How to create and secure a Bitcoin (BTC) Wallet?
By Borys Kowalczyk
Who am I?
This article will talk about money. How to manage and how to secure it. Therefore, I think it is important for you to know who is the person behind the screen, writing this article.
My name is Borys Kowalczyk. I’m from Kiev (or Kyiv), Ukraine 🇺🇦. I studied Economics and I work as a teacher at Kyiv National Economic University.
I was born in 1985 and since I can remember, I have developed a deep love for economics and technology. And bitcoin (and cryptocurrencies in general) are the perfect union of my passions.
I have a high knowledge on Economics, Cryptography and the science behind Bitcoin and cryptocurrencies, and in this article, I am going to teach in a simple and interactive way how to create your own bitcoin wallet and secure it.
What is bitcoin?
If you have reached this article, most probably you know what bitcoin is, however, let’s do a little summary.
Bitcoin is a currency, which works virtually (there are no physical coins minted). Its supply is limited to 21 million (there will never be more bitcoins than those), although it has not yet reached that number. New bitcoins are still being produced and will do so until about the year 2140, which will be when the last bitcoin is mined.
The process of creating new bitcoins is called mining, and miners do it, by solving complex mathematical exercises.
These mathematical exercises, in addition to generating new bitcoins, keep the network safe and confirm the transactions carried out there.
The technology by which bitcoin works is called “blockchain”.
Centralized vs Decentralized Wallets
Bitcoins are stored in wallets. These wallets can be of 2 types: centralized or decentralized.
- Centralized. They are like a bank. Services in which you can register an account and you will have your wallet, where you can save bitcoins, transfer, and access other services that different wallets may or may not have, such as: buying and selling bitcoins, exchange of coins, etc. They will have control of your money. As with a bank, when you deposit money with them, they keep it in their own “safe” that you cannot access. They can lock your account and freeze your funds if they want to. If they get hacked or their systems crash, you can lose all of your money. Cases like this has been seen before (i.e: Mt. Gox)
- Decentralized. It’s like having your own safe in your home and keeping your own money. You will not depend on anyone, and no one can block your account, but you will be responsible for keeping your money safe. Many times there have been cases of people losing everything for not taking care of their bitcoin wallet.
If you ask me, I sleep better at night knowing that I am responsible for my own assets, and not that my financial well-being depends on the actions of other people or companies. For this reason, I would never use a centralized wallet.
Examples of Centralized Wallets
Some examples of centralized wallets (which should be avoided) are:
- Binance
- Coinbase
- CashApp
- Kraken
- CEX.io
- OKEx
- Kuna
- RobinHood
- Bitifinex
- Bitflyer
- Bitstamp
- Gemini
- Huobi
- Luno
- Xapo
- among many others…
All these wallets should be avoided to save money. They are valid and can be used to buy bitcoin and trade, or keep the money for a few hours or days, but not to save money in the medium or long term.
Decentralized Wallets — Hardware
When we talk about decentralized wallets, there are several types. One of the most popular is hardware wallets.
These wallets are devices similar to USB, inside which all the information and keys of your wallet are stored (encrypted). They are supposed to be safe, and that if someone else manages to access your hardware wallet, they will not be able to access the funds (although it has been proven that this is not the case at all).
To restore your wallet in case of loss or theft, 24 random words taken from a special dictionary are generated (this is known as “seed phrase”), which you must write down and save. And you must also protect. That is, you must protect the 24 words and also the hardware.
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There are several types of hardware wallets, but there are 3 that are the most famous:
- Trezor: Very famous because it is open source, allowing anyone to view and alter its code and functions. However, it has been shown that a person with access to a Trezor wallet can easily hack it and access its funds, so this option represents a security risk, by exposing your funds to anyone who manages to seize your Trezor, either through theft or loss. (info: Trezor Wallets can be hacked).
- Ledger: It is closed source (which is why it receives a lot of criticism, since you must always trust in their goodwill), and it has never been hacked until now, although their entire database was leaked with the complete data of all customers, exposing them to criminals who know that those people own cryptocurrencies (ie: cyber attacks, physical threats).
- Coolcard: The favorite of many geeks. It only works for bitcoin and nothing else (many people want to have more currencies besides bitcoin) and it can be a bit difficult to use for newbies, as well as being very large and attracting a lot of attention with its design.
Personally I think that hardware wallets are very difficult for newbies, who tend to make mistakes with them, it is also necessary to take double care: the hardware wallet and the 24 words, therefore there is a double risk of making a mistake with something, and you should also trust the security of the companies behind its development, which have already proven to make gross mistakes.
Is a hardware wallet recommended? I don’t believe it!
Decentralized Wallets — Hot Wallets
Hot wallets are wallets that are not under the control of any external entity (only you), but all the information and keys are stored on your computer or cell phone. This means that if you have any malware (virus, trojan), a hacker could steal your funds.
They will also generate 24 words, with which you can reset and recover your wallet at any time, but these words will be saved on your own device, which could be attacked by a hacker.
Some example of hot wallets are:
- Electrum
- Trust Wallet
- Mycelium
- Coin.Space
- Green Wallet
- Samurai Wallet
- Bither
- BRD
- BitPay
- Edge
- Wasabi
- Sparrow
- Specter
- Knots
- Armory
My personal opinion is that they are the best option to use when you want to spend the coins (when you want to pay for something, or transfer bitcoins to another wallet). But if you are not going to carry out an operation with your wallet, then you must NOT have a hot wallet installed. You just install it to use it and uninstall it. And this would be combined with a paper wallet, which I will explain below.
Decentralized Wallets — Paper Wallets
The oldest option and also the most reliable. Paper wallets are a combination of 1 bitcoin address and 1 private key. As simple as that. Your bitcoin address is the one you use to receive bitcoins, and your private key is the password to access the wallet.
You simply generate a paper wallet and save your private key offline, outside of any device connected to the internet, and use your bitcoin address to receive the bitcoins. And your bitcoins will be stored there, safely, because your private key will be stored on paper, outside of the internet. And you can leave your money there the time you wish. And nobody else can block your account or freeze your funds. It belongs to you: 100%.
You will only have to protect the piece of paper with the private key. Nothing else.
And when you want to send bitcoins to another wallet or pay for something, you can use your private key to log into your wallet through a Hot Wallet, and make the transaction.
I have made 2 videos where I explain this.
In the first video, I explain how to create a bitcoin paper wallet. To do this, I have relied on the most up-to-date, user-friendly and better-designed website: www.coincity.ws
After creating your bitcoin wallet and saving your private key, you can start sending money to your bitcoin address, and use any browser, such as www.blockstream.info, to monitor your transactions and balance.
In the second video, I show you how to import your private key to a hot wallet (I have used Electrum), to be able to perform operations such as sending bitcoins to another wallet.
Conclusion
I hope that my information has helped you. Please, watch the videos to better understand the process and avoid making mistakes.
If you liked it, give it a like, subscribe to my channel and share both the videos and this article to people who you think may be interested.
Thank you.
