, but you can only access the funds from the registered computer, not from any computer with internet access.
A drawback of this type of money storage is that, without the specific computer, the funds cannot be accessed. If a person is out shopping and the money is stored on their home computer, they won’t be able to use the funds to pay for purchases. Purchases can only be made if the owner is sitting at their computer sending the funds. One risk of a desktop wallet is that all it takes is a computer virus to wipe out the funds right along with everything else stored on the computer.
Hardware Wallets are The Most Security
Those wanting the best security for their funds typically go for a hardware-type wallet. This is a separate device, not an app or a computer, that the owner has to have in their hand to access their money. These devices traditionally look like a flash drive or an external hard drive. If the person plans on using their funds, they will need to carry a hardware wallet around with them.
Due to the fact that it takes the hardware device in hand to access the funds, a hacker cannot access the owner’s money unless they steal the device first. It’s highly unlikely that a thief would know what the device looks like or even that the person owns one. It’s also important to keep the device in a safe place because, if it’s lost, the funds are lost as well.
Paper Wallets are The Least Used
The least-common and least-convenient type of storage is paper wallets. Just as many people don’t like to carry cash because it can be lost or stolen, the same goes for paper wallets. The user prints out codes, typically QR codes, onto paper and carries that paper around. If they leave their printed codes at home, they can’t spend their funds.
The risk involved with paper wallets is high. Just as people wash cash, cell phones, and ink pens, it can be easy to wash and destroy printed papers. If there’s a fire, the funds go up in flames. If someone steals the paper, or the owner loses the paper, once again the money is gone for good. A useful tip for those who decide paper is the way to go is to laminate the printed pages and store them somewhere secure, like a fireproof box or safe deposit box.
Again, Bitcoin keeps financial transactions private for users. With the many wallet styles available, users have a wide array of access options. By considering both convenience and risk, users can choose a storage method that fits both their needs and security issues.