Bitcoin or Bitcoin is an electronic payment system based on the work with the cryptocurrency of the same name - Bitcoin.
In this article, we will analyze the process of working with Bitcoin as an EPS, namely: choosing and creating a wallet, the main advantages and disadvantages, a security system, registration, and more.
Bitcoin: an overview of the electronic payment system
As you know, Bitcoin combines two inextricably linked concepts:
- Bitcoin (Bitcoin) is a decentralized system of electronic financial settlements on the network.
- BTC, bitcoin is a monetary unit of account.
The idea of creating Bitcoin belongs to an anonymous developer, who in 2008 published a scientific article under the name of a certain Satoshi Nakamoto, describing the theoretical foundations of the system based on cryptography and programming.
Bitcoin as EPS is no different in its way of working from all other EPS: just like using the well-known PayPal system, you make transactions in US dollars, in the same way you use the Bitcoin system, making transactions in BTC.
In order to freely and fully dispose of the Bitcoin system, it is necessary to create a special functional client - a bitcoin wallet.
There is a common misconception that a bitcoin wallet is a long string of Latin letters and numbers (for example, 159TFgyRhrSsddZaL6PGdsgyzh6gxuSc7k). In fact, this is the public address of your bitcoin wallet, and there can be as many such addresses.
The wallet itself (in the basic sense) is a regular file that stores information about all your addresses. This file is managed by a special program. Hence the conclusion: a bitcoin wallet is a file and a program controlled by it.
Choosing a bitcoin wallet is a very important task that needs to be approached judiciously and seriously. A good and reliable wallet must meet two essential criteria:
- The wallet must provide proof of bitcoin ownership. Responsible for this item is the so-called. a private key that is created by the program and corresponds to a public address. It is the secure storage of private keys that ensures the safety and reliability of your funds.
- The wallet should allow you to freely manage your money at any time.
Now let's look at the types of wallets. At the moment, only 5 types are known:
- Web wallets (online wallets);
- Local (desktop, offline wallets);
Each type of wallet is characterized by its own characteristics, but we will talk about the advantages and disadvantages of the two most used types: onaylan and offilan wallets.
Online wallet: advantages and disadvantages
The benefits include:
- Speed and intuitiveness of working with the service;
- Accessibility from anywhere in the world where there is Internet;
- Cross-platform: access from any device with Internet access via a browser;
- Convenience when traveling and shopping on the Internet;
- The best option for beginners and for operations with small amounts of BTC.
The disadvantages include:
- Wallet security depends on a third-party resource;
- Wallets are downloaded from a remote server;
- Many online wallets have complete control over your bitcoins, as the keys are stored on the servers of the service.
Famous and most used online wallets:
Blockchain.info (selected by BLOG4INVESTS)
The Blockchain platform was founded in London on August 30, 2011, practically standing at the origins of the Bitcoin network. At the moment, the service is the most popular and leading online wallet: the system has about 13 million wallets and serves over 7 million users from all over the world.
The main features of Blockchain.info:
- Fast and easy wallet registration. To increase the security of the transfer, you can create wallets for one-time transactions;
- There are several internal and external monitoring systems aimed at monitoring the correct functioning of the source code;
- The ability to create backup copies of the wallet with their automatic sending to e-mail;
- The service has been translated into 25 languages, including Russian;
- Platform transparency: display of all transactions in real time;
- Dynamic commissions.
It is important to understand that Blockchain.info is an ordinary commercial project, which is not any official bitcoin wallet, as many mistakenly believe; and it has nothing to do with the blockchain technology itself. The developers just chose this name for their wallet.
Coinbase was founded by Brian Armstrong in 2012 in San Francisco and is currently the second most popular online bitcoin wallet after Blockchain.info.
- It has its own internal exchange: the ability to exchange bitcoins for dollars or euros and vice versa; and with the help of Instant Exchange technology, it is possible to automatically convert bitcoins into traditional currency;
- Ability to link wallet to Google ID;
- Multisig technology: for a transaction it is necessary to use several digital keys stored in different places and in different forms;
- CoinBase is the most de-anonymous platform as it often requires personal data.
Xapo is a Swiss company founded in 2013 by Argentine entrepreneur Vencez Casares. The platform has already managed to get a favor in the Bitcoin community and is only gaining popularity.
Main features of Xapo
- Cold storage service (storing bitcoins without Internet access) through the Vault service (storage);
- Possibility to order a plastic Xapo card, similar to bank debit cards;
- You can create wallets not only for bitcoin, but for almost any currency;
- Private keys are not provided to users;
- No commissions.
By the way, an interesting fact. Of the examples given, only Blockchain.info is a real bitcoin wallet (in the strict sense). Xapo and CoinBase are regular bitcoin banks that have simply overhauled the currency trading system. Generally speaking, it is difficult to find a clean bitcoin wallet among all online wallets, since it is more convenient for services to store keys on their servers.
Offline wallet: advantages and disadvantages
In general, the following advantages can be distinguished for offline wallets:
- Full control over your bitcoins without involving third parties;
- The best option for advanced users and for long-term storage of large amounts of MTC.
