Bitcoin is different than cash or any other form of money, which means you need to take a different approach to store and use the cryptocurrency. A digital wallet is a must if you want to get into the cryptocurrency business as it allows you to securely store and use your e-currency. One needs to be very careful in the beginning as there is no shortage of scam sites that look legitimate, but are actually trying to rip you off. That’s why it’s strongly recommended to move your e-currency from the exchange right after the transaction is completed. We should not trust most exchanges for storing our Bitcoin as they should only be used as an entity that facilitates the buying process.
This post aims to make it easier for users to get started and discusses different types of Bitcoin wallets and some of the most popular and trusted options under each category.
- 1 How a Bitcoin/cryptocurrency Wallet Works?
- 2 Hardware Wallets
- 3 Ledger
- 4 Trezor
- 5 Mobile Wallets
- 6 Coinbase
- 7 Mycelium
- 8 AirBitz
- 9 Bither
- 10 Desktop Wallets
- 11 Electrum
- 12 Exodus
- 13 Bitcoin Core
- 14 Online or Web-based wallets
- 15 BlockChain.info
- 16 GreenAddress
- 17 BitGo
- 18 Paper Wallets
- 19 BitcoinPaperWallet
- 20 Which Bitcoin Wallet is the Best?
- 21 Conclusion
How a Bitcoin/cryptocurrency Wallet Works?
Commonly known as a wallet, cryptocurrency wallets store the access to the Blockchain (the digital ledger that contains information about transactions), which is like a distributed database that everyone shares. The information that the Blockchain holds is continuously reconciled and shared. In other words, it means that the records are fully public and not stored on any central location. That’s also one of the main reasons behind Bitcoin’s popularity as no central bank controls the flow of money and it’s virtually impossible for hackers to corrupt the information.
- The Blockchain contains the information about transactions and who owns what
- Blockchain continuously reconciles the transaction information
- Blockchain is a shared, distributed database
- The records are fully public and not stored in a central location
- No central authority controls the transactions, people are the real owners
- Private keys are digital signatures that prove ownership of Bitcoin (like your ATM pin)
- Public keys are public addresses used to receive funds and denote the wallet address (like your bank account number)
- Keystore files are an encrypted version of the private keys that help prevent unauthorized access
Hardware wallets are used by people who want the tightest possible security for their digital currencies and don’t mind having them “offline” it. not connected to an exchange or online wallet, known as being in “cold storage”. A hardware wallet is a device which stores the private keys to your Bitcoin wallet and does not reveal them, which makes them safe to use even if your computer has been compromised by malware or hackers.
If you store any significant amount of Bitcoin, then these options are the safest.
- Safest Method
- Private keys never exposed
- Can be restored from seed
- Have to move currencies to an exchange to trade or sell them
- Most expensive option
Ledger make 2 different hardware wallets, the new Ledger Blue and the Ledger Nano S which is undoubtedly the most popular wallet available. It costs from 79€ (VAT exc.) including free shipping and allows you to store a wide number of different cryptocurrencies including Bitcoin, Ethereum and a number of other altcoins. It comes in a compact design which resembles a regular USB stick but features an LED display on the side which functions when you plug it into your computer and is for entering your PIN and confirming transactions.
The Trezor is the other popular hardware device on the market and costs €89 (excl. VAT). The Trezor has support for Bitcoin, Ethereum, Dash, ZCash and other altcoins. It functions similarly to the Ledger but comes in a more compact design which connects to your computer with a USB cable and features an LED screen and buttons, also for entering your PIN and confirming transactions.
Mobile wallets can be operated using your mobile devices, provide quicker access and convenience and allow people to use their digital currency at physical stores. Mobile wallets can be classified into two different categories. The app-based wallets store the digital currency locally on your mobile device, while the access-based wallets provide access to your cryptocurrency through online storage servers. This essentially means that the app-based mobile wallets have almost the same pros and cons as desktop wallets, while mobile access-based wallets have the same pros and cons of online wallets.
- Quicker access
- Suitable for transactions at stores
- Convenient for frequent transactions
- Can be accessed from anywhere
- App-based wallets provide more control
- Lack of control in access-based online wallets
- Mobile devices can break/stolen/lost
Coinbase is an exchange which allows you to easily purchase Bitcoin, Ethereum and Litecoin on the go using your credit or debit card or bank transfers. It also functions as a wallet for each currency and they have their own mobile app for android and iOS so you can keep track of your cryptocurrencies on the go and also send / receive transactions and purchase more currency. Take a look at our indepth guide if you wish to learn more.
