At first, the Bitcoin craze left me baffled. How could the price of Bitcoin move fromUS$0.00099 in 2009 to US$13.45 by December 2012, with a massive 13,585% increase in just three years?
By 2015, when I started my journey into cryptocurrencies, the price of Bitcoin had risen to $500. I had a gut feeling this was the highest price Bitcoin can get to, it couldn’t go any higher.
I couldn’t wrap my head around it. I wondered if Bitcoin was another name for digital money, or the other way round. I asked myself, how could it be? if it’s not forex, and it’s not stock, then what is this Bitcoin?
I knew it was time to dig out the facts about Bitcoin. I thought Bitcoin would turn out to be another craze that was bound to fizzle out. I was in for a shocker.
As I began researching, I realized I couldn’t find all I needed about Bitcoin without knowing what a wallet is. They intermingled in my online search: Bitcoin wallet, cryptocurrency wallets, hot Bitcoin wallets, cold Bitcoin wallets, passphrases, they all danced around Bitcoin and got my head buzzing and confused.
This Forkast.News explainer will explore:
- Why does anyone need a Bitcoin wallet?
- How I got my first Bitcoin wallet
- Best use cases of Bitcoin digital wallet
- Pros and cons of using a Bitcoin wallet
- My experience with crypto gift-giving using a crypto wallet
- Can having a crypto wallet help if private keys are lost
- Whether to choose a hot or cold Bitcoin wallet
- Best hot wallet for holding different cryptos
- Transacting with a Bitcoin wallet
1. Why does anyone need a Bitcoin wallet?
The first thing I learned about Bitcoin is that Bitcoin is the first of a type of cryptocurrency, and cryptocurrencies are electronic monies not under the control of governments and their central banks or any other intermediaries. Instead, cryptocurrencies are decentralized types of digital monies controlled by groups of computers and networks collectively known as a blockchain.
With that, I realized I could send money in the form of Bitcoin or other types of cryptocurrencies to anybody anywhere in the world at a fast transaction rate not possible with conventional financial institutions and without cross-border transaction charges.
However, if I want to send or receive Bitcoin from anybody in any part of the world, I will need a Bitcoin wallet.
A Bitcoin wallet can be compared to a physical wallet or even a bank account that holds one’s money.
In the traditional banking system, I would need my account number and my pin or password to access my bank account online, or from an ATM using my credit card. Likewise, I will need a public Bitcoin address which equates to my account number, or username, and a private key, that enables me to send, receive, or perform Bitcoin transactions.
If I am to send Bitcoin, I will need the recipient’s public key, and if I am to receive Bitcoin, I will need to send my Bitcoin public address to the sender, while the private keys are private because I alone will be needing them to access my Bitcoin wallet on other devices.
2. How I got my first Bitcoin wallet
After learning about Bitcoin, I was ready to get my feet wet, and luckily, my friend suggested I use Blockchain.com, saying it is the best Bitcoin wallet for beginners. Besides, statistics showed that Blockchain.com has over 70 million users; for me, that’s more than enough reason to join the bandwagon.
I headed to Blockchain.com, where I created a free cryptocurrency wallet using my email address and a unique password. To confirm my wallet was created, I received a message that said: “Wallet created successfully.”
In a moment, I was logged into my new Bitcoin wallet, which can also hold other cryptocurrencies like Tether’s USDT, Ethereum’s Ether, Bitcoin Cash and Stellar XLM.
I also learned to swap any of the cryptocurrencies for another, and I was delighted to learn that I can trade Bitcoin or other cryptocurrencies on Blockchain.com; but to do so, I had to perform KYC verification using a valid, government-issued ID card or international passport.
3. Best use cases of a Bitcoin digital wallet
I can use Bitcoin to pay for goods and services, or as a cross-border payment solution. It might please you to know that there must be other “higher” purposes that I can use Bitcoin for. Some of these use cases include:
- Smart contracts: Bitcoin may not be synonymous with smart contracts like Ethereum, Binance, EOS, Tron blockchain network, but most blockchain platforms, including Bitcoin, incorporate smart contract functionality in their network. I could use RSK Bitcoin smart-contract blockchain to initiate money, information, or a property contract with a client without involving third-parties like lawyers or middlemen.
- Collateral: If in the real world I can use gold and other properties as collateral to obtain a loan, then it is also possible with cryptocurrencies. I can use my Bitcoin wallet as collateral to obtain a fiat loan while my Bitcoin remains locked.
- Farming/staking: If I can lock my fiat U.S. dollars for days or months with the hope of earning interest, then I can also lock up my Bitcoin for 30, 60, 90 days or more and earn interest on the amount of Bitcoin locked away. This is known as staking. Although Bitcoin doesn’t allow staking, there are platforms where I could stake my Bitcoin and earn interest.
