Bitcoin wallet is a digital wallet for storing bitcoins. No method of storing Bitcoin is completely risk-free. This article will explain the pros and cons of different Bitcoin wallets.
Bitcoin exchanges are often the choice of beginners for storing bitcoins. We think that beginners should prefer domestic service providers. A desktop wallet is a step in a more secure direction. A mobile wallet is almost the same as a desktop wallet, but the app is installed on a mobile device instead of a computer.
A physical Bitcoin wallet (cold wallet) offers ultimate protection. It is possible to lose access to your Bitcoin wallet if you lose the password and recovery codes. The best Bitcoin wallet is the Ledger Nano X cold wallet.
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General information about Bitcoin wallets
Bitcoin wallet is a digital wallet for storing bitcoins. A Bitcoin wallet can be an online service, software installed on a computer, or a mobile app. The most secure solutions are called cold wallets. They are devices similar to USB sticks.
Regardless of the type of Bitcoin wallet, it is first and foremost a graphical user interface for the blockchain. With the wallet, you can send and receive bitcoins as easily as euros in an online bank.
You don’t have to get a wallet, but storing bit money independently is one of the most important features of Bitcoin. Being able to control your assets 100% without third-party approval is exceptional. Investors have acquired physical gold and silver for thousands of years for the same reason.
In this article, we will cover the topic from the perspective of Bitcoin, but the same principles apply to other cryptos as well. The most popular wallets support not only Bitcoin but also hundreds (thousands) of other cryptocurrencies.
Below is a picture of the popular Exodus mobile wallet. The same software can also be downloaded to a desktop or laptop computer.
Many wallets allow you to create new receiving addresses. This is an important privacy-enhancing feature. You can receive bitcoins from different senders to a new address and the wallet bundles all funds into one balance.
The basic feature of a Bitcoin wallet is to display the balance of your addresses. In addition to this, the wallet enables the sending and receiving of bitcoins. The wallet software handles everything automatically, so you don’t need to enter anything other than the amount to send and the recipient’s address. Using a Bitcoin wallet can be compared to using an online bank.
It is important to understand that bitcoins are not actually “inside” the wallet app. Not even if it’s a hardware wallet. The wallet only provides a user interface for managing the funds of a specific blockchain address. Your Bitcoin wallet tells the Bitcoin network that you are the one authorized to send funds from this address.
Andreas Antonopoulos explains this very well in the video below.
Wallets do not hodl your #bitcoin
Wallets hodl your keys that unlock your #bitcoin pic.twitter.com/lpFh2dHKXY
— Documenting ₿itcoin 📄 (@DocumentingBTC) October 24, 2022
So a Bitcoin wallet cannot be lost in the same way as a physical wallet with bills or coins. However, you can lose your wallet password. If you have also lost the recovery keys (backup codes), you will never be able to log into the wallet again. There are no backdoors or hacking possibilities.
Over the years, even several million bitcoins have been lost for this reason. They are located in wallets whose funds no one can use anymore.
No cryptocurrency wallet is 100% safe
No method of storing Bitcoin is completely risk-free. Investors must always choose an option that suits their risk profile and technical skills. Each type of wallet has its own pros and cons. A Bitcoin wallet is only as secure as its user.
An online wallet is safe even if your laptop gets hacked or your hardware wallet is stolen. On the other hand, the online wallet service might go down due to different reasons. You might lose access to your coins for a long time. Every investor must weigh the existing risks. What are you the most afraid of?
Hardware wallets are technically the safest way to store your wealth. In this case, however, your wealth is as safe as the piece of paper holding your backup keys. Each wallet solves one risk but also introduces a new one. There is no risk-free solution available.
Each investor has also a different risk profile. Some people might want to distribute possessions to multiple different locations. Some hold all their coins in one mobile wallet. Choose a wallet that feels comfortable for you.
Luckily, there are different solutions available. This makes it possible to distribute holdings to different locations and wallet types. This is usually a smart move regardless of your portfolio size. If one wallet is lost, you always have most of your funds available.
If you are an active trader, you must hold cryptos in exchanges. The best way to minimize risks, in this case, is to choose your service provider carefully.
Ultimately, you are responsible for your choices. There are no safety nets or reversing transactions in the crypto world.
Different types of Bitcoin wallets
This article will explain the pros and cons of different Bitcoin wallets. Remember that there is no one right choice for all. Which wallet is the best choice depends on the person’s investment profile and own preferences.
