How To Open A Bitcoin Checking Account (2024)

Opening a bitcoin checking account is the first step towards investing in bitcoin. Creating a bitcoin account is necessary so that you can trade, send, or receive bitcoin, convert it to cash, or use bitcoin for purchases. It’s basically a virtual bank account but, unlike traditional bank accounts, they’re not insured by the FDIC, and are not managed by banks so there are no physical checks or ATM cards to use. Before we get into the details, here’s a quick refresher on what bitcoin actually is.

What Is Bitcoin?

Bitcoin is the digital equivalent of cash. It’s a new currency that was created in 2009 by an unknown person using the alias Satoshi Nakamoto. Transactions are made without banks (i.e., anonymously), and are not tied to any country or subject to regulation. Many people use them for international payments because they are easier and cheaper than traditional currency transactions. Bitcoin can also be an advantage for small businesses that use them because there are no credit card fees.

What Is a Bitcoin Checking Account?

A bitcoin checking account refers to a digital account (also known as a digital wallet or bitcoin wallet) that allows you to store and trade bitcoins. A bitcoin account provides a digital address to use for bitcoin transactions. For the purposes of this article, we will use the term bitcoin wallet or bitcoin account interchangeably.

A bitcoinwallet stores bitcoins either in the cloud or on a user’s computer, but, it’s importantto remember that, technically, it’s information (not bitcoins) that are stored.This information includes public or private keys (i.e., secret numbers) thatare needed for every bitcoin address in your bitcoin wallet. Bitcoin walletsfacilitate sending and receiving bitcoins between users or buying bitcoins onan exchange, and give ownership of the balance to the user. Because it requiresa login, it’s also a secure place to store your bitcoin and monitor yourbalances, provided you don’t share the login information with anyone else.

How Do You Open a Bitcoin Checking Account?

Opening abitcoin account is pretty much as easy as finding the type of wallet you wantto use and then selecting either an app, software, hardware, or, third-partyservice to use and following the step-by-step instructions for setting up youraccount. There are two types of bitcoin accounts:

• Private: Givesyou total control of your wallet running on your device. On the other hand, youare responsible for keeping the wallet safe and securing all of the informationassociated with it. If you lose it, you lose your bitcoin. These are typically foundin hardware or software/desktop wallets.
• Hosted:Platforms like Coinbase and Kraken offer bitcoin accounts that don’t requireyou to install any software on your local computer. A hosted bitcoin wallet ismore convenient because you can access it from any location over the internet,and you do not have to worry about losing your bitcoin if you lose the wallet. Thedownside is security and privacy, as you’re trusting an outside party with allof your bitcoin information.

Once you’vecreated a bitcoin account on your computer or mobile phone, it will generateyour first bitcoin address; you can create more whenever you need one. You candisclose your addresses to your friends so that they can pay you or vice versa,similar to how email works, except that Bitcoin addresses should be used onlyonce.

What Are the Different Types of Bitcoin Wallets?

Just asBitcoins are the digital equivalent of cash, a bitcoin wallet or account is theequivalent of a physical wallet or account. The four main types of wallets—listed in order of most to least secure—are hardware, desktop, mobile, and web.

• Hardware walletsare the most secure kind, because they store bitcoins on a physical piece ofequipment or hardware device, generally plugged into a computer via a USB port.This makes them highly immune to virus attacks and hacking. These devices arethe only bitcoin wallets that aren’t free, and they often cost between $100 to$200.
• Desktop walletsuse software installed on a desktop computer (Mac, Windows, Linux) giving youcomplete control over the wallet. Desktop wallets create a bitcoin address forsending and receiving bitcoins and allow the user to store a private key. Sinceyour desktop or laptop connects to the internet, you need to follow the basicsecurity measures such as antivirus and anti-malware software, and a strongfirewall.
• Mobile walletsare wallets in the form of paid apps on your mobile phone or tablet. It isessential that you research whether the app will work on your operating system(iOS or Android) and that the app is from a legitimate, reputable company asthere is a potential for malware software to pose as a bitcoin wallet.
• Web wallets allowyou to use bitcoins anywhere, on any browser, from your desktop or mobiledevice. Use ultimate discretion when choosing a web wallet as these are hostedaccounts from third-party platforms. Because they store your private keysonline you want to make sure they employ strict security measures.

Bitcoin Account Terms You Need to Know

• Public Keys –A public address that denotes your wallet’s address, used to receive funds toyour wallet. Think of it like a bank account number.
• Private Keys –A digital signature that proves you own the coins. It must be kept private atall times. Like a PIN number for your bank account.
• Keystore File– an encrypted version of your private keys. Encryption is the process ofconverting information or data into a code, especially to prevent unauthorizedaccess.

Protecting Your Bitcoin Checking Account

Bitcoinwallets can be high-value targets for hackers. You can apply safeguards such asencrypting the wallet with a strong password, and choosing cold storage option,(i.e., storing it offline). It’s a good idea to frequently back up your desktopand mobile wallets, as problems with the wallet software on your computer ormobile device could erase your holdings. To make the most of your bitcoinchecking account, keep the following tips in mind:

• Security.Don’t share the wallet login credentials with anyone who should not have accessto your bitcoin. Use the same precautions you would use with traditional bankaccount information.
• Backups. Asnoted above, if you lose your wallet or forget the credentials required to openit, you lose your bitcoin. This makes wallet backups crucial, especially if youinstall the wallet on a personal computer.

The Bottom Line

Given the lack of regulatory frameworks on exchanges and cryptocurrencies, the best way to keep your bitcoins safe is to have total control of your private keys. If you choose an app or hosted bitcoin account, consider things such as security, how you will use your bitcoin wallet, and what platform you prefer. Due diligence is key, so no matter what type of bitcoin checking account you choose, do your research.