As a user of Bitcoin – or indeed, of any cryptocurrency – it’s imperative to have what is known as a wallet. When you possess physical money, you need to have a wallet or a purse to keep it in, right? Well, a Bitcoin wallet works in exactly the same way. It’s a place for you to store your cryptocurrency. As the popularity of Bitcoin has grown, so too have the number of wallets that are available for you to utilize in order to store these virtual coins. If you’re a newcomer to the world of Bitcoin, then the sheer volume of possibilities in this area may be a little overwhelming. That’s why it’s quite important to do some research on what is available and how it will benefit you before buying. So, here is somewhat of a guide on different Bitcoin wallets and how they are used.
What Exactly Is a Bitcoin Wallet?
To define a Bitcoin wallet in its simplest form, it’s basically a piece of software that stores your virtual Bitcoin. Although if you want something that’s more technically accurate, Bitcoin itself isn’t actually stored anywhere. A private key exists for every Bitcoin address that is saved within the Bitcoin wallet of the holder. Therefore, a Bitcoin wallet basically provides the ability for people to send and receive the cryptocurrency, while simultaneously giving ownership of the overall Bitcoin balance to its user.
Bitcoin wallets are available in multiple different forms, including a desktop wallet, mobile wallet, web wallet, and a hardware wallet. These are the four main types that can generally be found, although other alternatives also exist.
The wallet itself is not something physical. It’s a digital wallet, and it’s one of the key items that you need to obtain the cryptocurrency. It’s very similar to owning money in real life. When you are given money or withdraw it from a cash machine, for example, it goes straight into a wallet in most cases. That’s where you store it until you’re ready to spend it. A Bitcoin wallet works in the exact same way.
Of course, because Bitcoin isn’t physical money, what is actually stored within a Bitcoin wallet is a vast amount of information. All of this information relates to the ability for you to access Bitcoin addresses, carry out transactions, and details surrounding your secure private key.
1. Desktop Bitcoin Wallets
You’ll probably already know that the desktop of a computer is what you see when you load it up and log in. It’s where all of your applications and other pieces of software can easily be accessed from. Should you decide to create a desktop Bitcoin wallet, this is where the wallet itself will be accessible from – your desktop. By creating and using one of these, you, the user, are in complete control over it.
These desktop wallets enable you to create a Bitcoin address for both the sending and receiving of Bitcoin. Furthermore, they allow you to be able to store a private key. Naturally, the desktop wallet is basically downloaded to your computer’s desktop and remains there. While this is a convenient option in many ways, it also has its drawbacks. If you’re using this computer to also browse the internet and do other online activities, then there’s a chance that it will always be open to external threats.
This is why some Bitcoin users opt to store their desktop wallet on a USB stick or external hard drive, for example. In this respect, the external source can be connected to the computer, any necessary Bitcoin transactions can take place, and then the online connection is severed when the external source is disconnected.
2. Mobile Bitcoin Wallets
Mobile Bitcoin wallets work in a similar sort of way to desktop wallets. Their function is the same, except that you can take it with you wherever you go. In contrast, a desktop wallet always has to remain on a computer’s hard drive. With mobile apps that work as Bitcoin wallets, these are accessible for you whenever you have an online connection from your device.
Mobile wallets have the exact same functions as a desktop wallet, providing you with the ability to send and receive Bitcoin from your smartphone or tablet. Additionally, these mobile wallets allow you to make payments in physical stores that accept Bitcoin transactions. The “touch-to-pay” options that some of these companies provide via a QR code or NFC scanning work perfectly with mobile Bitcoin wallets.
Some of the most popular mobile wallets include Hive Android, Mycelium Bitcoin, and Bitcoin Wallet. Generally speaking, you won’t find a mobile wallet that caters to both Android and iOS handsets. Therefore, you’ll need to find one that is suitable solely for your device. As with the desktop wallet, the app itself is stored on your mobile device.
3. Web Bitcoin Wallets
A web wallet is basically how it sounds. It’s a wallet that exists on the internet. Some people do opt to utilize web wallets from the exchanges that they buy and sell to and from, such as Coinbase or Blockchain. In this respect, Bitcoin will go out of the exchange wallet swiftly and come into it in much the same timeframe.