The more active a trader you are, the more you have to trust the exchanges. If you want to invest in rarer cryptocurrencies in addition to Bitcoin, it also limits the wallet options. The younger generation also prefers a mobile wallet instead of a desktop application.
Remember that you can always also diversify your investment into different types of wallets.
Bitcoin exchanges as wallets
Bitcoin exchanges are often the choice of beginners for storing bitcoins. The threshold for using your own wallet can be high at first, so many people who bought their first bitcoins initially keep their coins in the store where they got them. We move to our own wallets as experience accumulates and the portfolio grows. This is a very good choice.
The current market leader is Binance, which has over 120 million customers worldwide.
The most important function of the crypto exchange is to act as a trading platform. They are not recommended for long-term storage, as bitcoins are not completely under your control. Your funds are managed by the exchange, so the level of data security is as high as the exchange has.
Remember to always use two-factor authentication (2FA). This increases your account safety significantly.
The positive side is that your coins are always ready to be traded. This is important at the times the market starts moving. There is also customer service and active social media groups. If you have a problem, there is usually help available.
Exchange hacks and downtimes are the negative sides. Since exchanges hold the most cryptocurrencies, they are constantly targeted by hackers. Exchanges might also disable withdrawals for several weeks if there are maintenance problems.
If you are using one of the top-rated exchanges, the risks are small. Exchanges have improved their security levels significantly in the last few years. The risk of losing funds is minimal, but there could be downtimes and short-time technical issues. Phishing attacks on users pose also a threat.
It’s not recommended to hold coins in exchanges if there is no reason for it. It is understandable if you are a newcomer and not comfortable yet installing your own wallets. If you are a professional trader and need to store liquidity in exchanges, you are experienced enough to understand the risks involved with it.
Desktop and browser wallets
A desktop wallet is a step in a more secure direction. It is still called a hot wallet, which means a wallet that is connected to the internet. A desktop Bitcoin wallet is software that can be installed on your computer.
The important improvement in security comes from the fact that the wallet is fully in your control. Your wallet’s private keys are only stored on your own computer. You have access to your funds at any time, and you don’t have to worry about any outages or even bankruptcies of crypto exchanges.
Exodus is a popular and easy-to-use desktop wallet. The example image below shows the user interface of the Exodus wallet and an imaginary Bitcoin balance. Another popular desktop wallet is Coinomi. Both support hundreds of other cryptocurrencies in addition to Bitcoin.
Desktop wallets can be divided into two different types: general wallets and wallets built for a specific cryptocurrency. Exodus and Coinomi are examples of universal wallets. In addition to Bitcoin, they support e.g. Ethereum, Litecoin, the most popular stablecoins, and dozens of other cryptocurrencies.
A Bitcoin browser wallet is an intermediate between a desktop and a mobile wallet. It is an add-on to be installed in a web browser (e.g. Chrome). It can be seen as a slightly lighter alternative to the desktop application. The advantages and disadvantages are practically the same.
When using a desktop wallet, the risk of being hacked is significantly reduced. However, you are still at the mercy of online threats. Everything on your computer can be lost in one way or another if it’s online. If you have an extra computer you don’t need, install a desktop wallet on it and keep the machine off the internet.
Many desktop wallets have also a cryptocurrency exchange integrated into them. However, the fees are usually really high, so trading should be done on crypto exchanges instead.
Bitcoin mobile wallet
A mobile wallet is almost the same as a desktop wallet, but the app is installed on a mobile device instead of a computer. If you use bitcoin daily and scan QR codes constantly, you need a mobile wallet. More and more people have switched to mobile completely and don’t even own a laptop or a computer. This applies especially to the younger generation.
Trust Wallet (pictured below) is a very versatile and easy-to-use mobile wallet. In addition to Bitcoin, it also supports the staking of various cryptocurrencies, NFTs, etc. You can learn more about this wallet from our Trust Wallet guide.
A mobile wallet is always with you and is quickly available. The advantage is the QR code scanning feature, which makes sending cryptocurrency lightning fast without typing long lines of code.
In the case of Bitcoin, it is also worth mentioning the lightning network, which is used entirely on mobile devices. This is due to QR codes in lightning network broadcasts. Bluewallet and the Wallet of Satoshi are good wallets for the lightning network. Read more about LN transactions from our lightning network beginner’s guide.
Mobile applications have grown in popularity tremendously. Crypto exchanges are also increasingly used as mobile versions. This is helped by improved security, such as using biometric authentication. Everyone has to think for themselves how big a risk it is to store cryptocurrencies on a mobile phone compared to other options.