- Big shopping: If I have enough money, I could buy a Lamborghini, a Tesla car, a Ferrari or a Rolls-Royce with Bitcoin. These global car dealers now all accept Bitcoin for purchases. Via third-party car dealers like BitCars, for example, I can buy any type of car I want with Bitcoin. I can also purchase Rolex or Patek Philippe jewelry from BitDials using just my Bitcoin wallet.
- Small shopping: There’s a lot of everyday stuff I can buy with BTC. Microsoft, Overstock, HomeDepot, Whole Foods, and increasingly more all accept Bitcoin. If you’re an Overstock customer like me, you’ll find you can get almost anything on the website, from jewelry to decor, furniture, toys and other whatnot.
4. Pros and cons of using a Bitcoin wallet
Other than Bitcoin’s best use cases, holding a Bitcoin wallet offers me numerous advantages.
- Bitcoin allows for seamless cross-border financial solutions at a faster and cheaper rate compared with traditional financial institutions.
- I can be denied access to my fiat money account, my assets can be taken away from me by a court order, but no one can take away my Bitcoin wallet from me or freeze my Bitcoin as long as I take appropriate measures, and no one can stop me from using Bitcoin for transactional purposes.
- I can spend Bitcoin the same way I spend my fiat currencies; I can spend Bitcoin right from my desktop, mobile phone, or debit card. I can seamlessly convert my Bitcoin to fiat money. From my wallet, I just need to select Exchange and enter the amount of BTC I want to convert to fiat. Also, I can use my Bitcoin debit card to withdraw fiat from ATMs.
- Cryptocurrencies are digital money designed to fight inflation; therefore, I can end up becoming richer as my Bitcoin increases in value with the passing year.
Bitcoin does have its cons.
- All cryptocurrencies, including Bitcoin, rely on the internet; therefore, I cannot perform any Bitcoin transaction if I am offline or in an area with no internet access.
- Transaction fees and speed vary; my transaction cost can go higher and possibly take a longer time to complete depending on network congestion.
- I could get a refund of my fiat money if I am not satisfied as a customer. On the other hand, transactions done with Bitcoin are immutable; this means there’s no way I can get my Bitcoin back the moment it leaves my wallet. The only way I can get my money back is if the receiver decides to refund. In essence, this depends entirely on their refund policy whether I can get my refund via other payment methods apart from Bitcoin.
- Securing my Bitcoin wallet requires that I equip myself with cybersecurity basics. Well, the same is required to protect my fiat money accounts too, but learning to secure my Bitcoin wallet does have a steeper learning curve.
- Bitcoin transactions can take between 10 minutes to 1 hour because of the confirmation process and the transaction processing fee. In fact, there are some instances where I had to wait for about 24 hours for a Bitcoin transaction to complete multiple confirmations. So if I want a Bitcoin transaction to be processed instantly, I will have to pay a higher transaction processing fee.
- Bitcoin is a volatile cryptocurrency. There are several times where the value of the amount in my crypto wallet suddenly increases or decreases. For example, Bitcoin value suddenly gained about 9.9% to US$47,742 on Oct, 1, 2021. Bitcoin suffered one of its biggest drops on January 11, 2021 when it plummeted from US$41,000 to below US$32,000 in a single day.
- Although Bitcoin is a digital currency; however, depending on your jurisdiction, taxes may apply to spending BTC. Take, for instance, taxes apply to BTC spends in countries like the USA, UK, Australia, Canada, etc.
5. My experience with crypto gift-giving using a crypto wallet
After creating my first Bitcoin wallet on Blockchain.com, I wanted to gift Bitcoin to a friend, and I thought of doing so using a paper wallet because I could generate and print out public and private address keys offline, and then send any amount of dollar equivalent in Bitcoin from my main wallet.
I liked the idea of the paper wallet because it felt like handing physical cash to my friend. I can write the equivalent amount in dollars on the paper wallet, and retrieving it wouldn’t be a big deal since there’s a barcode to scan and private keys to input.
A paper wallet is an offline wallet like cold wallets so immune to hacking attacks; it offers me the security advantage of having my Bitcoin safe from hackers.
However, I could have just told my friend to open a normal digital wallet and get the wallet address to transfer money. He can easily withdraw it if he wants. The problem is that it takes the surprise out of the picture since he’ll be expecting the payment.
Another easy option was using gift cards. We’re all used to receiving gift cards from loved ones. I could just purchase and send a friend a Bitcoin gift card; there are many retailers online for him to redeem the card.
