What are the different types of Bitcoin wallets? How to choose a Bitcoin wallet?

Jan 05,2023
What are the different types of Bitcoin wallets? How to choose a Bitcoin wallet?

What are the different types of Bitcoin wallets? How to choose a Bitcoin wallet? Bitcoin wallets have many types and functions: hardware wallets, software wallets, web wallets, brain wallets and paper wallets. When choosing a wallet, it is useful to understand the functions, advantages and trade-offs of each wallet.

Software wallet

These wallets are wallets installed on a separately controlled computer. Only the person who controls the computer can access the private key that stores Bitcoin. Creating a software wallet is as simple as selecting a wallet and downloading it.

The software wallet provides higher security than the online wallet, but is easier to access than the offline wallet. However, software wallets bring greater responsibility; They are only as secure as the computer on which they are stored. As cryptocurrencies become more and more valuable, malware becomes more and more common. If you are attacked or damaged by hackers, or if your computer or hard disk fails, your coins are likely to be lost forever.

Paper wallet

The private key and public key can be printed or even written down to provide the closest thing to physical Bitcoin. It is completely offline, and no one can enter it without access rights. It is easy to create your own paper wallet using online services such as www.bitaddress. Org and print or write down the private key and public key.

With the public key, Bitcoin can be sent to the paper wallet without having to go online again. But to send Bitcoin, you must make the paper wallet online and put the account into the network or software based wallet.

Paper wallets provide real security by transferring keys from digital to physical, and can be considered as the most secure way to store Bitcoin for a long time, because Bitcoin can hardly be consumed before it is back online. However, it is worth noting that your funds are safe only before you use the computer - if the computer used to access your Bitcoin is subsequently stolen, your wallet may also be stolen.

Online wallet

These are the most convenient wallets. Controlled by a third party, using the online wallet means that your Bitcoin is easy to access, buy items or quickly trade. The biggest and important trade-off is that you must trust a third party to ensure your Bitcoin security. Please also note that not all online wallets are created equally and have different functions and capabilities. Some online wallet providers are committed to converting fiat currency into Bitcoin, and vice versa. Some are committed to the convenience of instant transactions, while others are aimed at providing a combination of security and convenience. Web wallets with an additional security layer include multi signature wallets, such as BitGo.

In general, convenience comes at a cost. Although the wallet provider or exchange remains secure, so does your Bitcoin. However, if the exchange is attacked or destroyed by hackers, there is usually little way to retrieve your Bitcoin.

Brain wallet

A wallet in which the seed phrase used to regenerate the private address of Bitcoin is submitted to memory. Random words or phrases are generated by the computer and can be memorized or written down. Just like a paper wallet, anyone who has access to it can access the Bitcoin in the wallet. Obviously, this is a risky proposal. Although memory technology can make mnemonics easy to remember and recall, if the brain wallet is forgotten or people die or permanently lose their ability to act, Bitcoin will be lost forever.

Hardware wallet

These wallets are essentially like a USB stored software wallet or a way to safely store paper wallets. They are not connected to the Internet and can only be accessed through physical contact. Hardware wallets are more secure than paper wallets because they have a security chip, which means you never have to enter a private key on a connected computer. Instead, enter a password on the hardware wallet itself. Of course, the risk is accompanied by the loss of personal passwords, the loss of seed words, or the damage or loss of the hardware itself.

Hot wallet and cold wallet

When it comes to hot wallets and cold wallets, this is just a term, covering any type of wallet connected to the Internet (hot) or not connected to the Internet (cold). Hot wallets are those online storage and connection networks or exchange wallets. Cold wallets can be paper wallets, hardware wallets, or software wallets stored on removable storage devices.

It is easy to regard the wallet as a place to store Bitcoin, but the wallet does not hold physical Bitcoin. On the contrary, Bitcoin is associated with the wallet address, and the blockchain is responsible for tracking the number of coins that can be spent in each wallet.