Make sure the Bitcoin apps on your mobile device are protected by PIN, password, and/or biometric authentication. Be prepared for a situation where your phone is lost or broken.
The line between mobile wallets and crypto exchange apps is starting to blur these days, as many apps also offer the possibility of buying and swapping cryptos. The essential difference is in the control of the wallet, i.e. in the storage of the private keys.
If you use a mobile wallet with the option to buy Bitcoin, you have full control over your funds. If you use the mobile version of a crypto exchange, your funds and wallets are under the control of the exchange. It is good to understand the difference between the two.
Physical Bitcoin wallet (cold wallet)
A physical Bitcoin wallet (cold wallet) offers ultimate protection. When the crypto portfolio grows to thousands of euros, it makes sense to think about investing some money in the wallet as well. That is when your eyes turn to a hardware wallet, which is also called a cold wallet.
It is a device similar to a USB stick, which is connected to a computer with a USB cable for the duration of transactions. Nowadays it’s also possible to use a wireless Bluetooth connection. Once the transactions are completed, the device is turned off and kept offline.
One of the most popular cold wallets is the Ledger Nano X shown in the picture. You can find a detailed guide to using the Ledger Nano X on this website.
Many investors shy away from the idea of a hardware wallet because of the fear of breaking or losing the device. This is not a problem in practice. You can format the contents of the old wallet on a new device at any time using backup codes.
The Bitcoin wallet inside the hardware device is safe from online threats. It’s no wonder this is how professional investors and even crypto exchanges store large amounts of funds. The biggest risk of an offline solution is in storing the backup codes. If you lose this word list to another person, you will lose your funds.
We do not recommend a hardware wallet for a person who has no experience with any mobile devices or software installation. This kind of Bitcoin wallet requires software updates from time to time, which must be done through management software. A hardware wallet may not be suitable for all investors.
Bitcoin wallet lost?
It is possible to lose access to your Bitcoin wallet if you lose the password and recovery codes.
What if one day you find that your Bitcoin wallet is missing? You have accidentally deleted the app or lost your phone or lost a hardware wallet. Have the bitcoins been lost or is there still hope to recover them? The answer depends on what exactly has been lost. In addition to this, different wallets are handled in very ways.
If you store cryptocurrencies in exchanges, you cannot lose your wallet. You can only lose the exchange username, password, or both. You can either reset these yourself or contact customer service and access your funds again.
If you use a mobile or desktop wallet, you can lose it in many different ways. If, for example, your mobile device or computer breaks down in such a way that it is no longer possible to start it. The device can also be stolen.
This is when you need the backup codes that are created when the wallet is installed. You can use these codes to restore your wallet on a new device. A physical Bitcoin wallet, or cold wallet, also works with the same idea. As long as you take good care of storing the backup codes, you practically cannot lose your Bitcoin wallet.
What is the best Bitcoin wallet?
The best Bitcoin wallet is the Ledger Nano X cold wallet. It offers ultimate security and protects your bitcoins better than any other option. Ledger Nano X costs around 150 euros. You should always buy one from the official website of Ledger.
The best free Bitcoin wallets are Exodus, Coinomi, and Trust Wallet. They are very easy to use and suitable for professionals and amateurs alike.
However, it must be remembered that the choice of a Bitcoin wallet is influenced by the person’s risk profile and the cryptocurrencies to be invested in. Ask yourself at least the following questions before making a final decision:
- Are you an active trader?
- Which cryptocurrencies do you want to invest in?
- Do you want a mobile wallet or a desktop wallet?
- Do you have experience in installing software and devices?
The most important thing is to keep cryptocurrencies as safe as possible. Don’t keep cryptocurrencies on exchanges just for fun if you don’t need them for active trading.
Whatever wallet you use, test it first with small transactions. Make sure you know how to transfer coins out of the wallet as well. If you use a hardware wallet, it can be smart to also try resetting the wallet with a small amount. You can then be sure that you know how to restore your wallet if it’s ever needed
You can find lots of user guides on YouTube about all popular Bitcoin wallets.
You can reduce the risk of loss by splitting your coins between different storage methods. You can keep a certain percentage in a hardware wallet and a part in a desktop wallet, for example. A small amount can be also in a mobile wallet.
There are so many different service providers that you can easily divide your portfolio into ten different wallets. Losing one wallet will only lose a small part of your assets.
Nowadays it is also possible to invest in Bitcoin, e.g. through ETF products or indirectly by buying shares of certain “Bitcoin companies”. This eliminates the risk of losing bitcoins. Find out more about different types of investment in this article.
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