By far the most important action you can take when getting into the bitcoin ecosystem is to understand the following concept.
Your keys = Your money
What this essentially means for you is that you need to understand the fundamentals of how bitcoin works to protect your assets. When you create a new bitcoin wallet it will generate a pair of keys, one public key and one private key. I’ll explain the basics of the functions each serve. They appear as such…
PUBLIC
1PyBQJvwBmargNfjeWBDPbuuzwFh5bq4NF
PRIVATE
L4mxsy6Zeo6jWJj95eYdyfuv8pxNDPGDSNNKzwTfR7S6FSEtpX48
Public key
Your public key can be used to check the number of transactions in and out of your wallet, funds currently inside of your wallet, and is also used when receiving funds. As the receiver of a payment you can either show the buyer the qr code associated with your public key so they can scan it or give the long string of numbers and letters. For this reason it is called the “public” key and your funds are completely safe with other people in possession of this key.
Private key
In contrast to the nature of the public key, your private key should remain completely private from any party other than yourself. Many wallets will not even display the qr code or string of letters and numbers meaning you’ll never need to know the key itself. Instead it will be displayed as a 12-24 word “seed” (a backup) that can be used to recover your wallet. The private key should be remain hidden and if ever exposed the safety of your wallet is compromised which means you should move your funds to a new wallet immediately. The private key is used for signing an outbound transaction so only someone with possession of the private key can send funds from that wallet.
Protecting your wallet
When you set up your wallet you should be prompted to “backup your wallet” by copying down a list of anywhere between 12-24 words. If the wallet you’re using does not offer a backup function do not use it because if you don’t make a backup and you lose the device with the wallet on it then you also lose your bitcoin. So you’ll want to make that backup of your wallet and write down the list of words somewhere safe that you can retrieve it if you lose your device. This way if you get a new device of lose it you can restore from the list of words (the private key) and have access to your bitcoin.
Wallet Types
Most people getting into bitcoin will be familiar with exchanges like Coinbase and while these are great for trading dollars for bitcoin, it is a very bad idea to keep your bitcoin on here at all. You DO NOT own your keys on this platform. Coinbase has proven to be secure as of this far but this doesn’t stop them from freezing your account and holding on to your bitcoin, after all, you DO NOT own the keys when dealing with an exchange.
Storing bitcoin in wallets on your phone and/or computer is known as a “hot wallet”. Holding money on a phone or computer however allows hackers an opportunity to steal your bitcoin if you get a virus or malware. For that reason it’s smart to keep small amount of funds primarily for spending on a phone or computer wallet just as you would your physical wallet with cash.
The third, and safest way to store your bitcoin is referred to as “cold storage”. This can be a paper wallet and tends to be a more difficult method to set up when compared to hot wallets. Hardware wallets are also a form of cold storage and have great security features which also allow for an easier set up process for beginners. The only downside to a hardware wallet is that you need access to a computer and they aren’t free. I suggest looking into paper wallets and hardware wallets and learning how to use them if you are interested in holding large amount of money in bitcoin.
My recommendations for bitcoin wallets:
Iphone/iOS: Bread wallet
Android: Mycelium
Desktop: Electrum
Hardware: Keepkey, Ledger, Trezor
Keep your bitcoin safe
Everything mentioned here is a great place to start and if you’re going to get into bitcoin you should take the time to learn how this technology works to understand it for yourself. Hopefully I helped answer any questions you may have had. Feel free to comment if you are unsure of setting up a wallet.
Thank you for reading!