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To send and receive Bitcoins, you need a Bitcoin wallet. A wallet gives you ownership over Bitcoin addresses that you can use to receive coins from other users, and send to others.
A wallet address will look something like this:
Web wallets allow you to use Bitcoins and generally require less effort from you to protect your wallet. Web Wallets may also be referred to as "Browser-based wallets" or "eWallets". This method is generally the easiest way to obtain a Bitcoin wallet. However, you need to choose your web wallet service provider with care as they host and hold your Bitcoins.
IMPORTANT be sure that you do your research before selecting a wallet provider. For a comprehensive list of web wallet providers visit the Bitcoin Wiki
Software wallets are installed on your computer. They give you complete control over your wallet. You are responsible for backups and protecting your Bitcoin.
Mobile wallets allow you to have Bitcoins stored on your mobile device. You can exchange coins easily and pay in physical stores by scanning a QR code or using "tap to pay". Most e-wallet providers also provide a mobile app.
Wallets can store your entire holdings of Bitcoin. If your wallet is compromised or lost, there is generally no recourse. Bit Trade Australia does not endorse the use of one wallet over another. We do not offer or provide wallets. We recommend you choose a wallet and wallet provider that suits your needs.
Each bitcoin address has a matching private key that allows bitcoins to be spent. These private keys are saved in the bitcoin wallet of the person who owns the bitcoin address, thus whoever has the private keys of a particular bitcoin address can spend the unspent bitcoin of that address.
The total balance of a bitcoin address is kept on a ledger called the BlockChain. The BlockChain records each and every bitcoin transaction. Bitcoin transactions are verified and recorded into the BlockChain by bitcoin miners. Bitcoin miners perform this service by solving complex puzzles that require computing power, processor cycles, which in turn requires electricity. As a reward for their work, bitcoin miners receive new bitcoins and small transaction fees paid by users sending bitcoin. As bitcoin mining becomes more competitive, the difficulty of the puzzles increase - ensuring that the supply of bitcoin is maintained at a steady and pre-defined rate.
Passwords can be cracked by brute force. An attacker can run software to try many different combinations of letters, words, and numbers to crack your password. The best way to defend against a brute force attack is to have a strong password. A strong password is like having a large haystack, with your attacker trying to find a needle in that haystack. A higher entropy is what gives you that haystack. A mnemonic sequence of random words is a good way to create a strong password that is also memorable.
Multi-factor authentication requires an authentication factor additional to your password. This could be something you know; a secret question, for example. It could be something you are; human, because you can read squiggly writing (Captcha). Or it could be something you posses; a mobile phone or token. Some wallet providers require you to enter a pin number generated from software running on your smartphone, such as Authy or Google Authenticator. This adds an additional layer of security and is a feature you should take the time to activate.
Private keys can be stored in plain text - which means anyone with access to this file can potentially spend your bitcoins. Make sure you encrypt your private keys. (this is the default with many bitcoin wallets). This might be a bit confusing, just think of it as a key to your key. (Did you know you should also keep your house keys hidden from plain sight, as it is possible for attackers to covertly duplicate your keys just by taking a photograph of them)
Open source software allows anyone to review the source code and make sure that it does what it says. Security flaws are flagged and fixed quicker than closed source software. With many people looking at the code, open source software is far superior to closed source software when it comes to security. It is for this reason that much of the world's financial system runs on Linux, an open-source operating system.
Make sure the private keys to your bitcoin addresses are backed up in at least 3 different locations, 2 of those locations should be geographically separate. If you keep only one copy of your bitcoin wallet (therefore your private keys), not if but when your hard-drive dies - it will most likely be unrecoverable. Statistically, say your hard-drives have a 1 in 500 chance of failing over a period of a year. With a second hard-drive backing up your data, that chance would reduce to 1 in 250,000. With a third, it would reduce by another order of magnitude. And few of us have perfect memories, so backup your password - write it on a piece of paper and store it in a secure place.
Bitcoin is revolutionary in that you don't need to trust any third party to use it. If you engage with third-party service providers, always do your homework and ensure you know who you are dealing with. Always remember that it is your responsibility to adopt good practices in order to protect your Bitcoin.
Finally, bitcoin does not come with a friendly customer service representative who will transfer your bitcoin to your loved ones when you pass away. Unless you provide the specific details of your wallets and passwords, no one will be able to recover your bitcoins after you die. If your bitcoins are lost forever you will make everyone who has bitcoin a little bit richer through deflation, but with a little planning and forethought you can ensure that your bitcoins remain in safe hands.