What is a Bitcoin Wallet?
The development of best crypto wallets marked the advent of blockchain and Bitcoin.
With the growth of cryptocurrency market users started to search for ways to securely store cryptocurrency. Crypto wallets allowed just that. They are used to keep crypto assets secure and provide access to them 24-7.
To better understand the importance of a virtual wallet, we first need to understand what Bitcoin wallet is.
BTC wallet is a program designed to store Bitcoins. If you look at the technical specifications of a blockchain wallet, you will see that cryptocurrency is not stored anywhere. A coin wallet stores only the necessary data needed to access a Bitcoin account. Best crypto wallet also helps to send and receive cryptocurrency.
Bitcoin wallet is a must-have thing for people who trade cryptocurrency. Cryptocurrency is often referred to as digital money. Similarly, we can compare a cryptocurrency wallet with a regular wallet where we store cash.
Before jumping to the discussion of the types of Bitcoin wallet storage, let’s take a closer look at the main types of coin wallets in regards to the security level and intended purpose. This information will help you get a better grip on the theme of wallets.
Types of Wallets and Their Use
Hot Wallet vs. Cold Wallet
The difference between these two types of crypto wallets is straightforward.
A hot cryptocurrency wallet only works with the connection to the internet, while a cold Bitcoin wallet works offline. However, there is a little more to the difference between the two types of virtual wallets.
As a hot crypto wallet operates within the framework of the internet, such Bitcoin wallet is vulnerable to different types of attacks. When you work with a hot BTC wallet, there is always a risk of your data being stolen. At the same time, such wallets are the primary choice among users. Exodus, Trustee and Electrum are such wallets.
A cold Bitcoin wallet is used for “cold” storage of cryptocurrency and therefore have a higher level of protection.
The type of virtual wallet you choose entirely depends on your needs. If you need to make a lot of small transactions, a hot wallet is a better choice for you. On the contrary, if you need to store vast amounts of a cryptocurrency over a long period, it makes sense to choose a cold wallet with a higher level of security protocols.
Private Key
A private key is used to get access to your Bitcoin account and to have the ability to send and receive bitcoins. This key protect cryptocurrency and if you lose it or it gets in the hands of a third-party, you will lose the cryptocurrency stored on your Bitcoin account.
Cryptocurrency holders should store private keys at a safe place where only they can get access to them. Some wallets that store private keys offline, while others store them online. It is up to you to decide how you want to store your private key and what virtual wallet you need for that.
Multisignature Wallet
This type of virtual wallet is quite unique in its nature. Such wallets work with an address and a few pairs of ECDSA keys connected to it. To make a transaction, all parties that hold the keys have to sign it. This type of crypto walletis suitable for business and family use when a few parties agree to control the expenses.
Multi-Currency Wallet
When it comes to the ability to store cryptocurrency, virtual wallets are subdivided into two groups. Some cryptocurrency wallets allow for the storage of only one type of crypto, while with others you can store different types of cryptocurrencies.
Exodus is considered to be one of the best Bitcoin wallets which supports the storage of Bitcoin, Ether, EOS, Dash, etc.
What is more, some crypto wallets allow to convert one cryptocurrency into another. Such a Bitcoin wallet is a great solution for those who want to get Bitcoin and then to convert them into Ethereum.
KeepKey, Ledger Nano, and Trustee are the best Bitcoin wallets of this type. The first BTC wallets are Bitcoin hardware wallets.
Custodial vs. Non-Custodial Wallets
Blockchain wallets are also subdivided into custodial and non-custodial. And the difference between the two is tremendous.
A custodial wallet is a Blockchain wallet that does not give users access to the private key. Instead, the private key is stored on its servers. The main benefit of such crypto wallets is the ability to easily restore access to a Bitcoin account in case the password to it was stolen. The main drawback of custodial wallets is its vulnerability to hacker attacks, which happen quite often lately. You do not have full access to your funds, and they can even be frozen when the protection system spots any suspicious actions.
As opposed to custodial wallets, non-custodial ones give you full access over your funds as they do not rely on servers. The main weakness of such wallets is the inability to restore access to your account in cases when you no longer have access to your private key. For example, if your computer has broken or you have lost your smartphone, you would be able to access your account only with a seed phrase which is given to users during the set-up process – considering the seed phrase was not stored on the same device. Jaxx, Trustee, and Copay are the best Bitcoin wallets which belong to non-custodial blockchain wallets.
Wallets’ Storage Types
What Types of BTC Wallets are Available to Users?
BTC wallets are numerous and are not limited to a few variants. There are a few types of them.
Up to date, there are five types of wallets – a web (or online) wallet, mobile wallet (installed onto a phone), desktop wallet (installed onto a computer or laptop), paper wallet and hardware wallet. We will tell you about each of them so that you would better understand what they are designed for and what you want to use them. For example, if you want to store huge amounts of cryptocurrency, it is better to choose a hardware wallet or if you need to make transactions, the best Bitcoin wallets for such purposes would be Trustee or Blockchain.info.