6. Can having a crypto wallet help if private keys are lost?
No, having a crypto wallet cannot help if you lost your private keys. In essence, losing your wallet’s private keys is like losing the sophisticated keys for your bank vaults.
It is quite common for private keys of crypto wallets to be lost leading to restricted access. For instance, Stefan Thomas has yet to recover the private keys for his old crypto wallet with an estimated value of over US$240 million.
In an unfortunate scenario, I once lost the private keys to my Bitcoin wallet that I saved in a notepad (text file format) on an old PC. To make matters worse, I already gave the PC to my cousin without a backup.
So, instead of consulting a cryptohunter service that can help in retrieving stolen or lost private keys, I had to use an advanced data recovery software to retrieve the private keys, my precious.
Nevertheless, I will advise that you save your private keys on any accessible electronic devices like your smartphone, USB flash drive, cloud storage, private email address, or print it out for your physical files.
7. Whether to choose a hot or cold Bitcoin wallet
A hot Bitcoin wallet is an online tool or app that allows you to receive, send, or store cryptocurrency. In essence, it functions as a digital bank account.
On the other hand, a cold Bitcoin wallet is a hardware device that is used to store, receive, send, and manage Bitcoin.
Should you use a hot or cold Bitcoin wallet? I also wondered about the best wallet type to use. But since I intend hodling my Bitcoin for a long period (I wasn’t ready to start trading Bitcoins just yet), then hardware wallets would be it. (Hodl is a misspelling of hold; it is a cryptocurrency term that originated from a drunken Bitcoin forum website user.) By hodling, I mean I’m holding my Bitcoins; I’m not selling and I’m not buying more no matter what trend the cryptocurrency market is experiencing.
Security-wise, it was the best option because it allows me to hold my Bitcoin in a hardware wallet (an offline storage device) safe from hackers prowling the internet. However, I realized that I would have to purchase a hardware wallet from a credible dealer.
Well, it’s a small price to pay compared to the amount I stand to lose in case my online wallet or the crypto exchange platform suffer from hacking attempts.
By using hot wallets (online wallets I can access using an app or a web browser), I can engage in fast Bitcoin transactions or even trade cryptocurrencies the same way I would trade on a forex market (functions I can’t perform with cold wallets).
However, unlike cold wallets, I knew hot wallets are not as safe as cold wallets because they are prone to hacking attempts, since I will have to be online to access or use my hot wallet at any time.
Conversely, my hot wallet will hodl a small Bitcoin amount for carrying out Bitcoin transactions, while my cold wallet will hold the bulk of my Bitcoin for saving, and I will only use my hardware wallet when I want to top up my hot spending Bitcoin wallet.
In summary, you can either use a hot or cold crypto wallet for crypto giving; however, the best option is to use a hot wallet. This is because a hot wallet is directly linked to the internet and ideal for quick Bitcoin transfers.
8. Best hot wallet for holding different cryptos
Several factors play critical roles in determining the best choice of hot wallet to use; for me, I knew I would need a secure crypto wallet connected to multiple blockchains to enable it to hold different cryptos aside from Bitcoin. At the same time, it would make it much easier for me to carry out cryptocurrency transactions.
I already had Blockchain.com, which plays the above role well and even connects me to an exchange where I can buy or sell different cryptos. However, another option I had considered was Trust Wallet, which supports over 50 blockchains.
I had tried out other reliable hot wallets, including Coinbase wallet, Edge wallet, Exodus, SafePal, and Guarda. These wallets come with different features; hence, I had to determine the best hot wallet with features that meet my needs. I still use a Trust wallet since it allows me to buy and hold different crypto assets.
9. Transacting with a Bitcoin wallet
I found that transacting in Bitcoin is not hard; all I need is to have a recipient’s public address or send my public address to a sender.
By using a multi-coin wallet like Trust Wallet, I can generate public keys for any crypto asset I want to receive. However, I have to be careful whom I send Bitcoin to due to the high scam rate.
Having learned so much about Bitcoin and cryptocurrencies, I was left to grapple with Bitcoin volatility and understand the economics behind cryptocurrency prices. In no time, I was ready to capitalize on Bitcoin price volatility by engaging in cryptocurrencies trading.
For that, I would need to create an account on crypto exchange platforms, bearing in mind that I have to trade only what I can afford to lose, while the rest of my Bitcoin lies securely in a cold (hardware) wallet.
A final word
The use of cryptocurrencies, most especially Bitcoin, is not going away anytime soon. Using a crypto wallet can greatly simplify crypto gift-giving and everyday spending. But hold on tight to your keys and beware the risks of scams.