The Bitcoin (BTC) market is booming, and cryptocurrency has transitioned from a niche interest for tech enthusiasts to a legitimate alternative to fiat currency and traditional asset classes. One of the first steps in buying, trading and using Bitcoin is choosing a Bitcoin wallet, and there are many different types of wallets out there. Here’s an overview of the options:
What Is a Bitcoin Wallet?
Bitcoin wallets are software applications or hardware devices used to store Bitcoin. Instead of storing hard currency, Bitcoin wallets store the private keys needed to send or receive cryptocurrency. Bitcoin wallets can be hardware devices similar to USB sticks, or they can be digital apps accessed on a smartphone or other device.
Importance of Bitcoin Wallets
Because there is no physical Bitcoin, digital access to the cryptocurrency must be stored in some form of wallet. Anyone with access to a wallet’s private keys – a long series of alphanumeric characters – has access to all the cryptocurrency stored using the wallet. While the Bitcoin blockchain is extremely secure, a crypto owner’s stake is only as secure as the private key and the wallet in which it’s stored.
Crypto wallets help Bitcoin users interact with the blockchain network, and there are several different types of wallets. Bitcoin wallets are broken into two main categories: hot wallets and cold wallets. Hot wallets, or Bitcoin wallets connected to the internet, typically make it faster and easier for users to trade and spend their Bitcoin. Cold wallets, or wallets not connected to the internet, are more secure compared to hot wallets, but they typically make it more difficult for users to use their Bitcoin.
Hardware Wallet
Hardware wallets are physical, cold storage devices that keep a Bitcoin user’s private keys safe and offline. Hardware wallets are generally extremely secure compared to hot wallets because hackers and cybercriminals do not have access to cold wallets. However, hardware wallets can be lost or stolen in the physical world, just like a traditional wallet.
Desktop Wallet
A desktop wallet allows Bitcoin users to store and manage private keys securely on a personal computer hard drive. A user simply downloads desktop wallet software and installs it on their PC just like you would install any other application. Desktop wallets are typically hot wallets and can be ideal for Bitcoin users who often make crypto transactions on a PC. However, they are less secure than hardware wallets.
Web Wallet
Web wallets are hot wallets that store a user’s private keys on a server, and users can access them as long as they have access to the internet. Web wallets are controlled by a cryptocurrency exchange or other third-party entity, and users access them by signing in using an ID and password or other means of identification. Web wallets can be extremely convenient, but they are only as secure as the third party managing them.
Mobile Wallet
A mobile Bitcoin wallet is an app that stores private keys on a smartphone, allowing users to easily use or trade crypto on the go. Mobile wallets are hot wallets, and they come with all the risks associated with malware or other cyberattacks. However, mobile wallets can be extremely convenient for using crypto as a payment method, including via QR code scans.
Paper Wallet
Paper wallets are cold storage wallets that are created using a key generator program that prints public and private key pairs used to make crypto transactions. Once these keys are printed, the paper wallet is essentially akin to paper fiat currency. If your paper wallet is lost or stolen, the funds in it are gone just like a stolen $20 bill. Paper wallets were once the preferred method of cold storage in the crypto community, but they have now largely been replaced by hardware wallets.
There are many different brands of Bitcoin wallets, and each has its unique pros and cons based on the type of wallet it is, the features it offers and its price.
Hardware Wallet: Trezor
Trezor wallets are known for their advanced security features, such as Shamir Backup for lost, broken or stolen devices. Trezor wallets are also very affordable, starting at only $69 for the Trezor Model One. In addition to Bitcoin, Trezor wallets support roughly 1,000 other popular cryptos as well, including Ethereum, Cardano and Solana.
Desktop Wallet: Exodus Wallet
Exodus Wallet is a user-friendly hot storage wallet that is known for its functionality. In addition to its desktop wallet, Exodus users can access their wallets via mobile devices and web extensions. Exodus is also free to use, but critics have pointed out it doesn’t have as many security features as other leading wallets.
Web Wallet: Coinbase Wallet
Coinbase Global Inc. (ticker: COIN) operates one of the largest and most popular cryptocurrency exchanges in the world, and its Coinbase Wallet web wallet is one of three crypto wallets it offers to its users. Coinbase Wallet does not offer a desktop application, but its simple, highly functional mobile app and web browser extension support thousands of digital assets, including non-fungible tokens. In addition, Coinbase Wallet allows staking directly from the wallet, and its compatibility with Ledger – another wallet brand – allows users to easily transition from hot storage to cold storage.
Mobile Wallet: Trust Wallet
Trust Wallet is a popular mobile Bitcoin wallet that has millions of users, supports more than 4.5 million tokens and can interact with 65 different blockchain networks. Trust Wallet is also the official digital wallet of Binance, one of the world’s largest crypto exchanges. Trust Wallet has an intuitive interface and built-in staking capabilities, but it does not have a cold storage feature.
Paper Wallet: BitAddress
BitAddress is a popular crypto platform that generates paper wallets for Bitcoin. BitAddress users can quickly and easily print out paper wallets with private and public keys that can used to securely store their Bitcoin offline. BitAddress paper wallets are convenient for new crypto users or users who do not trust digital storage, but they can be easily lost or stolen and are generally considered inferior to other modern cold storage methods.
The decentralized nature of blockchain networks promises users an unprecedented level of security when it comes to verifying and securing cryptocurrency transactions. However, while the Bitcoin blockchain network itself is extremely secure, a Bitcoin user’s cryptocurrency is only as secure as the wallet in which it is stored. Many cryptocurrency wallets use advanced security features to protect their contents, including multifactor authentication, multi-signature and seed phrase security.
Improving Your Wallet’s Security
There’s no way to make a Bitcoin wallet 100% safe and secure, but there are plenty of steps to improve security and minimize risk. Cold storage eliminates the possibility of hacking or online access to your wallet. In addition, Bitcoin users should always use only reputable wallet providers that prioritize security features, and they should regularly change their wallet passwords.
Contingency Plans for Wallet Security
No matter how many security features your wallet has, loss, theft or even personal incapacitation can have severe consequences when it comes to accessing your Bitcoin holdings. Well before you forget or lose access to a crypto wallet, you should clearly document how to access private keys or backups and record the specifics of the recovery process along with instructions on how to use any recovery tools. If you become unable to manage your wallet or forget what to do when you lose access, a contingency plan can help you or a close, trusted friend or family member recover your crypto assets.
Much like cryptocurrencies themselves, identifying the best cryptocurrency wallets largely involves weighing a trade-off between security and convenience. Individual investors will have different levels of risk aversion and different goals in mind for their Bitcoin that will influence their wallet priorities. In addition, users should consider the features different wallets offer, the usability of the wallets based on their level of experience and the costs or fees involved.
Takeaway
There’s no such thing as a “best” Bitcoin wallet for the masses, but there’s likely a best wallet for you, your level of activity and your risk tolerance. Plus, there are a handful of rules of thumb any Bitcoin investor should keep in mind when choosing a Bitcoin wallet. Consider which devices you plan on using to access your Bitcoin, as well as what types of transactions you will be making and how often you will be making them. Finally, read online reviews from experts and other users to ensure your wallet of choice is reputable and reliable.
