This is Part 2 of our guide to buying Bitcoins to pay for VPN anonymously; to see Part 1 please see here.
To store Bitcoins, pay for things, or receive money in Bitcoins, we need to set up a Bitcoin wallet, and as with most things Bitcoin, there is an almost overwhelming number of options available.
The first thing to do is decide whether we want a mobile, web or desktop wallet, all of which have their own advantages and disadvantages,
- Desktop wallet – the most secure option, giving you complete control over your wallet. It also means that you are solely responsible for backing up and securing your wallet
- Mobile wallet – very handy, as you can carry it in your pocket and use it to pay for things in stores, and exchange money in person
- Web wallet – certainly the most convenient type of wallet as they can be accessed from just about anywhere, these are also the most insecure, as the wallet is held on a server by a third party. This means that you have to trust the website hosting your wallet not to abscond with your money, and problems with the server, or the company suddenly closing down, may result in loss of money. Pure web wallets should therefore never be used to store large amounts of money.
We decided, given that wallets are almost always free to come by, to look at a leading contender for each type.
MultiBit (Windows, OSX and Linux) is a free and open source (FOSS) desktop wallet. Its interface is a bit basic, but it provides everything you will need and is ready to use in minutes. New wallets can be created in seconds and protected with a password, and multiple wallets can be managed easily (complete with a handy chart for tracking balances). MulitBit is designed to be easy to use and supports a huge number of languages, and is therefore ideal for beginners
Other good desktop wallets include:
- Bitcoin-QT – the original and fully featured FOSS Bitcoin client which allows full proof of work verification. This however does mean an Initial blockchain download of over 10gb
- Armory – which is FOSS, and provides advanced features for power users, including offline wallet capability
- Electrum – a third party wallet application that focuses on ease of use, using remote servers to handle all the complicated stuff
Bitcoin Wallet is the only truly FOSS mobile app around, and it is available for Android and Blackberry devices. Requiring no cloud server (therefore making it very secure and ‘zero trust’), Bitcoin Wallet allows you send and receive Bitcoins using NFC, QR codes or Bitcoin URLs. Because Bitcoins are stored locally on the device, if you lose your device then you lose your coins, so it is important to back them up somewhere safe. Because of this, it is strongly advised that you use Bitcoin Wallet only for small amounts of money, such as day to day purchases. One problem with Bitcoin wallet is that there is no PIN (or other) protection on the app.
Other good mobile wallet options include:
- Mycellium (Android) – designed for security and speed, Mycelium keeps your private keys on the device, so you keep total control over them. Unlike Bitcoin Wallet, Mycelium allows you store multiple keys, and to protect your wallet with a PIN. Although a third party application, it is free, and the source code is available on Github for scrutiny
- Blockchain.info – this is a hybrid web wallet that syncs to the rest of their service (which we will look at in some detail below), and is built on the open source Bitcoin Wallet code. An iOS app is also available, but does not have full Bitcoin wallet functionality
- Coinbase – provides an app for their traditional pure web wallet. As with all such web wallets, you should never use it to store large amounts of money.
The reason that iOS support is so limited is because Apple has refused to permit Bitcoin wallet functionality in its Store.
Although nominally a ‘web wallet’, Blockchain.info differs from more traditional web wallets in that it stores an encrypted version of your wallet online, but the encryption and decryption is performed locally (in your browser, app or client). This means that you benefit from the convenience of a web wallet, while still maintaining full control (unlike more traditional web wallets).
Because Blockchain.info is a third party company there is a small compromise in security, but as all wallets are protected by 256-bit AES encryption and can be backed up locally (making it very difficult for your money to be stolen or lost), and because Blockchain.info is a very large and well established company (and therefore presumably reliable), we have chosen it as our wallet of choice for the purposes of this tutorial, and will look at it in some detail.
Blockchain.info provides optional ‘two factor authentication’, requiring one password to log in to your wallet, and another before any payment can be made out of it. It also allows you back up your wallet locally for extra security.
Setting up a Blockchain.info ‘My Wallet’
Setting up a wallet is very easy:
1. Go to https://blockchain.info/wallet and click on ‘Create My Free Wallet’ or ‘Start a New Wallet’
2. Simply choose a password. Having the link emailed to you is very handy, but could theoretically be used to link the account to you, so is best avoided if you wish to remain anonymous (unless you use a secure disposable email address). The password must be at least 10 letters and/or digits long.
3. Blockchain.info provides a backup solution in case you forget your password, which can be used to help recover your wallet. It consists of a string of random and nonsense words.
And we now have a Bitcoin wallet. We told you it was easy! We currently have nothing in it, which is what we aim to change in Part 3 of this tutorial!
Remember that for maximum anonymity you should create a new wallet for each transaction you make (or at the very least have separate wallets for regular payments and payments you want to keep anonymous).
The Android app
One of the appeals of Blockchain.info is that it has an Android App which allows you to securely access your encrypted web wallet.
Other web wallets include:
More traditional web wallets are inherently less secure, because you have to trust the provider with your money, and any disruption to the servers could result in the loss of your wallet (and therefore all the money it contains!) However, they are quick and easy to set up, and are therefore ideal for moving small amounts of money around to create more steps between you and any payments you make.
- BIPS (Bitcoin Internet Payment System) – allows you to buy and sell Bitcoins easily from many counties using its eWallet, and includes many merchant features
- Coinbase – a web wallet that integrates well with US bank accounts, and also has lots of merchant features. It also has an Android app.
Now that we have chosen our Bitcoin Wallet, it’s time to buy some Bitcoins! Tune in to Part 3 for our step by step guide on how we did this.
Check out the rest of this Guide:
Part 1: An introduction
Part 3: Buying Bitcoins
Part 4: Mixing your Bitcoins
Part 5: Paying for VPN with Bitcoins