How to protect your Bitcoin Wallet?

First there was online banking. Then PayPal. Now, there’s Bitcoin. It’s a brave new world, but with Bitcoin exchange rates so high those coins are too precious to lose.

That’s where a Bitcoin wallet comes in. A wallet is a program, app or service that holds coins, keeps them safe and makes it simple to backup, spend or accept.

With Bitcoin, a wallet doesn’t just offer security. It offers bookkeeping, portability and simple ways to give and receive cash.

What is a Bitcoin wallet?

It's rather like an online bank account, but even simpler to use.

Each Bitcoin is a unique solution to a mathematical problem, consisting of a short string of text which represents a figure. Let’s say you give someone a coin or fractional coin - the text string changes as it enters their wallet, and once a global network validates the transaction, your original coin is invalidated and the new coin becomes theirs.

To someone who is sending money, your wallet is just an address. All they need to know is where to send their coins. The QR code on the right of this image is another way to represent the address on the left. When you make a face-to-face transaction, the sender simply snaps the QR code rather than exchanging emails.

Since coins are just characters, you could store them in a text file. But that wouldn’t be smart.

They could be viewed by anyone with access to your device and without the benefits of a wallet, they would be hard to spend.

NB. It's a good idea to make sure you are really clued up on the world of Bitcoins if you are holding significant sums. The reason the real world has banks is that we recognise it’s quite risky, as an amateur, to try to secure your house enough to hold your life savings. Securing your own computer is hard but in the Bitcoin world you don't have a bank as a buffer to rely on.

Types of wallets

• Local - Installed on your own device
• Online - Provided with your account at a store or Bitcoin exchange

Installing your wallet on a smartphone or PC allows you to send and receive Bitcoins as easily as exchanging emails – you only need the address of another wallet. But if you want to buy Bitcoins with local currency, or ‘cash out’, you need to do that via an online currency exchange, which will include an online wallet with the subscription.

Either way, security is enhanced by having both local and online wallets and learning to move money between them.