While this may seem like quite a convincingly easier thing to do, it comes with some great risks. The online world is a vast space that is filled with hacks and bugs, and these can go forth and tackle anything. While exchanges and Bitcoin itself do come with certain security measures, there aren’t any guarantees that these sites and the currency won’t be hacked. If your chosen exchange is hacked and you store your funds in a web wallet, your Bitcoin is in great danger of being wiped out entirely.
This is why web wallets are considered to be the least secure of all possible Bitcoin wallets. You don’t really have any control over the wallet itself, your Bitcoin is left in it, and it’s really down to the security of the website to stop your funds from being stolen. That’s why it’s advisable that these particular types of Bitcoin wallets aren’t used for long periods of time. Instead, it’s probably better to simply use them as a means of transferring funds from one place to the next.
4. Hardware Bitcoin Wallets
When it comes to security, hardware wallets provide the safest possible option. These wallets allow your Bitcoin to be stored on a physical piece of equipment. Usually, these are connected to your computer via a USB port, meaning that you can plug them in and take them out as you wish. They’re just about completely immune to being attacked by viruses, and in addition, very few instances of theft of Bitcoin have been reported.
The only major drawback to hardware wallets is that you have to buy them outright initially. They’re not free. At times, they can cost upwards of $200 to buy. However, once you have made this outright payment, the device itself is yours, and you can use it whenever you wish.
A couple of the most popular hardware Bitcoin wallets come in the form of the Ledger Nano S and the Trezor Wallet. Both of them allow for the storage of not only Bitcoin but multiple other cryptocurrencies as well. Both of these hardware wallets can be taken with you anywhere, as they’re compact, but with the possibility of storing a mass of Bitcoin information.
It’s imperative in all cases that your Bitcoin wallet is kept safe and secure. They are, of course, very high-profile targets for any kind of online hacker to seek out. There are different safeguards that you can put into place, though, at least with the majority of wallets. This includes encrypting it with a strong password, and as mentioned before, storing the wallet away from an online source. If you opt for the mobile or desktop wallets, then it’s important to back this up. This way, if there is a problem with the software itself on your computer or mobile device, your Bitcoin holdings won’t be erased altogether.
What About a Paper Bitcoin Wallet?
When you think of the words “paper wallet,” what is the first thing that comes to mind? For us, we’d say a purse that is made out of paper. What else would you think of? Well, a Bitcoin paper wallet is basically what it sounds like. Something on paper!
Basically, a paper wallet is a public and a private key that are printed together. It works as an offline wallet – usually referred to as a sort of “cold storage” wallet. By this, it refers to an extra-secure method of storing your Bitcoin because it doesn’t make contact with the hackable internet. Alas, there are certain differences that bring different features to the forefront with paper wallets.
Printed on the piece of paper (or rather, the paper wallet) are the private and public keys of the wallet. This is usually displayed in QR form, with the public key serving as the wallet address. The keys on this paper can be copied and pasted into a Word document and then printed out, while you erase the computer copy afterward. Alternatively, you can utilize one of the free web services, which will generate the printable wallet for you. Key generation usually takes place via your browser, so this is never transmitted through the internet.
Bitcoin is then sent to the paper wallet by you using the relative public address that is displayed there. You simply need to store the piece of paper with the wallet details on it in a secure place. You could store your paper wallet within a physical wallet, or perhaps in a safe at home. Whatever you decide, paper wallets are often considered to be even safer than hardware wallets in some circumstances.
Of course, someone could locate your paper wallet, take this printout, and then utilize all of the Bitcoin that is associated with it themselves. Therefore, you need to be quite vigilant with keeping the paper wallet out of the sight of prying eyes in order to keep your Bitcoin as safe as possible.
Which Is the Best Type of Bitcoin Wallet to Use?
While we would never really wholeheartedly endorse the use of a web wallet for long periods of time, the remaining options all have their benefits and downsides. The biggest piece of information that you need to be aware of when creating a Bitcoin wallet is how secure your funds are going to be.
Purchasing Bitcoin from an exchange or even mining it will require a wallet for it to be stored in, so there isn’t any sort of other way to become a part of the Bitcoin phenomenon without one.
At the end of the day, though, you as the Bitcoin holder need to figure out which one will work best for you. Once you’ve decided upon a wallet, you can set about buying, selling, and mining Bitcoin as you wish.