Further, depending on your goals, you can choose which specific offline wallet you should use: thick (heavy) or thin.
The advantages of thick wallets include:
- The maximum level of anonymity and reliability;
- Originality control guarantee;
- Wide functionality.
The disadvantages of thick wallets include:
- Downloading and storing the entire blockchain is required, which takes up a significant amount of hard disk space;
- Requires a high-speed internet connection and high computer specifications.
Famous and most used thick wallets:
Bitcoin Core (Bitcoin-Qt)
Bitcoin-Qt is undoubtedly the most famous thick wallet client. This wallet is considered the very first program developed by the mysterious Bitcoin creator Satoshi Nakamoto himself. The wallet is currently maintained by a development team led by Gavin Andresen.
Despite the fact that Bitcoin-Qt was created for a long time, it is constantly updated and has a large client base. Also, the client can be installed on any popular operating system, which additionally guarantees ease of use.
The main features of Bitcoin-Qt:
Reference stability, high security and privacy level;
The wallet.dat file stores all your public addresses and private keys to them;
File encryption with a password is offered;
Key import and export.
If you have good technical data of your computer, it is recommended to start serious work with cryptocurrency with Bitcoin-Qt.
Armory is a client extension for Bitcoin-Qt. Since the wallet runs on top of Bitcoin-Qt, it will require an installed official Bitcoin-Qt client with a synchronized blockchain.
Main features of Armory:
Reference level of security;
The ability to carry out transactions even without connecting to the network via a USB key;
The ability to manage multiple wallets at once;
Several functional modes to provide the necessary settings and information;
High requirements for RAM.
Armory is ideal for those who want to have everything under control.
Now let's look at thin wallets. The advantages of thin wallets include:
No need to download and store the blockchain;
Convenience of management and high speed of transactions;
The best option for working on a laptop, netbook or tablet.
The disadvantages of thin wallets include:
All checks are carried out by a third party.
The well-known and most used thin wallet is Electrum.
The main features of Electrum:
Balance between functionality and style;
Minimal resource consumption, the client can be kept even on USB-drives;
There are full and portable versions;
Generation of seed codes instead of creating backup copies;
There is an application for Android.
Electrum: a simple and convenient bitcoin client that consumes few system resources. The task of this application is to speed up the work with the Bitcoin network as much as possible.
Advantages and disadvantages of working with Bitcoin in general
The main advantages (in the face of principles) of working with the Bitcoin network:
- Decentralization. Bitcoin is not controlled by any person, company or state. All transactions are peer-to-peer, that is, independent of the central server, in nature.
- Anonymity. There is no personal data in the Bitcoin system. Much depends on the choice of the wallet, since in some cases partial or complete confirmation of identity is required. Nevertheless, most wallets try to ensure the confidentiality of personal data.
- Reliability and safety. The probability that Bitcoin will be susceptible to hacker attacks is practically zero. Withdrawing money from the wallet or blocking it by the system in Bitcoin is impossible.
- Low fees. Commissions have been introduced to rank transactions by processing priority. Generally speaking, most transactions can be made without commission - this is a voluntary matter, but then the priority of processing such transactions will be the lowest.
- Transparency of calculations. The details of all transactions are publicly available and stored in a special database - the blockchain. They cannot be deleted, and knowing only one bitcoin address, you can find out all transactions received or sent from it.
- 24/7/365. Bitcoin works 24 hours, seven days a week and 365 days a year without weekends and holidays. If you wanted to make a translation on January 1 at 5 am, then it will be so.
- No boundaries. Bitcoin works anywhere in the world where there is Internet access (and sometimes even not required).
- Division into coins. This allows for microtransactions, even thousandths of a dollar is not a problem.
The main disadvantages of working with the Bitcoin network:
- Lack of chargebacks. Bitcoin does not support its customers. Therefore, if you make a mistake when entering the address, enter the wrong amount, lose access to your wallet, or your hard money breaks, you will lose your bitcoins without a trace and you will have nowhere to turn for help. In addition, transactions cannot be canceled.
- Direct dependence on BTC. The Bitcoin network is completely dependent on the currency itself: if Bitcoin suddenly depreciates, the network will lose its relevance and become meaningless.
- Delayed transactions. Transactions do not go as fast as we would like, and you have to pay to increase the priority.
Methods to protect Bitcoin wallets
- Encryption - Users can encrypt their data using a special program or the Encrypt Wallet function. Encryption reduces the likelihood of a wallet being hacked, but does not provide a 100% guarantee.
- Backing up is one of the best ways to protect yourself. Always make backups of your wallet and store them on different media (flash drives, portable drives). This will not only protect you from computer system errors, but also help restore the wallet if it was lost for any reason.
- Complex passwords and two-factor identifications. Passwords on bitcoin wallets must include at least 8-10 characters (letters with numbers). Two-factor identification will provide these wallets with additional protection.
- "Cold storage" (Cold Storage). You can keep the bulk of your money offline, without network access. At the moment, this is the best way to protect against hacker attacks.