Unlike traditional fiat money, cryptocurrencies have no physical form. Therefore, it is impossible to put a bitcoin in your pocket. In a way, storing bitcoin is like storing fiat money on your bank account, without having the option to withdraw physical banknotes. Even though you cannot see the money, you know it is there and you can always check your balance to make sure.
But Bitcoin is decentralized, so there are no banks that manage your bitcoin account, as is the case with fiat money. Instead, you need a BTC address. This article sheds light on the difference between an address and a wallet and explains how you can keep your crypto assets secure.
Bitcoin Storage Essentials
- The most basic and simple means of storing BTC is a BTC address, which is a combination of a private and a public key.
- The term crypto wallet is most frequently used to refer to software that manages all the addresses belonging to the wallet owner.
- Full nodes, programs that validate transactions and blocks, also function as wallets.
- Other basic wallets include paper, software and hardware wallets.
- Alternatively, a user may keep their BTC at an exchange.
Crypto address vs wallet
A BTC address is the most simple means of storing your BTC. Technically speaking, an address is a hashed version of a public key, which is one of the two keys constituting the asymmetric key pair. The other one is a private key, which is used to generate a signature, allowing the address owner to spend the BTC held at their address.
A wallet, by contrast, is an abstract notion with a wider implication. It is responsible for storing a user’s private and public keys, frequently multiple pairs. Thus, a wallet can be – and often is – associated with multiple BTC addresses. The cryptocurrency that a user owns is not actually stored in the wallet. The wallet merely stores the keys that can access the BTC on the ledger.
For illustrative purposes, you can imagine a private key as the key to your address, and a wallet as a keyring, possibly with numerous associated private (and public) keys on it, each granting access to their associated addresses.
Running a node
The first type of wallet discussed in this article comes in the form of a full node, which is a program that fully validates transactions and blocks on your device. Sometimes, the same expression is also used to refer to the device running the program itself.
Aside from validating transactions and relaying them through the network, full nodes also have certain functionalities of lightweight clients, providing basic wallet features. Thus, nodes can transmit their own transactions to the network and notify the node owner whenever a transaction affects their wallet.
To set up a full node, you must first download a Bitcoin client with the complete transaction history. As of writing, this amounts to over 350 GB. On average, the size of the client increases by 5–10 GB per month. If it is to support the client, a device running full-node node software must meet the following minimum requirements:
- Latest version of Windows, Mac OS or Linux,
- 2 GB of RAM,
- Broadband internet connection,
- Kept running at least 6 hours per day (though it is recommended that it runs for longer periods of time, optimally indefinitely without interruptions – note that running a node does not mean you cannot run other programs simultaneously).
Basic types of cryptocurrency wallets
There are a number of different cryptocurrency wallets out there, ranging from software and hardware to paper wallets. Each of them has its own set of advantages and disadvantages, in terms of security and user friendliness.
The simplest and perhaps the most secure of all wallet types is a so-called paper wallet. Just write your private and public key on a piece of paper and you are done. The security of this wallet depends fully on how you store it.
However, if you plan on using BTC frequently, this type of wallet becomes troublesome and time-consuming. An alternative to paper wallets, software wallets are programs or applications that can be accessed from an electronic device, like a computer or phone. They have user-friendly interfaces that are easy to navigate.
The last type of wallet is the so-called hardware wallet. Retail-grade hardware wallets usually come in the form of flash-drive looking devices that are only connected to the internet when plugged into computers and used for making a crypto transaction. Because are only briefly plugged in makes them highly secure. They also feature a user-friendly front-end interface for facilitated use.
Read more about paper, software and hardware wallets.
Cryptocurrency exchanges
As an alternative to privately-owned wallets, you can also keep your BTC at a crypto exchange, which holds and secures all of their clients’ assets in joint wallets. Reputable cryptocurrency exchange platforms take great security precautions to safeguard the funds of their users. If you want to buy, sell or trade BTC, you may want to store at least a portion of your assets at an exchange.
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You can keep your BTC on an exchange like Bitstamp, which keeps 95% of all assets in cold storage, where it cannot be hacked or compromised. Bitstamp takes every possible precaution to ensure that their platform remains secure and reliable. This is how we have maintained their status as one of the world’s most reliable exchanges, trusted by over four million users worldwide.
If you wish to store your BTC at Bitstamp, all you have to do is register your Bitstamp account. Aside from being able to store BTC at Bitstamp, you will also gain access to world’s leading cryptocurrencies by market cap.