- Hardware wallet
Such hardware wallets as Trezor, Keepkey, and Ledger Nano S are considered to be among the best crypto wallets. They offer user-friendly access to Bitcoin and a high level of security as private key are stored only inside the wallets’ memory. Even though such coin wallets may cost you 60 or even 100 dollars, they are considered to be the best bitcoin wallets. Transactions are resistant to any hacker attacks. Such a Bitcoin wallet is designed to receive and store coins. As soon as you get a transaction, you can transfer them to any other virtual wallet with easy access, while the main assets will remain in a highly-secure hardware wallet.
- Desktop wallets
A light bitcoin wallet is a wallet that does not require you to download and store the whole blockchain locally. All the data is accessed on the server and is easily managed from a laptop or even a table. They are characterized by high performance and ease-of-use. However, there is only one single drawback. Every check is performed by a third party which undermines the overall security.
A heavy virtual wallet requires the download of the whole blockchain and its local storage. Such coin wallet is called Bitcoin Core. By its nature, a heavy wallet is the full node of a blockchain which not only allows you to control your access but also to allocate computing power to support the work of blockchain.
Desktop virtual wallets are lightweight and can be installed in mere minutes. This is client software that does not require the whole blockchain to be stored locally. Such a cryptocurrency wallet will allow you to create Bitcoin addresses and make transactions. Such wallets interact with the Bitcoin blockchain not directly, like heavy wallets, but through a program on developers’ servers. Therefore, such a crypto wallet is considered to be less secure but much easier to use. The list of such lightweight desktop wallets includes many names and the best Bitcoin wallets of this type are Electrum, Exodus, and Jaxx.
- Online wallets
A browser Bitcoin wallet has a number of advantages. As you do not have to download the whole blockchain, it eats up less time for the initial setup and during the following launches of the local wallet. You can have access to and control the account from any device regardless of your location. Users only need to have free access to the internet.
Such services usually offer users additional benefits. You can send assets to someone via email or phone number, and enjoy the benefits of sending notifications and having access to your contact list. At the same time, users should remember that when they use any online wallet, they entrust their coins into the hands of a third-party. As not only you control assets in your possession hacker attacks and breaches may result in all the assets being stolen.
The examples of such online wallets are numerous with Matbea, Coinbase, Blockchain.Info., Cryptopay, Xapo, and Bitpay leading the game and considered to be the best Bitcoin wallets of this type.
- Mobile wallets for smartphones
Up to this point, we have distinguished what hardware and online wallets are. Let’s now take a closer look at another type of wallets – mobile crypto wallet.
Such wallets are installed on smartphones operating on iOS or Android. They allow making mutual cryptocurrency transfers using QR codes or NFC technology, no matter where you are.
Best cryptocurrency wallets for smartphones are Trustee (wallet which allows for users to transfer money to Ukrainian bank cards), Bitcoin Wallet, Mycelium, Airbitz, and others.
- Paper wallets
Yes, you have read it right – paper wallets. However strange it might seem; this is another method for Bitcoin storage. This type of crypto wallet is the best choice if you do not need to make transactions and plan on holding cryptocurrency over a long period of time.
In simple words, a paper wallet is a piece of paper with printed private and public keys, which is represented in the form of a QR code. Paper wallets are considered to be the most secure in the market, and there are a few undeniable advantages of their use:
- Paper wallets are easy to use, as they do not require technical knowledge and huge processing powers. When compared to paper wallets, hardware wallets are far trickier in use.
- Paper wallets are autonomous. No one can get access to them, neither hackers nor fraudsters. You can store such a wallet anywhere or even carry it around. They are like an expensive cash cheque that you can use or transfer assets.
- Paper wallets are easier to maintain. They are the simplest form of cryptocurrency storage, and they are not vulnerable to fails and attacks.
- You can easily transfer access to such a Bitcoin wallet to your friends or family. When using hardware wallets, transfers are complicated to perform.
How to Secure Bitcoin Storage
As an owner of cryptocurrency or a person interested in crypto wallets, you are probably wondering how a cryptocurrency wallet is made secure. Even though the creators of such solutions have made everything in their power to provide secure wallets, there are a few things you can take care of yourself.
- Encryption – almost any Bitcoin client has this feature, and it is not difficult to do it yourself. TrueCrypto and Bitcoin Core provide it as a part of basic functionality. Encryption will help protect your digital currency, but it does not offer full security and protection against attacks.
- Backups – aside from two-factor authentication and complex passwords, this is considered to be the best option for securing crypto assets. Try and regularly make backups of your wallet and store them on different devices (flash drives, hard drives).
- Two-factor authentication and complex passwords – it is recommended to come up with complex passwords of at least 8-10 characters with numbers. Two-factor authentication for transactions will guarantee that no one will steal your crypto.
- Cold storage – it provides an additional level of protection. You can make your Bitcoin wallet offline and prevent anyone from accessing it. Such virtual wallets store private keys offline so that they will not be stolen by someone on the internet.
Final Thoughts
Bitcoin wallet is a must-have among cryptocurrency holders. There is a wide variety of crypto wallets available so that you can choose the right one for you based on your personal needs and cryptocurrency you are going to store there. To make the right choice, remember the following:
- Hot, non-custodial, and mobile wallets are the best Bitcoin wallets for everyday transactions
- Cold wallets are the best suited for long-term storage of huge amounts of crypto.
If you are making the first steps in the world of cryptocurrency, check out this article. It will provide you with insight into crypto signals and providers.