My main observation is the inadequacy of the Bitcoin allegory, analogy and metaphor currently in use. Below are some suggestions for improvement and/or additions to the current list:
A Bitcoin “Wallet” Is for Everyday Expenses
Right from the start Bitcoin has struggled to explain itself and what it is. It is so new and so different. There is definitely a learning curve one must go through in order to get your head wrapped around it. One of the early tools adopted to help with this education process was the use of allegory, analogy and metaphor.
Among the allegory used there is one relating Bitcoin to precious metals. The term “mining” is commonly understood to be the process used to extract metals from the Earth. The term was adopted to metaphorically describe the process by which Bitcoin are extracted by processing numbers, data and the blockchain and how it comes into being.
The main point of this article, however, is how another metaphor used by the Bitcoin community (namely “wallet”) needs to be expanded into a few more analogies in order to help users understand the steps they need to take to protect their Bitcoin as they grow in value.
The Bitcoin Wallet Defined
First, the Bitcoin “wallet” is the software a user would use to receive, store and spend their Bitcoin. The metaphor is a good one because in “real life” we do all of those same things from typically leather devices men keep in their back pocket and women keep in their purses.
The analogy falls apart, however, and even becomes dangerous when the Bitcoin rise in value. Over the last month the price of Bitcoin has skyrocketed. The wallet analogy needs to be reworked to allow room for ideas to illustrate the need for a more secure storage device other than a leather billfold.
A Proposal, The Bitcoin Wallet Redefined - Smart Phone Only
With Bitcoin becoming more widely accepted by merchants it means we will want to keep the wallet analogy as users will more likely want to have some Bitcoin with them to spend. They will more frequently use their everyday Bitcoin wallet just as you always have used a leather wallet (i.e. to carry just enough to meet your immediate and short term spending desires). But for educational purposes I'm going to redefine wallet and limit its context to when it is used on a Smart phone only.
A Proposal, A Bitcoin Cookie Jar – A Wallet On A Desktop PC
But when talking about larger sums then perhaps a second metaphor of a storage device is in order as the wallet analogy begins to fall apart. No one (no one I know anyway) has a wallet that they carry their life savings with them in and no one has one wallet to leave home with and another wallet they leave at home.
The problem starts with the Bitcoin idea of creating an unlimited number of wallets and/or addresses. Imagine having 20 wallets to choose from before leaving the house for the day? While having so many wallets (because you can or because they are free?) might seem “cool”. In practice one wouldn't use different wallets for different purposes so why not just use a different term for each related to its purpose?
At home we typically have a safe or a secret storage device or place (the proverbial “cookie jar” or “between the mattresses” or “in the Bible”) to store valuables. So I propose this next layer of Bitcoin storage be called "a Bitcoin Cookie Jar". A main characteristic of a cookie jar is that it is not meant to travel outside the home. Another characteristic is that it has a certain amount of stealth covering the fact that it contains anything valuable in case unwanted visitors gain access to the premises.
To accomplish the creation of this digital “cookie jar” Bitcoin storage device I suggest a free, open source software called Bitcoin Armory. The developer himself and the Bitcoin community refer to it as a wallet but, in this case, I believe the term “cookie jar” may be a more fitting depiction since that is how we will use it. Armory uses a lot more resources than you would want to use on a Smartphone and, so, you would more likely be using Armory home on a larger, more powerful desktop computer. That Armory installation will be the “cookie jar” where you keep larger amounts for regular transfer to your daily wallet as needed.
A Proposal, A Bitcoin Money Belt – A Wallet On A Laptop
In addition to installing it on a desktop you can install Armory on a laptop too (which you could take with you) so Armory can still meet the bill as being a wallet but, then again, how much of your wealth do you want to take with you on the road? So I will create yet another analogy of yet another layer of Bitcoin storage for when you might want to take a larger amount of money with you but want a little bit more stealth and security than what a Smartphone offers. An Armory wallet on your laptop could be likened to a money belt. While money belts are not used as much as they used to, what with the wide use of credit cards and all, but since Bitcoin operates much like cash for the Internet we may want to consider bringing back the old idea in the form of a digital “money belt”. A digital money belt enables you to keep a larger volume of wealth with you but has extra stealth and security to help keep it hidden from where most thieves would look.
