Introduction to Bitcoin Wallets
Every individual that just heard about Bitcoin would like to know how to store them. They do not exist in the real world, so how can an investor hold Bitcoin? The answer is simple: Bitcoin wallets. Bitcoin wallets allow any person to store this virtual currency, use it or just wait until the price skyrockets. The basic functions of a bitcoin wallet are to send or receive Bitcoin. Essentially everyone that owns a wallet is his or her own bank.
It is easy. And which is the best Bitcoin wallet in the market? Well, this is a good question, and the answer will surprise you. There is no best Bitcoin wallet out there. Why is it in this way? Because each kind of Bitcoin wallet provides different functionalities.
To understand the differences between the different wallets, you need to understand the cryptographic principle of public and private key pairs. In a banking analogy, a public key is the account number. The private key is the password.
Types of Bitcoin Wallets
In the market, there are several kinds of Bitcoin wallets. They offer different services to the user and none of them is ‘better’ than the other in all areas. While some of them may allow you to have more security over your Bitcoins, others would let you send Bitcoins easier. The types of wallets are bound to answering the questions “How was the private key created?” and “Where will the private key be stored”. Let’s take a look at the differences between them and which one suits you best.
- Web wallets are popular among traders and beginners. An online platform offers you a wallet in which users can send or receive Bitcoin. These wallets are less secure, in general, because on some the user does not have the private key or does not how exactly it was created. But the great advantage of web wallets is that the webpage offers you, in general, another service. For example, trading platforms offer you a wallet, and in addition, they let you trade in their exchange platform. Examples of these wallets are Coin Space, BitGo or Coinapult.
- Software wallets are safer than web wallets. If you care more about the safety of your funds, then this could be a good option. These kinds of wallets store the private key in your computer/phone, making it more difficult to be violated. The only problem would be if there is any kind of virus in your device that could put at risk your funds. Good desktop wallets are Exodus and Electrum.
- Hardware wallets are the safest way to store your Bitcoin. The Bitcoin private key is created and stored in the device. They work without being connected to the internet. It is quite difficult that someone could steal the funds that you hold in them. Hardware wallets are the most known cold storage wallets. You can transport your Bitcoins with you, use them in any single computer without the threat of being hacked. The main difference is that, as they are hardware devices, you need to buy them. Prices range between $50 and $200 dollars. There are different models, but all of them offer you the same functionality. The best known hardware wallets are Trezor and Ledger. Find more in our bitcoin hardware wallet guide.
- Paper wallets. As the name suggests, it is a wallet written on paper. You basically randomly self generate the private key. If you ever decide to sign a transaction, you will need to import it to a software wallet or online wallet.
Differences Between Wallets
| Wallets | Security | Ease-to-Use | Price |
|---|---|---|---|
| Paper | Very High | Very complex | Free |
| Hardware | Very High | Moderately Easy | $30+ |
| Online | Low | Easy | Free (or small operational fee) |
| Software | High | Middle | Free |