How Bitcoin Wallets Work
Bitcoin wallets aren’t really wallets at all, they’re software programs that store information. Specifically, Bitcoin wallets store private or personal keys, which give you access to your Bitcoins. While Bitcoin is an anonymous cryptocurrency, Know Your Customer (KYC) requirements can be applied to wallets. This article will explore how Bitcoin wallets work and how KYC can help identify users and prevent fraud.
How Bitcoin Wallets Work
Actual Bitcoins aren’t held in the wallet. Instead, a Bitcoin wallet holds the Bitcoin address and the private key associated with each Bitcoin. The person who owns the whole or partial Bitcoin can send and receive coins using the wallet. There are four main different types of wallets: mobile, web, desktop, and hardware.
Before an individual or group can obtain Bitcoin(s), they need to establish a digital wallet. Some prefer desktop wallets, which give the user complete control over the wallet. These wallets are installed on a desktop computer and, like other wallets, they allow the user to store a private key. The downside of desktop wallets is that they are fixed in one place – they aren’t portable.
Mobile wallets run as apps on smartphones and have all of the same capabilities as desktop wallets. In addition, mobile wallets enable you to pay directly from your smartphone in stores that accept Bitcoin via “touch-to-pay” through services like NFC scanning or QR codes.
A web wallet exists on the web, which means you can access it using any browser on desktop, tablet, or mobile. When choosing a web wallet, it’s important to pick the most secure option available, since your private keys will be stored online. Finally, a hardware wallet is an actually piece of hardware within which you can electronically store private keys. These are mostly in the development phase.
Bitcoin Wallets & Security
Bitcoin wallets are so secure that, according to MarketWatch, the likelihood of hacking into one is the same as winning the Powerball lottery jackpot nine times in a row. As this comparison suggests, Bitcoin wallets are extremely secure. Recent coverage of Bitcoin theft has little to do with hacking private keys. Many of these cases involve basic scams, like purchasing Bitcoin using a credit card and then cancelling the credit card payment after the Bitcoin is exchanged. By using Bitcoin exchanges and staying alert, you can minimize your risk for this type of fraud.
On the Bitcoin security front, a new digital wallet startup, Casa, is helping consumers store their cryptocurrency in a safe and secure manner. Casa’s founder, Jeremy Welch, describes Casa as a “premium hodl software.” The term “hodl” refers to the buy and hold strategy. The Casa digital wallet is targeted at people who own between $400,000 to $10 million in crypto assets. The app increases security by requiring users to electronically sign three different devices before moving assets.
The product creates five keys for storing a consumer’s digital currency assets. The keys live in five different places: your phone, at Casa (for recovery purposes), and then three locations of your choosing. The three additional keys are stored on hardware wallets (Trezor and Ledger are currently integrated with the program).
Casa recommends your home, your office, and a safety deposit box at your bank for the final three locations. This way, a criminal can’t put a gun to your head and demand that you transfer all of your assets to them. The criminal would have to accompany you to your office and your bank in order to complete the transaction.
Casa aims to create an easier way for consumers to manage and use their private keys, while increasing security. Bitcoin is currently the only cryptocurrency supports, but Casa plans to add Ethereum to the platform in early 2018, with more to come.
Other tech digital currency startups are helping to support the growing Bitcoin economy. As consumers embrace cryptocurrency, even more companies will sprout up to meet their needs. When it comes to digital wallets, companies are implementing KYC guidelines to identify users and satisfy regulatory requirements.
Applying Know Your Customer to Bitcoin Wallets
When a user applies to open a digital wallet, Know Your Customer (KYC) guidelines can be applied. One example of this is in the Bitcoin ATM industry. When a consumer creates a wallet for use at a Bitcoin ATM, they go through a brief application process. For BankLine’s Bitcoin kiosk clients, this process includes enhanced customer due diligence and KYC.
By identifying the end user, BankLine is able to protect both the Bitcoin ATM operator and their partner financial institution from fraud. BankLine uses an integrated system to deliver customer data in the appropriate format. The Bitcoin ATM’s financial partner is able to process customer information in accordance with their own compliance and due diligence programs.
By implementing cutting edge technology and robust compliance programs, BankLine is able to establish financial partnerships with Bitcoin-friendly banks. These banking partners provide real Bitcoin business bank accounts, delivering banking continuity. A network of financial institutions allows BankLine to deliver “redundant” banking relationships. This means that if one bank decides to derisk, there is another bank ready and willing to take over the account. Redundant banking eliminates gaps in banking services to keep Bitcoin ATMs up and running.
As regulations change, the Bitcoin compliance experts at BankLine keep their clients head of the curve. New rules are adopted before the deadlines and advanced technology enables immediate and transparent communication. BankLine helps their clients rotate their working capital through nationwide cash logistics. This frees Bitcoin kiosks from the geographic footprint of their financial institution and its cash logistics partner. Kiosk owners who operate multiple ATMs across the country can use one service to transport cash to and from their ATMs.
A Bitcoin wallet provides access to Bitcoin ATMs and BankLine helps these kiosks operate efficiently, compliantly, and profitably. As the cryptocurrency market grows, these Bitcoin banking services can scale. If you are a Bitcoin ATM operator, you can apply for a real Bitcoin business bank account through BankLine today. You can either fill out a form on our website or give us a call. The BankLine team is standing by ready to help you grow your Bitcoin ATM business.