Available for Android devices, Mycelium might not be the easiest mobile wallet to use, but it offers a lot of advanced security and privacy features. It’s based on an open-source program, which means it’s constantly updated and tested for vulnerabilities by the community. Users can also use Mycelium together with a hardware wallet for maximum security.
The mobile app is available for both Android and iOS and provides users with an easy to use interface. The app offers security and privacy to users as neither the app publisher nor any third-party can access your financial information, which is something the cryptocurrencies are built around. The app features hierarchical deterministic wallets and transactions with changed addresses. Since the app works on decentralized server architecture, the wallets should remain functional even when publisher’s servers aren’t.
Bither works on both Android and iOS devices and features cold and hot modes. The cold wallet works in offline mode on a backup phone and protects the private keys using a digital password. It monitors the network status and keeps a check on the private keys. The hot wallet runs on a daily phone and does not require any registration to use the wallet. The watch-only mode allows users to keep an eye on their savings, while the watch-only address enables users to prepare unsigned transactions.
Some other popular and widely used mobile wallets include Bitcoin Wallet (Android), Breadwallet (Android and iOS), GreenBits (Android), Green Address (Android and iOS), Coinomi (Android and iOS), CoinSpace (Android and iOS), Copay (Android, iOS and Windows 10), Simple Bitcoin (Android) and Electrum (Android).
Desktop wallets allow storing the digital currency locally on your own computer. They provide people with complete control over their cryptocurrency by eliminating dependence on third parties. However, users themselves are fully responsible for the security and would lose everything if their system breaks or gets compromised. Some people opt to store their digital currency on spare computers or systems that don’t have access to the internet. But that also does not guarantee fool-proof security as unused systems can also malfunction or get stolen.
- People get full control
- Multiple backups can be created
- Eliminates dependence on 3rd parties
- Users are themselves fully responsible for the security
- Compromised systems and hackers can steal the information
Although not the prettiest and an easy-to-use software, Electrum is a robust and secure desktop Bitcoin wallet based on an open-source technology. It’s suitable for users who already know how desktop wallets work, but new users have a steep learning curve ahead. Available for Windows, Mac and Linux, the wallet features wallet encryption and signing, message verification, fee adjustments and address tagging. It also allows users to replace the fee they set to a transaction that has already been broadcast, which is something only a few desktop wallets offer these days.
Targeted mainly at beginners and new users, Exodus offers an intuitive and easy to use interface that makes it easier for users to get their head around things. However, it’s not based on an open-source technology so obviously community members cannot check it for malicious code. But users who want to store a small amount of their digital currency find its intuitive interface very easy to use. In addition to Bitcoin, the wallet also allows storing Litecoin, Ethereum, Dash and some other cryptocurrencies.
Primarily targeted at hardcore Bitcoiners, Bitcoin Core is a full-node Bitcoin wallet, which means it also downloads the full blockchain to your computer. But you would need around 130GB of disk space to store the whole blockchain and a fast internet connection to speed up the process. Once you are done with the download, you can verify transactions independently on the network without relying on anyone else. The wallet is available for Windows, Mac and Linux and is usually not something beginners enjoy playing with.
Online or Web-based wallets
Online wallets can be accessed from anywhere, using any device through the internet and can also be linked to mobile/desktop wallets. Their biggest drawback is that the private keys are stored at some place you don’t own, which means they are only suitable if you fully trust the site owner and their security. One should at least make sure that their online wallet website is HTTPS, uses strong logins, and preferably offers 2FA (two-factor authentication). User experience, backup facility and reputation of the provider are some other important aspects to consider before putting your trust in an online wallet provider.
In addition to security which is of paramount importance when storing your digital currency online, you also need to consider if the provider is transparent in how they operate. If you must opt for online storage, it’s highly recommended to choose a wallet based on open-source code, which can be peer-reviewed, kept up to date and most importantly regularly checked for vulnerabilities. Anonymity is another important factor to consider as some wallet providers make you go through lengthy identity verification processes, while others just need your email to offer services.
