Bitcoin: Wallets

The main thing you need to get started with Bitcoin is a wallet to hold your coins. There are a few different kinds of wallet available, I’ll run through them in order of security, starting from the weakest. As with most things there is a trade off to be made, as the less secure wallets are more convenient to use.

Online wallets are the easiest to use as they are online and can be accessed from many devices such as smartphones and web browsers. The downside of this convenience is that you don’t own the wallet, it lives on someone else’s server and you could lose your money – as happened to Mt.Gox customers. These wallets are often part of an other service like such as exchanges such as Coinbase or LocalBitcoins or faucets (free bitcoin sites), like freebitcoin. Some others that do not come with a service are Blockchain.info and Green Address.

Desktop wallets are installed on a computer and keep your Bitcoins there. This is safer than using an online service – you are in control of your wallet, but also responsible for backing it up and ensuring your system is secure. To make desktop wallets more secure you can use some of them in an “offline” state, if you have an old computer not connected to the internet. You can usually only access the wallet from the machine it is installed on, so they are less useful when it comes to spending Bitcoins out and about, although you can get “desktop wallets” on your smartphone. The official Bitcoin Core client is a desktop wallet, albeit one that requires downloading a large section of the blockchain – so make sure you have a lot of free space on our machine! Other examples are ArmoryElectrum and Copay, which is also available on iOS.

Paper wallets are simply a print out of the data needed for a Bitcoin wallet, usually in the form of a QR code. They don’t have to be printed on paper, they could be printed on something more durable, such as metal. As they are not held on a computer they are secure, but not so user friendly and have largely been replaced by hardware wallets.

Hardware wallets are small devices designed to hold cryptocurrency securely, offline. This can mean that they are possibly too secure – as the founder of Wired magazine found out! Trezor and Ledger Nano S are examples of hardware wallets.

Wallets are usually referred to as “hot” or “cold” with “hot wallets” usually being online wallets, containing a small amount of Bitcoin for servicing transactions. “Cold wallets” are offline wallets, such as hardware or paper wallets for long term storage, much like a savings account.

Based on my research, I have set up an account with Coinbase, so I am using their wallet as my hot wallet. I noticed that the service struggled with the number of users caused by Bitcoin reaching $10,000, then $11,000 on the same day, so that is something to keep an eye on. I have also set up a desktop wallet with Copay, which rather niftily can be duplicated on my iPhone. I also plan to set up a paper wallet, but that is a project for another day/post.

Some of the links I’ve posted are referral/affiliate links, but in general with Bitcoin/crypto currency you need to be wary of the links you are clicking, as some of them may be scams. At the time of publishing this post, all links appeared to be genuine.

Bitcoin: Introduction

I’m no expert in Bitcoin, or any crypto currency, just a regular guy with a bit of background knowledge. I’m starting to experiment with Bitcoin partly to diversify my investments, but mostly out of curiosity – I am a geek and this sort of thing interests me! I thought I’d blog about my Bitcoin journey in case anyone else is looking into it, but also to serve as a notebook for myself.

Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

– Coindesk: 20th March 2015

In the UK we have already started to change how we use money, even five years ago the major banks had a monopoly, but now fintech startups and even the big players such as Apple/Google are trying to replace the old banks. I was an early adopter of Apple Pay, registering and using iron the first day it was available in the UK. Bitcoin is certainly a part of the changing landscape for our money – I especially like that it is decentralised and not run by a company whose main motivation is do get more data about us. I spend a lot of time online, both for work and leisure, and Bitcoin has been in my peripheral vision for years – I’m not going to think about how lucrative it could have been to have bought some Bitcoin when I first heard about it! The value has already doubled since I put “Research Bitcoin” into my todo list three months ago! I am not interested in learning about the mining side of things, it seems like I have already missed the boat on that. Mining now seems to be the domain of large “mining pools”, plus my old iMac doesn’t need anything else to slow it down!

Whilst I’m certainly no financial expert, I have researched stocks/shares/funds etc and how to invest in them efficiently over the last few years, both for myself and for my young son Owen. I came to the  conclusion that I prefer to take a hands off approach to investing, and that fees can eat into your profits so need to be minimised. Obviously the biggest risk is that the value of your investment can go down, as well as up. I got caught out by investing just before a big dip, but stuck it out, investing more when the prices were low and did OK when things bounced back. I’m going to take a similar approach to Bitcoin, finding a balance between returns, effort and fees, and to start with – not investing more than I can afford to lose!

This is going to be a series of posts, documenting what you need to get started with Bitcoin, how to get Bitcoins and hopefully how I become filthy rich – if only it was that easy!