A lot of people are concerned about one very important question: What’s the best BitCoin wallet. Well, before finding out the best and the most secure bitcoin wallet, we need to first understand what are the different types of wallets available and how one is better than other.
What is a BitCoin Wallet
A BitCoin wallet (or any cryptocurrency wallet) is just like your bank account or a place where you store your money.
What are public and private keys?
A public key is used to send or receive cryptocurrency to your wallet. Private key is the one which gives you actual access to your cryptocurrency account.
Two main categories of BitCoin wallets
We can classify all bitcoin wallets into two main categories:
- Hot wallet (online wallets)
- Cold storate wallet (offline wallets)
Ok so now lets see four types of cryptocurrency wallets
1. Online Wallets
Online wallets are also called web wallets. They come under the category of hot wallets. They’re easies to use as they can be accessed from any device that’s connected to the internet. However this type of wallet have their own problems, being least secure is one of them.
Pros of Online Wallets
- Ease of use
- Accessible from any devide with internet connection
- Easy to setup
- Online wallets are usually linked with cryptocurrency exchanges or bitcoin exchanges online
Cons of Online Wallets
- Private keys are saved on someone elses server
- More prone to hackers
- Prone to technical glitches
- Website management can limit or suspend your account anytime for any reason
- Website has the control over your cryptocurrency
2. Software Wallets
Software wallets are also hot wallets. They require the user to download a software on their laptop mobile or any other device. Usually software clients are available for multiple devices, especially for both mobile and desktop versions.
Desktop wallets like Bitcoin Core requires the users to download the complete blockchain, which is almost 100GB in size. However not all wallets require the blockchain to be downloaded. They are relatively easy to use too and safer than online wallets.
Mobile apps based software wallets are quite easy to use too.
However they have their own down sides. Such as they can be hacked if someone gains access to the computer or mobile device they’re stored in. Also, if the data or device itself is lost, the wallet and thus all cryptocurrency you have is gone too. Some wallets provide an option for backup too to fix the issue of data loss or device loss.
Pros of Software Wallets
- More secure than online wallets
- Data is available at the users own computer or mobile device
- Easier to backup yourself
- You have control over your cryptocurrency
Cons of Software Wallets
- Wallet is lost if device is lost
- Hackers can hack the computer or mobile and gain access to wallet via malware
- Requires some technical know how
3. Paper Wallets
Yes you heard it right. It’s possible to print out your public and private keys and storing them on a paper. Paper wallets are a type of Cold Storage method, as it’s an offline method of storing your cryptocurrency.
As it’s obvious, paper wallets are more secure than online or software wallets, as you have the the private and public keys printed with you physically on a piece of paper.
How to generate paper wallet?
Most of the online or software wallets available allow the users to print their existing keys for their wallet. However if they don’t, they can still be generated using various services like BitAddress or BitCoinPaperWallet.
Once you have the paper wallet printed keys, you can simply use them wherever you want just by adding public-private key combination into your existing wallet service.
Apparently, paperwallet is more secure than the online and software wallets. However they’re harder to keep damageproof. One way is to generate multiple physical copies of your paper wallet and then place them in a secure place, to avoid getting hacked or robbed!
Pros of Paper wallet
- More control on your wallet
- More secure than online and software wallets
- Can be stored and taken care of without internet connection or holding on to a computer or mobile device
Cons of Paper wallet
- Can get damaged with time
- Get get stolen physically
- Multiple copies to prevent damage make it more prone to being stolen
- Need more technical knowledge to generate and then use the paper wallet
4. Hardware Wallets
Hardware wallets are a type of cold storage. These are the devices which are usb shaped devices. They need to be plugged into the computer while making a transaction and can be pulled out and stored safely when done.
These devices generate the keys for your bitcoin wallet on the fly while you’re making the transaction.
Hardware wallets are relatively safe from computer virusus, malware and hackers as they generate they private keys on the device iteself. So as the private keys are generated offline, they’re harder to be hacked.
They are also easy to use and provide backup options too. The hardware wallets come with builtin security features like password protection too to avoid theft.
Hardware wallets are a very good option if you have plenty of bitcoins and regular deal with them and carry them with you from place to place.
Pros of Hardware wallets
- Most Secure
- Backups possible
- Password protected
- Minimum risk of malware based hack attempts
Cons of Hardware Wallets
- They’re not free
- Have to take care of them physically
- Can be lost due to small size, if not cared for properly
Which type of BitCoin wallet is best and should be used?
Now, as we understand different types of wallets and their pros and cons. We can now discuss and see which wallet suits whom and in which conditions.
- Small and frequent transactions: Online wallets or Software wallets
- Cryptocurrency exchange: Online wallet (but only the amount that you play with)
- Occassional big transactions: Hardware wallet
- Storage only: Hardware wallet or paper wallet
Actually we shouldn’t keep all our bitcoins in only one wallet. Divide it into more than one and be safe.
Also, keep your money in online or software based wallets only when you need to frequently send or receive it. Keep only the amount that you usually need and keep the rest of the amount in a better wallet like hardware wallet.
Which wallet do you use? What are the pros and cons of it?