- Can be accessed from anywhere, using any device
- More convenient
- Can be linked to desktop or mobile wallets
- People have to put their faith in service providers
- Lack of control
- Many online service providers are not transparent about how they operate
Blockchain.info makes it simpler for users to securely store and use their digital currency. The user friendly wallet is perfect for storing small amounts of digital currency and offers 2FA. The blockchain explorer helps users understand the Bitcoin’s current status, including the number transactions/day and the latest transaction updates. If you are looking for an easy to use online wallet for regular payments and small transactions, blockchain.info has a lot to offer, but experienced users probably won’t prefer the wallet because of the potential risks it (and most other hot wallets) poses.
Since web-based wallets are more exposed to hackers and interception than desktop or hardware wallets, companies need to take extra precautions in this regard. GreenAddress is a multi-signature wallet that shares control of the cryptocurrency with the user. It uses 2FA (two-factor authentication) and offers other advanced features such as HD (hierarchically deterministic), support for hardware wallets, transaction replacement and dynamic fees.
BitGo primarily targets businesses and focuses on providing secure solutions. Although it’s hard to find any flaws in the solution, BitGo is not based on an open-source technology. If that doesn’t bother you, the wallet has a lot to offer including multisignature capability. Some important security feature it offers include zero confirm technology and key recovery solutions. BitGo aims to make cryptocurrency usable in regulated economies and allows businesses to work at scale with other currencies.
A paper wallet is a more traditional way of storing your digital currency in which people print the private key and cryptocurrency address on a piece of paper. The printed information can be accessed using a QR code. The main advantage of a paper wallet is that a user has complete control over the information as nothing is connected to the internet. The private keys are also not directly in reach of hackers, making these wallets the cheapest cold-storage option.
The biggest disadvantage of a paper wallet is that if you lose it and don’t have a backup copy, it’s not possible to gain access to your digital money. Paper wallets can also be complicated to setup and are generally considered confusing for beginners. You would also need to use a device when you want to access your cryptocurrency, which means you’ll still be at risk if your system/device is compromised or hacked. This type of wallet is also not suitable for frequent transactions as keeping a printed paper ready for each occasion is more of a hassle.
- Complete control
- The cheapest cold-storage method
- Noting connected to the internet, no risk of hacking
- Can be damaged/lost/stolen
- People still have to use their system/device to use the keys
- Rather complicated and confusing setup process
Which Bitcoin Wallet is the Best?
That depends on for how long you want to store your digital currency, the amount of money you are dealing with, the expected level of security and the frequency of transactions. As discussed earlier, each wallet has its own advantages and disadvantages, but it’s good to have different options to choose from. Regardless of the type of wallet you choose, always ensure backup provisions and safe storage of your wallet.
If you are dealing with large amounts of digital currency and plan to hold it for a while, investing in a hardware wallet is the best option. On the other hand, if you intend to use Bitcoin more like regular currency for frequent transactions, online or mobile wallets can be far more convenient and easy to use. Desktop wallets are suitable for users who know how to secure their computers and have a regular backup system in place. However, storing your wallet on a mechanical hard drive is not recommended as they are more prone to failure compared to SSDs or other chip-based drives.
Since no method is fool-proof and you’d have to choose between security and convenience in one way or another, you can combine different storage methods for even tighter security and more convenience. Let’s assume you have around $30,000 worth of Bitcoin in savings. You probably don’t need to carry all that digital currency with you all the time. You can store large amounts using the cold-storage method (preferably hardware wallet) and store smaller amounts using online or mobile wallet. This allows you to safely store the larger chunk, while you can also easily and conveniently carry out regular transactions.
- Hardware wallets are suitable for people who want to store large amounts of digital currency for a long time
- Online wallets are more suitable for frequent transactions
- Desktop wallets provide better control over the money, but users have to ensure the security
- Mobile wallets allow using digital money in brick-and-mortar stores
- Paper wallet is a cost-effective solution for people who want to keep their money away from the internet and hackers
- People can mix-and-match wallets for different purposes, hardware wallets as saving wallets, online/mobile wallets as spending wallets
In the context of cryptocurrencies, most misfortunes happen not because of hacking or compromised systems, but because of carelessness. That’s why one should make sure to keep backups, store their wallets at a safe place and follow the best practices. One of the main reasons behind the recent popularity of Bitcoin is that the cryptocurrency provides us with complete control over our money. But this also means that we ourselves are fully responsible for its security and our own financial privacy.