What do we use most often when we go to a shop to buy something? We use cash or currency in some form…
But where do we store that currency/cash? A “wallet”.
Everyone knows what a wallet is, right?
It is an object where we keep currency/cash.
Similarly, in the world of cryptocurrencies, we need wallets to hold our cryptocurrencies.
Bitcoin is one of the most popular and widely used cryptocurrencies, and it too requires a wallet to hold it. Unlike physical wallets, Bitcoin wallets come in many types.
For understanding Bitcoin wallets, let’s take a look at something similar- email accounts.
Understand what are Bitcoin Wallets with an example:
You have your email address based on which service you are using like [email protected]
This is a public address (i.e. everyone can see it, and you can share it with anyone for receiving emails). And you have a software/service like Gmail or Hotmail through which you send and receive your mail.
And you have a password to log in to your email service to send mail on others’ email IDs (others’ public addresses). But your password is confidential and private for your own use and theirs is confidential and for their own use.
And the software/service understands both the public address ([email protected]) and your password (private address) to successfully log you in and send/receive/store emails.
Similarly, for sending/receiving/storing bitcoins, we require a wallet on the Bitcoin network, which is nothing but a place which stores our public address (a place to receive bitcoins) and a private address (to send/spend bitcoins).
So in short, the place where you have both your bitcoin address to receive bitcoins and the private key to send/spend bitcoins is called a Bitcoin wallet. In an even more simplified way, a wallet is a digital file which stores your bitcoins.
- Bitcoin Address + Private Key = Bitcoin Wallet
So what kinds of Bitcoin wallets exist on the market?
Different Types of Bitcoin Wallets:
There are a lot of Bitcoin wallets available out there in the Bitcoin world. To make it easier for you to understand, I have classified them based on certain criteria such as online connectivity, custodianship, and device availability.
Hardware Bitcoin Wallets (aka Cold Storage)
This is the most secure and safest way to store your bitcoins because they are stored in an offline environment.
At the time of this writing, there has been no reported theft or loss of bitcoins from a hardware wallet. The private keys and digital signature needed to spend bitcoins are generated via these wallets.
I will explain about Bitcoin private keys in upcoming articles…
Mobile Bitcoin Wallets
Bitcoin wallet applications which are installable on mobile phones are called mobile wallets. For each mobile operating system, such as iOS, Android, Windows, and Blackberry, compatible wallets are available. India’s Bitcoin space has Zebpay, Unocoin, and Coinsecure as the leading platforms.
Below are the various Bitcoin mobile wallets and each mobile OS compatibilities. The one that I prefer using is MyCelium on Android. They have integrated a lot of security measures & are quite safe. At the same time, there are many more mobile wallets that you can pick based on your smartphone’s OS.
Desktop Bitcoin Wallets
Desktop wallets are Bitcoin wallets which are installable on different desktops, and as per the user’s needs, are compatible with Windows, Mac, and Linux.
Below are various Bitcoin desktop wallets compatible with all operating systems.
Web Bitcoin Wallets (aka Hot/Online/Hosted Wallets)
Wallets which are basically web services and are accessible through web/internet-based browsers such as Google Chrome, Firefox, and IE are called web-based Bitcoin wallets.
The private keys are held online in these kinds of wallets. They are accessible via an internet address such as https://xyz.com.
They are also called “hosted wallets” because you store your bitcoins on the servers of the agency which you have chosen as your online wallet.
Paper Bitcoin Wallets (aka Cold Storage Wallet)
Paper wallets are a piece of paper with a public address and the private address printed on them.
You can use the public address to send any amount of bitcoins. You can then save the piece of paper as it also contains the private key which can be used to transfer/spend bitcoins, or sweep the Bitcoin paper wallet completely to an another wallet.
Since the keys are offline, printed and secured by the owner, there is no threat of any electronic damage to bitcoins unless the printed keys are lost.
In upcoming posts, I will show you how to create a cold storage wallet…
Bitcoin wallets based on connectivity
Hot Bitcoin Wallets (Online)
Wallets in which bitcoins are stored online and which are connected 24/7 to the internet are called hot wallets. Such Bitcoin platforms and services which can receive/withdraw bitcoins for their users are hot wallets. They are very much like the wallet you have in your pocket.
Akin to a cashier in a bank who has not kept the money deposited in the bank vault but left it on his/her desk, your bitcoins are always under threat when placed online and connected 24/7.
Cold Bitcoin Wallets (Offline)
And you must have guessed, those bitcoins stored offline in hard drives or USB drives or paper, away from internet connectivity are called cold wallets.
Bitcoin wallets based on custodianship of keys
Custodial Wallets (3rd Party Services)
When you entrust your bitcoins to be held by some agency/exchange on your behalf, it means you are trusting them and storing your bitcoins with them on their servers, thereby giving them custody of your bitcoins.
When you entrust your bitcoins to nobody and take responsibility for your own funds by saving your Bitcoin private keys yourself, such wallets are called non-custodial wallets.
Which Bitcoin Wallet Should You Use?
It is a tricky question.
The type of wallet you should use really depends on your level of activity and level of security with which you want to handle your bitcoins.
It also depends on how frequently you use your funds and how much you want to store on any particular wallet. Also, are the bitcoins you possess for your savings/investment, or are they for daily transactions?
I personally prefer hardware wallets like Ledger Nano S for storing a significant amount of bitcoins because of the high-security features. And I use desktop wallets to keep bitcoins which I am not using for daily transactions. So that whenever required, I can quickly connect my desktop wallet to the Bitcoin network and transfer bitcoins.
However, for complete safety you should prefer using a paper wallet. In the upcoming tutorial, I would show you how to build paper wallet of your own.
I only use web wallets to keep small amounts of bitcoins, similar to a wallet in my pocket for daily transactions.
Which wallets do you prefer to use? Have you used any on this list? Let us know in the comments below!
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