As many of you may already know, Bitcoin is a cryptocurrency that can be traded on digital exchanges and need to be stored in an electronic wallet, which is accessible with a private key. There are dozens of wallets available, which can make it confusing for first-time Bitcoin investors. When it comes to choosing a wallet, there is no dearth of options; from metal, paper, software, and hardware, there are plenty of options that you can choose from.
While there are wallet apps that can use your private key automatically to sign any transactions on your behalf, it is important to note that if you are not holding your own private key, you’re not really the owner of Bitcoin; just an IOU of BTC. Keeping that in mind, here are some Bitcoin wallet basics that you should know before investing in cryptocurrencies.
Losing hardware that contains Bitcoin is the biggest fear of any investor. But, how can you recover your funds if you have lost the Bitcoin wallet? Of course, by using the recovery data that the wallet provider gives you. In most cases, you would want to look for a file titled ‘wallet.dat,’ which may vary depending on the wallet’s provider. While you can use recovery software to help get your funds back, it is best to choose Bitcoin wallets that provide you with the recovery data. On the flip side, it is advised not to use cryptocurrency wallets that refuse to provide you with the recovery data as those wallets will likely be controlling your private key.
Risks of Paper Wallets
Back in the day (2011), the printed method of storing private keys was a significant improvement as compared to the online storage method which was being used at the time. But, fast forward to today, and paper wallets are not as entirely safe as they were once thought to be. The truth is that paper wallets are now subject to various real-world risks that new Bitcoin investors need to be aware of to ensure the safety of their investments. Some of the risks that are associated with paper wallets are that unencrypted private keys are easily exposed to others, and for those who are new to cryptocurrency investing and are unfamiliar with the key system, there is also the threat of being used to send Bitcoins rather than receiving them during a transaction. To be safe, it is recommended not to use paper wallets unless you are a seasoned Bitcoin investor who understands all the risks.
Do Not Use a Single Signature Wallet
When it comes to investing in Bitcoin or any other cryptocurrency, one rookie mistake that many beginners make is to use a single signature wallet to store their crypto assets. This is a mistake that is also made by many who have been investing in Bitcoin for a while. The reason why this is not such a good idea is that you simply cannot rely on a single wallet to store your crypto assets. That’s because the wallet could get hacked, lost, or damaged, which means you lose all of your crypto assets forever. Just as it’s a good idea to diversify your investment portfolio, new investors in cryptocurrencies should spread their investment across multiple Bitcoin wallets for safekeeping. As a rule of thumb, it is advised for every cryptocurrency investor, even newbies, to have at least two wallets where they store their cryptocurrencies.
Another great tip to roll off with is, make sure your heirs or next of kin know of your investments in cryptocurrencies and get the private keys should something happen to you. To find out more awesome news on Bitcoin and other cryptocurrencies, along with other market research and resources, check out the bitcoin evolution app now.