Paper Wallet? Or Is It A Claim Check?
There are a number of wallets that offer “paper wallet” protection but I again feel the wallet analogy breaks down. I would say a paper wallet is more like a claim check. The paper wallet enables you to gain control and claim Bitcoin and their ownership as recorded in the blockchain. So to delve back in to the world of metaphor, a paper wallet is a claim check that, if entered into a wallet, will let you lay claim and gain ownership of certain Bitcoin contained in the blockchain and allocated to that claim check.
The reason I bring up the idea of a claim check is because one of Armory's greatest features is its ability to make paper wallets. It is not the only one, however, and depending on how much money you carry around with you in your Smart phone you may want to check out another wallet called Electrum because, like Armory, it lets you create paper wallets/backups of your wallet and it has a version for Android phones. This is a great thing to have if your phone ever gets lost or stolen or you drop it.
A Proposal, The Bitcoin Vault
People have perfected security of tangible materials over thousands of years but, even today, not many people have a vault in their home. Strong vaults are a big reason banks came into existence. Using Bitcoin causes many of us to rediscover and have to play “catch-up” with regards to secure storage of digital goods. Paper wallets enable users to keep the paper wallet/claim checks in such secure places as a safety deposit box or a home safe.
Armory lets you have yet another layer of protection through something called an “offline” or cold-storage "wallet" which again, is where the analogy breaks down as it is more like having a digital vault in your home.
An offline Armory wallet on the offline computer cannot be hacked because it is never in contact with the Internet but, at the same time, it can also still receive Bitcoin because when they are sent the transaction is recorded in the blockchain. To conduct a spend from the offline or cold storage wallet requires the proverbial trade off of convenience for security. The only way Bitcoin can be sent from this offline wallet is to start the transaction from a separate Armory installation that is, indeed, online (i.e. the "cookie jar" or the "money belt"). The initiated transaction then needs to be signed by the offline Armory otherwise the transaction can't proceed (think of a Treasurer's signature being required on a check written by a CEO). To complete the transaction requires a simple transfer of a file via a thumb drive to the offline computer. It then signs the transaction which can then be returned to the online computer. Now that the transfer is signed the online computer can now finish sending the Bitcoin.
So to recap the stage or layers I have described and their suggested new names
The wallet term limited to smart phone based wallets which is for day to day spending. It contains a much smaller amount than any other method but is at the most risk of loss.
The proposed Bitcoin Cookie Jar is a Bitcoin storage device most accurately represented by a desktop computer at home or office. It is not intended to ever leave the premises with its Bitcoin and apart from someone hacking into it from the Internet or someone getting physical access to it the Bitcoin are perfectly secure. It won't be left behind at a restaurant or in a taxi.
The Bitcoin Money Belt is Bitcoin storage device most accurately represented by a laptop computer. Laptops can be used similarly to Smart Phones (i.e. mobile) but can have more security than a Smartphone because it can run more secure software such as Armory. A laptop can serve also as an online read-only version of Armory that can start a spend.
The Bitcoin Vault is the most secure and is Armory installed on either a dedicated, offline computer or, as I mentioned, an external USB hard drive which temporarily is plugged into another computer to sign transactions. Since the Armory wallet is never connected to the Internet there is no risk of it being hacked. If it is only used on premise (i.e. is not a laptop) then there is no danger of using it in an off premises location and physically losing it.
If Electrum is used as the everyday wallet then every single layer above has the added protection of paper wallet/claim check backups available. If other wallets are used for day to day transactions then that layer generally won't have that extra layer of protection but all of the other layers do have paper wallet protection, which they should since they generally store larger amounts.