By Larry Wright
Bitcoin Wallet can be defined as a type of digital wallet that contains cryptographic information. It is used to send transactions and also to access Bitcoin addresses. Some Bitcoin wallets can be used for other digital coins.
If you are new to these terms and want to have a better idea of Bitcoin wallets, you first need to know what Bitcoin is and how it works.
What is Bitcoin?
Bitcoin is simply a decentralized digital currency or a coin that was mainly made to promote peer-to-peer technology. To understand it more appropriately, you can say that Bitcoin came into existence to encourage transactions without the involvement of third-party, i.e., banks.
This incredible invention came into existence in 2009. All credits go to the financial crisis of 2008, which boosted the process for creating this technology.
Its worth is increasing day by day. At the present time, 1 Bitcoin is worth thousands of dollars. No one knew back then that Bitcoin would be getting such fame in the upcoming years.
At this point in time, every individual is interested in investing in Bitcoin. It is because it is believed that Bitcoin will be taking over all the currencies in the upcoming years. Traders are also interested in making money through crypto-assets. Bitcoin is yet their first choice as they know its importance and value.
Understanding Bitcoin Wallet
We have already discussed that Bitcoin Wallet sends and receives Bitcoins. It does not store the coin itself but carries sensitive information such as secret numbers and private keys. The private keys are used to authorize the transfer of digital coins to any other person’s wallet.
The private keys are essential to sign the transactions of Bitcoin also provide adequate control of the specific blockchain’ address of bitcoin to the user.
There are multiple types of Bitcoin wallets. All these types differ from each other in numerous aspects. These aspects can be convenience, security, and accessibility, etc.
This article provides a detailed guide on the types of Bitcoin Wallets. You must consider many crucial factors before finalizing your ultimate Bitcoin wallet.
Desktop Wallets
The Desktop wallets are installed or downloaded on your PCs and Laptops. These wallets are much more protected than online wallets because it does not involve any third party. The private keys of this type of wallet are stored on SSD (Solid-state Drive) or your hard drive. Some well-known Bitcoin wallets are Armory, Bitcoin Core, Electrum, and Hive OS X.
There are multiple types of Desktop wallets. All these kinds cater to the diverse needs of users. Some users prefer security, while other favor convenience. It is up to you what you select.
The Desktop wallets are still considered a bit insecure as they are connected to the internet. You need to have a good internet connection to execute all your Bitcoin-related transactions. Apart from that, you also need hundreds of gigabytes on your computer to carry all this information.
When you use Desktop Wallet and want to speed up your transactions, you can increase the transaction fee. Also, one benefit of using this type of wallet is that your purchases are transmitted straight to the memory pool, and it does go through any third-party node provider. The (CLI) command-line interface, provided by full node wallets, offers a comprehensive collection of commands to the users that are not available in the light wallet apps. On the other hand, the (API) application user interface provides the makers or developers with the capability to combine Bitcoin-related functions in their apps. This can also be utilized to create your own wallet app.
Mobile Wallets
If you are an active user of crypto wallets and are always on the move, then Mobile Wallet is a great option for you. It is run through the app on your mobile phone. In the app, your keys are stored that allows you to trade, pay for things and store crypt assets within your mobile phone.
Mobile wallets take benefit of uncomplicated payment confirmation technology. It is because it only works with small subsets of the blockchain.
When we talk about Mobile Wallets, then these types of wallets have various drawbacks. One of them is that the trusted nodes have some kind of access and control over the transactions and coins.
Mobile wallets are also prone to get hacked. You can lose access to the wallet in your smartphone if the hacker gets a bit of your information. Especially if there is no execution of two-factor authentication, you may lose control of your wallets if someone gains access to your mobile phone.
The two-way authentication requires you to enter your user name and password to log in. Also, this method acquires you to enter a code after which you can log in.
The experts advise you to store only that much bitcoin in your mobile wallet that you need. You can store a larger amount of Bitcoin on other wallets, such as hardware wallets or paper wallets.
You need to be really careful before choosing a mobile wallet, as fraudsters are everywhere. Hackers can easily access your sensitive cryptographic information and private keys without selecting a legitimate app or platform.
Web Wallets
Web Wallets are online wallets that store your information and private keys on a server. The third-party is involved in this type of wallet as it is continuously online. This e-wallet is accessible to the customer by any device that is connected to the internet.
There are multiple web exchanges that offer Web wallets through their platform. By using such wallets, the users do not need to have a second platform for storing cryptographic information. If you are a trader and have chosen a platform offering both wallet and platform to trade, then it is a great opportunity.
One main setback for using such a wallet is that your information and keys are always at stake. It is because you access such wallets through your email address and password. If any hacker gets access to your data, it is possible that you may lose authority over your transactions, information, and coins.
This is a severe security risk for the wallet user. Individuals have to be very careful before selecting web wallets as they are prone to cyber-attacks. You use your emails and passwords on multiple other platforms. There might be a chance of your information getting leaked, which can actually cost you a great loss.
However, platforms or web exchanges offer backup funds on the conditions of your account getting hacked. These exchanges repay the funds to the customer to gain their trust.
Hardware Wallets
A Hardware Wallet is an uncommon type of Bitcoin wallet that allows you to store information on a physical device. It is also considered the most secure way to store a larger amount of Bitcoin information. Hardware w
Hardware wallets are secure and interactive. It is because they are protected, and computer viruses cannot make any impact on them.
In Hardware Wallet, there is no internet involvement. It supports the point that online hackers cannot access the information of hardware Bitcoin wallets. Adding to the security point, most Hardware Wallets have screens. These screens display and verify essential details that are related to your Bitcoin Wallets. It is the most reliable wallet if your device is authentic, where your investments and funds are protected.
