Bitcoin wallets are necessary in order to use the cryptocurrency. Without them, any user will not be able to own the digital currency nor begin a Bitcoin transaction. This is how important these wallets are, which only emphasizes the need for all cryptocurrency users to have a full understanding of the Bitcoin wallet and the different types available today.
A bitcoiner can use any kind of wallet, so long as it serves the purpose most suitable to his needs. But like any other product on the market, these types of Bitcoin wallets have advantages and disadvantages, both of which are detrimental to user experience and security.
It is common nowadays to come across cold and hot wallets, but do take note that these are not related to temperature per se. They are merely an indication whether or not the wallet type is connected and therefore accessible online.
Hot wallets are typically used in the Bitcoin markets for convenience since they are best used on the internet while cold wallets function as the main storage and are disconnected from any network.
Here is a roundup of the different Bitcoin wallets, from software and web wallets to paper and hardware wallets:
Often called desktop wallets, software wallets are installed on a computer. Think of it as the sole Bitcoin wallet dedicated to that computer, whether a desktop or a laptop. A software wallet offers more security than a web wallet. Despite this, it is vulnerable to malware threats that are spread online. When the computer’s anti-virus program fails to detect such malwares, all the information related to the security and the financial details of the wallet will be acquired, leading to potential loss of bitcoins.
Likewise, using a software wallet like Bitcoin Armory will require gigabytes of space in the computer’s hard drive to accommodate the large file size of the complete blockchain.
Wallets provided by Blockchain.info and Coinbase, for example, are the primary type used by bitcoiners across the world, and this is mostly due to its accessibility. Unlike software wallets, web wallets can be used using any device, regardless if it is a computer, a smartphone, or a tablet.
The primary concern of most users, however, is that the fate of their Bitcoin funds rests on the shoulder of a third party. This setup makes it quite vulnerable to hacks and extortions, thereby putting Bitcoin security at risk. This is the reason web wallets are advised for small, daily transactions only.
Like its name, paper wallets could be a sheet of paper that contains the private and public keys. It is still not considered as the physical form of Bitcoin. Rather it is known as a cold wallet believed to store the funds up to a lifetime since no one else can gain access to the wallet without the details printed or written on the paper.
The complete opposite of software wallets, hardware wallets keep bitcoins offline in its own storage device. USB wallets were the initial forms of a hardware wallet, but technology enables the rise of more devices like Trezor and KeepKey.
Another factor that makes these wallets the better choice for storing larger sums of bitcoins is that the device itself is protected by another layer of security in the form of passwords and other smart protocols.
With more bitcoins and security threats today, prioritizing fund security is essential, and this begins with the Bitcoin wallet used. The great thing about this is that bitcoiners can flexibly choose which wallet works best for them. They may use a web wallet when purchasing items online and leave their entire fund in a hardware wallet—whatever works for them.