Unlike most other kinds of currency, Bitcoins need a ‘wallet’ if you’re going to acquire or spend them.
The world of cryptocurrency wallets can be a tricky one to get to grips with though – there are different types, some cost money, some don’t let you see your Bitcoin and some are just downright unsafe to use.
We’ll explain the different types of wallet, how they work and who they’re likely to appeal to…
The different kinds of Bitcoin wallet
If you’ve explored the first few pages of Google looking for wallet recommendations you’ll quickly come to realise that everyone’s got an opinion on what’s good, what’s bad, what’s safe and what’s not. It can be hard to separate fact from opinion.
The truth is, there’s no one perfect product. Instead, you’ll need to think about finding something that’s right for you. Let us explain the 4 major types:
Paper wallets are type of ‘offline’ wallet – essentially, they’re not connected to the internet.
A paper wallet is arguably the most ‘low tech’ way you can store your Bitcoins. As your Bitcoin is made up of a public and private key, both are printed onto paper. The printed ‘wallet’ looks like a Bitcoin voucher of sorts – although it’s likely to be more valuable than any book voucher you got for Christmas when you were young!
In reality, the Bitcoin is never really taken ‘offline’ – it’s just the important information that’s stored on a piece of paper.
Since the wallet is made of paper, it can’t be hacked! So you don’t have to worry about malware, websites being compromised – or any other cyber threats to your money. That said, a piece of paper is subject to things online information isn’t, i.e. washing it in a pair of jeans or losing it…
Is a paper wallet for you?
Paper wallets tend to be used by people who are investing in Bitcoin and sitting on that investment for a prolonged period of time. Spending or exchanging your Bitcoin isn’t as quickly done as logging into a control panel and cashing it in.
If you’ve got somewhere safe (and we’re talking serious safe here) then keeping your Bitcoin in a paper wallet can be a good idea – but think twice if you can’t be certain about safety or might need to access your funds pronto.
As the name suggests – you can only access an online wallet with an active internet connection and they’re primarily used through your browser.
Online wallets are the most common place for people to begin their cryptocurrency or Bitcoin experience, as they’re quickly and easily accessed – usually with little or no cost. Part of the reason online wallets are so popular is because they’re often offered free of charge when you use a particular Bitcoin broker. As such, it’s important you read some user reports of the service you’re planning to use – like this Coinbase exchange review – and gauge whether or not they’re a trustworthy service.
Be aware, if you want the utmost control over your wallet and the currency it contains, you might want to look at a more sophisticated and in-depth solutions – especially as some wallets/brokers don’t let you actually see the public/private keys that make up your Bitcoin.
Is an online wallet for you?
Online wallets are a good place to start and get your head around buying or selling Bitcoins. That said, you might want to use it as a quick springboard into something a little more secure if you plan to scale up your crypto use.
An online wallet is considered ‘hot storage’ – meaning it’s always online (obviously – since that’s how you access it). When something’s always online, it’s always somewhat vulnerable when compared to ‘cold’ or offline storage options.
Hardware wallets are specially designed devices that are made entirely for storing Bitcoin or other cryptocurrencies.
Since the market is comparatively small when compared to other traditional currencies, there’s only a very small number of hardware wallets to choose from – but you can be assured that if they’ve made it through the cutthroat world of cryptocurrency reviews they’re going to be up to the challenge!
Most hardware wallets are small, fitting in the palm of your hand, in your real-life wallet – or keyring shaped. Most have a small screen which means you don’t have to transmit data to less secure devices (such as your laptop or desktop machine) and many require physical button presses to authorise transactions – meaning a hacker would have to take control of your thumb if they wanted to access your funds…
Although the prospect of a lost hardware wallet might strike fear into your heart – they’re actually backed up with a super secure passcode – meaning that even in the event of a loss or theft, you can restore your wallet easily.
Is a hardware wallet right for you?
Generally speaking a hardware wallet isn’t the go-to choice for a beginner. Part of the reason for that is cost – even at the lower end a hardware wallet is likely to cost £30+, with some of the most highly regarded devices reaching nearly £100.
If you’re storing larger amounts of currency, a hardware wallet is almost certainly the way to go though – trumping virtually any other means of storage for the sheet number of security features.
Software wallets are downloaded to your device or installed on your desktop or laptop computer – and were one of the first ways that people held their cryptocurrency.
Security versus an ‘always online’ type of wallet is slightly increased – but it’s of the utmost importance that if you’re handling currency on your own machine that your anti-virus and malware protection is of the highest possible order.
Is a software wallet right for you?
Software wallets offer a greater degree of control when compared to online wallets – but as such, take a little more learning and understanding to administer yourself. It’s worth noting that you can only access your software wallet via the device that it’s installed on – so once again, making sure you’re backed up is vital.
If you know your way around software and are happy with the level of security associated with your devices and internet connection, then a software wallet might work for you.