Keep in mind that you should never reuse any Hardware Wallet that is available on marketplaces. These wallets are used to steal your information and cryptocurrencies. You should always buy the Hardware Wallets from a reliable source.
Paper Wallets
The Paper Wallets are the documents that have public addresses and a private for receiving the Bitcoin and transferring the Bitcoin, respectively. These wallets are usually printed in the form of QR codes that can be scanned. After scanning these codes, you can get on to the software from where you can make your transaction.
The Paper Wallets are highly secured because of their offline nature. All your private keys are with you on a single piece of paper or a document that has physical existence. However, you need to take care of the thing that no one watches you while you are doing the processes of storing or transacting Bitcoin in your Paper Wallet.
You have to be really careful while carrying this document. You are advised to keep it in a safe plastic bag. Also, you should protect the piece of paper from water damage. You can actually store it in a deposit box.
To be on the safe side, you need to use a clean Operating System. You should make sure that while using this wallet, the devices which are in use for this process are not connected to a network that is the internet.
Cold Storage and Hot Storage
Cold storage is a form of offline digital wallet that is used to store Bitcoin information. These wallets are not connected to the internet. It is the reason that it is not prone to cyber-attacks. It does not accept any unauthorized access and cyber hacks.
In the case of cold storage, data is stored on devices that are physical. These devices include a USB, CD, and Hard drive. The information which is stored in cold storage is not connected to servers that are actually connected to online networks. When any device is accessible online, the hackers take that as an opportunity to steal information. It is the reason that wallet users are highly recommended to use Cold storage for security reasons.
An example of Cold storage is Paper Wallet. Paper Wallet carries information on a piece of paper. The information available on the physical document can be used to transact large amounts of Bitcoin. It is reliable because you do not need to carry the data online. The data of yours is literally in your hand.
Another example of Cold storage is Hardware Wallet. This type of wallet uses physical devices to generate private keys. The private keys created through the offline devices are created offline. The device you choose should carry functions like a USB—chrome-based app and a computer that can store the private keys.
It is yet important to keep the devices such as smartcards and USBs in a safe place. If you lose access to these devices, you may not be able to get access to your bitcoins. Also, you may not be able to make any transactions.
Hot storage is totally opposite to cold storage. Hold storage allows the users to generate private keys and store Bitcoin information in the Bitcoin wallets. Hot storage is different from cold storage as it supports Wallets connected to the internet.
Whenever we talk about online transactions, especially when related to Bitcoin, we must know that such information is susceptible. Thousands of online hackers are always in search of opportunities where they can get access to users’ information. Web Wallet is an example of Hot Wallet because such a wallet is available on online platforms called exchanges. Web wallets tend to get hacked when we compare them with traditional physical or paper wallets.
A Mobile Wallet is also an example of hot storage as this wallet is connected to the internet too. The involvement of the internet means that there is a chance that your data may get in trouble.
Crypto Banks
There are multiple cryptocurrency banks that allow users to protect and store their Bitcoin information. In such banks, suspicious activities can be detected through proper monitoring. The banks also offer to sell the cryptocurrency and to withdraw them to a conventional bank account.
You can make use of banks for the exchange of cryptocurrency, especially if you are not using them on a long-term basis. On the other hand, setbacks are present that your account may get a freeze, and your funds may get seized. You also have to be subjected to the withdrawal limits that the banks set. It is for sure that only a few banks offer cryptocurrency services and are legitimate to be trusted on.
Conclusion
This article is a complete guide to the Bitcoin wallet. At first, we discussed what actually is a Bitcoin wallet. As a reader, you gained knowledge that it is a wallet that does not carry any physical cash but Bitcoin information through which multiple processes can be done. We talked about how the private keys can be generated through multiple Bitcoin Wallets. These private keys carry significance as through them, the user accesses the data or the coins which are stored in a particular wallet. These wallets also aid users in making transactions. These transactions can be person to person.
Secondly, we shortly discussed Bitcoin itself. It is a digital currency that contains great worth. Bitcoin came into existence to support P2P technology. The makers of this currency did not want to involve any third party in the money-related transactions. It is the reason that currency is digital.
Thirdly, we discussed the Desktop wallets. A desktop wallet is a wallet that needs to be downloaded or installed on your PC or Laptop. To get such a wallet on your computer, you need to have a ton of space on your device. Moreover, we examined even they store the data in SSD and hard drive; there is still a chance of your data getting leaked as these wallets, too, are connected with the internet.
After that, we studied Mobile Wallets. The Mobile Wallets are for those users who are constantly on the move. Also, it is only recommended to active users of Bitcoin wallets who are interested in making day-to-day transactions—especially those who trade and buy goods through it. Mobile Wallets apps allow the third party entirely to be involved in the transactions and multiple other processes that are done through it.
We also discussed Web Wallets. These types of wallets are accessible through online exchanges. Individuals do not prefer this type of wallet because every process is online here. The chances of fraud and cyber-attacks are more in this wallet type.
Then we discussed the Hardware Wallets that allows user to store cryptographic information and transaction-related stuff. This type of wallet is protected. You do not have to care about your sensitive information and capital as a user. We also discussed paper wallets that are too highly recommended because they are safe from all the threats and cyber attacks because the real and specific information is available to users on a single piece of paper. You just have to be careful with carrying that paper.
After the types of wallets, we discussed Cold and Hot storage. We discussed that the digital wallets that are not connected to the internet are called Cold storage and have high security. On the other hand, Hot Storage refers to those wallets which are connected to the internet. These wallets are always at risk of cyber attacks as they are online. After that, we discussed banks giving services to the user in the cryptocurrency means.
You can select a wallet based on your requirements and keep in mind the privacy and security issues.