A Bitcoin wallet is analogous to your bank account. You use a Bitcoin wallet to store, send and receive Bitcoins. In particular, a Bitcoin wallet stores the private keys and public keys. The public key is used to send/receive money and the private key is what actually gives you access to your account. There are many different types of Bitcoin wallet you can use but all the wallets can be classified into two categories: Hot Wallet and Cold Storage Wallet.
Hot Wallet vs Cold Storage Wallet
A Hot Wallet in Bitcoin refers to any kind of online storage wallet. Hot storage wallets can be accessible from anywhere from a web portal. These kind of wallet are usually not recommended because the wallet is stored online, which makes it susceptible to hacking.
On the other hand, any type of wallet which is stored offline is termed as Cold Storage Wallet. These kind of wallets are more secure, as they are stored physically and hackers do not have any access to them.
Now that you know about Hot Wallets and Cold Storage Wallets, here are the 4 different types of Bitcoin wallets you can use:
1. Software Wallets
Software wallets are Hot Wallets that require the download of software clients to create and use a wallet. Software clients are available for both — desktop platforms and mobile platforms. Desktop software clients like Bitcoin Core usually require downloading the Blockchain, which is more than 100 GB is size. This could be a real deal breaker if you’re on a limited bandwidth or limited storage space. Thankfully, desktop software clients like MultiBit allow you to create and use a wallet without requiring you to download the Blockchain information. Armory is another popular alternative, but it can be little difficult for non-technical users to set-up. All these software wallets are cross-platform and highly secure.
Software clients are a lot more easy to use on mobile devices. You can download a wallet app and start creating and using your new wallet right away. MyCelium offers a robust wallet client for Android and iOS complete with backup features. Copay is another great wallet client, which is not only available for mobile devices but also offers desktop counterpart. You can create as many wallets as you like, using these apps.
But you should keep in mind that they are only as secure, as the computer/mobile they are stored on. It’s tough, but not impossible for any malware to steal your wallet information. Also, people may deter using offline desktop clients, as it requires a certain level of technical know-how.
2. Online Wallets
Online Wallets or Web Wallets are the easiest to use amongst all the different kinds of Hot Wallets. Creating an Online Wallet is as easy as signing up for a new account on BlockChain or any other similar service. Also, you can access your wallet from any device connected to the internet, so making transactions couldn’t get any easier.
But there are certain trade-offs of using an online wallet. Most importantly, your private keys are stored on another server, which could lure prying hackers all-around the globe to steal them. For instance, back in 2014, hackers stole Bitcoins worth $460 million from Mt. Gox, a popular Bitcoin exchange site. Online wallets should be used only for making small everyday transactions. If you hold a large number of Bitcoins, you may want to stay way from online wallets.
3. Paper Wallets
A Paper Wallet is a fancy term for printing out your public and private keys on a piece of paper. Paper Wallets are more secure than using software or online wallets because you physically have your keys printed on a piece of paper. As you might have guessed, it is a Cold Storage method, as it is offline.
Most of the online/software wallet services allow you to print your existing wallet keys. In the rare case it doesn’t, you can go ahead and create a wallet yourself using BitAddress and print them. To use the wallet, you just have to add the public-private key combination into your existing wallet service. If you’re a fan of custom-made paper designs, you may want to check out the BitcoinPaperWallet service.
While more secure than online counterparts, a paper wallet can be torn, water-damaged or destroyed in many ways because you know, it a paper. Therefore, it is important to make multiple physical copies of this paper and make sure you keep it inside a locker or another secure place.
4. Hardware Wallets
Hardware Wallets are stand-alone hardware cold-storage devices that generate keys on the fly while making a transaction. They are USB shaped devices, which have to be plugged into your computer while making a transaction.
Hardware wallets are secured from your regular computer malware because it generates private keys offline, on the device itself. They are extremely convenient to use and do not require the understanding of complex technical details. They also provide sturdy backup options, so you do not lose access to your wallet. They can be also secured with a password to combat theft. Overall, as you carry your private keys along with you all the time and it is prone to computer malware, hardware wallets are the most secure option.
Which Type of Bitcoin Wallet Should You Use?
If you use Bitcoin to make small transactions frequently or you are little off-tangent when it comes to technical skills, Online Wallets are the easiest to use. If possible, you should replace online wallets with the more secure mobile or desktop wallets. If you do not like the idea of trusting third-parties with your private keys, then Paper Wallet is the way to go. Remember, you’ll be in charge of keeping the paper wallet safe all the times. Shelling out some money and investing in a Hardware Wallet is perhaps the most secure option available right now.
So there you have it, these are the 4 different types of Bitcoin wallets you can use for storing your Bitcoins. What kind of wallet do you use for storing your Bitcoins? Let us know in the comments section below.