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Bitcoin, along with other forms of cryptocurrency, is an encrypted, decentralized digital currency. Part of the allure of this type of currency is that you don’t need a bank or a bank account or even a bitcoin wallet to hold your currency.
This is because bitcoin only exists on a decentralized network of computers. This begs the question then, how do you hold onto and store your bitcoin after you acquire it?
That is where bitcoin wallets come in. Here we will go through everything beginners need to know about bitcoin wallets. We will go through what bitcoin wallets are, the main types of bitcoin wallets, and the advantages and disadvantages you will find. This is a beginner’s guide to understanding bitcoin wallets.
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What Are Bitcoin Wallets?
A bitcoin (or cryptocurrency) wallet is exactly what it sounds like. It is a digital wallet that holds digital currency just like a real wallet holds physical currency. As Cove Markets notes, crypto wallets are important for making these digital assets accessible. To understand how it works though, you need a little background on how bitcoin is owned and traded or used in transactions.
Bitcoin doesn’t physically exist. It is transferred from owner to owner when another block is added to the chain of the coin’s history. This is referred to as blockchain technology. When a new block is produced, the coin is assigned two unique sets of numbers called a public key and a private key. The public key can be shared like an email address to facilitate trading or transferring the bitcoin. Only the holder of the bitcoin has the private key, though, and this is how you establish ownership. This private key is what users must hold and safeguard with the use of bitcoin wallets.
Different Types of Bitcoin Wallets
Several different types of bitcoin wallets exist, each with its own unique features. The two main categories of bitcoin wallets each contain a few more types of wallets. Software wallets are wallets that exist only on some type of computer or device while physical wallets offer something tangible on which to keep your bitcoin keys. Here is a look at the most popular types of bitcoin wallets.
Software Bitcoin Wallets
This is a bitcoin wallet that users install on the desktop of a computer. It stores private keys and acts as an address where you can send and receive bitcoin. Popular desktop wallets include Electrum, Bitcoin Core, Exodus, and Armory.
A mobile wallet functions in the same way as a desktop wallet with the added features of offering a scannable QR code or working in conjunction with your mobile phone’s touch-to-pay system. Popular mobile wallets include Bitcoin Wallet, Hive Android, Edge, and Mycelium.
This is an online bitcoin wallet that users can access with a browser from any computer in the world, not just your personal computer or mobile phone. Top web wallets include Coinbase, Blockchain, Strongcoin, and Xapo.
Physical Bitcoin Wallets
If you want to store your bitcoin private key in a secure place in the physical world, you can print out a document with each bitcoin’s keys on it. This document usually includes a scannable QR code so you can easily transfer the information back online.
A hardware wallet is a physical piece of equipment designed specifically to securely store bitcoin. Users physically plug a hardware wallet into their computer and store their data on it. Some of the most well-known hardware wallets include Trezor, KeepKey, and Ledger.
Advantages and Disadvantages of Different Bitcoin Wallets
Each of these types of bitcoin wallets has its own advantages and disadvantages. Here is a look at the pros and cons of each style of wallet.
This is the most secure form of software wallet. It is only accessible from one physical computer and that computer generally stays in your home or office. Also, there are all different types of desktop wallets, each offering a different blend of features. You can easily find the one that works for you whether it focuses on security features or privacy features. The downside to any software wallet is that it connects directly to the Internet so there is always a chance that hackers could get in.
A mobile wallet is the next most secure software wallet. It has the same range of diverse brands that can give you the features you need. It also has the added benefit of being mobile so you can use it out in the world to pay for things with cryptocurrency or complete transactions while traveling or on the go. The downside is that not only is a mobile wallet hackable, someone could steal it. Or your might even lose it, and these things can happen much more easily with a mobile wallet than with a desktop computer.
This is the least secure of all the software wallet options for the same reason that makes it the most convenient: it can be accessed from any browser. If you are the person who is accessing it from a browser, that is great and very convenient. If it is someone else, that is bad news for you.
This is inherently more secure from hackers because it Is not online although if your computer has malware on it that allows you to be tracked while you are printing this info it can still be stolen. Once printed, you can keep it somewhere secure like a home safe or a safety deposit box. Just be very careful because, like a mobile wallet, if you lose possession of it or it is destroyed, you could be out of luck.
This is the most secure bitcoin wallet. It takes your private keys and stores them on the device, away from the internet. You don’t even have to put it back on the web during a transaction if it involves moving cryptocurrency from one hardware wallet to another. Many of these hardware wallets even have screens so you have to physically enter and confirm security info as well. The only small downside to these wallets is that they can be expensive. A good hardware bitcoin wallet will usually cost you $100 or more.
These are the basic elements of bitcoin wallets. One can always learn more but knowing what a bitcoin wallet is, what types there are and the advantages and disadvantages of each is a good start. If a bitcoin wallet sounds like something you need, you now have an idea of where to start looking into them further.