A Bitcoin wallet is a digital wallet for storing bitcoins. No method of storing Bitcoin is completely risk-free, but this article will explain the pros and cons of different Bitcoin wallets.
Bitcoin exchanges are often the choice of beginners for storing bitcoins. A desktop wallet is a step in a more secure direction. A Bitcoin mobile wallet is installed on a mobile device such as a smartphone or tablet.
A cold wallet (physical Bitcoin wallet) offers ultimate protection. The best Bitcoin wallet is the Ledger Nano X cold wallet.
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General information about Bitcoin wallets
A Bitcoin wallet is a digital wallet for storing bitcoins. It can be an online service, software installed on a computer, or a mobile app. The most secure wallets are called cold wallets, devices similar to USB sticks.
Regardless of the type of Bitcoin wallet, it is, first and foremost, a graphical user interface for the Bitcoin 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. For the same reason, investors have acquired physical gold and silver for thousands of years.
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 Bitcoin and 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.
Bitcoin wallets allow you to create new receiving addresses, an important privacy-enhancing feature. You can receive bitcoins from different senders to different addresses, and the wallet bundles all funds into one balance.
A Bitcoin wallet’s basic feature is to display the balance of your addresses. It also enables the sending and receiving of bitcoins. If you want to send bitcoins, you only need to enter the amount (BTC) and the recipient’s address – the wallet software will handle the rest automatically.
Using a Bitcoin wallet can be compared to using an online bank. It isn’t more difficult.
Understanding that bitcoins are not actually “inside” the wallet software is important. 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 network you can send bitcoins from this address.
Andreas Antonopoulos explains this very well in the video below.
Wallets do not hodl your #bitcoin
— Documenting ₿itcoin 📄 (@DocumentingBTC) October 24, 2022
A Bitcoin wallet cannot be lost like a physical wallet with bills or coins. However, you can lose your wallet password. You can never log into the wallet again without losing the recovery keys (backup codes).
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. Be careful!
No 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 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. However, the online wallet service might go down for different reasons, and you might lose access to your coins for a long time. When choosing the storage solution, it is all about individual preferences.
What is the biggest threat that you want to protect yourself from?
Every Bitcoin investor must choose a storage method that fits their risk profile and provides peace of mind. Different wallet options also enable diversification. This is usually a smart solution regardless of the size of your portfolio. Even if one storage method fails, you’ll never lose all your funds.
This article provides information on the pros and cons of different Bitcoin storage methods.
Always remember that you are responsible for your wallet security. If you lose your online bank’s password and username, you can always call your bank and get them back. There is no similar possibility for Bitcoin. Freedom also brings responsibility.
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 best depends on the person’s investment profile and preferences.
The more active a trader you are, the more you have to trust the exchanges. If you want to invest in rarer cryptocurrencies besides Bitcoin, it limits wallet options. The younger generation also prefers a mobile wallet instead of a desktop application.
Remember that you can also diversify your investment into different types of wallets.
Bitcoin exchanges are often the choice of beginners for storing bitcoins. The threshold for using your 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 wallets as experience accumulates and the portfolio grows. This is a very good choice.
The current market leader is Binance, which has over 175 million customers worldwide.
The most important function of the Bitcoin exchange is to act as a trading platform. They are not recommended for long-term storage, as bitcoins are not completely under your control. The exchange manages your funds, so the level of data security is as high as the exchange has.
Remember always to use two-factor authentication (2FA). This increases your account safety significantly.
The good thing about an exchange is that you can quickly trade your bitcoins for fiat or another cryptocurrency. This is important when prices move quickly and you want to buy or sell bitcoins.
A Bitcoin exchange is not a good wallet due to the risk of hacks, denial-of-service attacks, and outages. Exchanges contain large concentrations of cryptos, also prime targets for cybercriminals. In addition, the exchange can freeze user accounts or disable withdrawals for up to several weeks.
The risk of losing money in a crypto exchange is small if you work with the best and most well-known services.
You should keep only the part of the portfolio in an exchange you need for daily trading. The rest can be stored safely, e.g., in a cold wallet or spread over several types of wallets under your control.
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 computer. You can access your funds anytime, 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:
- Generic crypto wallet
- Wallets that are built for a specific cryptocurrency
Exodus and Coinomi are examples of universal wallets. In addition to Bitcoin, they support hundreds of other cryptocurrencies.
Monero is an example of a cryptocurrency that differs technically from other cryptos due to its privacy features. The Monero project has built a wallet for just this cryptocurrency.
There are also wallets made just for Bitcoin, but they are not very popular. This is because most crypto investors want also to buy other cryptos, not just Bitcoin.
The risk of being hacked is significantly reduced when using a desktop wallet. However, you are still at the mercy of online threats. Everything on your computer can be lost 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 also integrate cryptocurrency swaps. However, the fees are usually high, so we recommend using proper exchanges to trade significant amounts.
Bitcoin mobile wallet
A Bitcoin mobile wallet is installed on a mobile device such as a smartphone or tablet. More and more people have switched from traditional computers to mobile devices. This applies especially to the younger generation. The demand for mobile wallets has exploded in recent years.
The Trust Wallet shown in the picture is a versatile, easy-to-use mobile wallet for storing bitcoins. In addition to Bitcoin, it supports hundreds of other cryptocurrencies, NFTs, and more. You can learn more about this wallet in our Trust Wallet guide.
The mobile wallet is always with you and is quickly available. The advantage compared to a desktop wallet is the QR code scanning feature, which allows you to send cryptocurrency lightning fast without typing long lines of code.
Mobile applications have grown in popularity tremendously. Crypto exchanges are also increasingly used only as mobile versions. Improved security, such as biometric authentication, has helped the growth in popularity.
Ensure your mobile wallet is protected by PIN, password, or biometric authentication. Be prepared for a situation where your phone is lost or broken.
When you launch a mobile wallet app for the first time, backup phrases (words) are created. You can use them to re-create the wallet on a new device. It is very important to store these words safely offline. If someone else gets the list, they can empty your wallet.
Bitcoin mobile wallet vs. exchange mobile app
The line between mobile wallets and crypto exchange apps is becoming blurred these days, as many wallets can buy or swap bitcoins (and other 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 a mobile app of a Bitcoin (crypto) exchange, your funds are under the exchange’s control. It’s important to understand the distinction between the two.
Logging into a crypto exchange’s mobile app is as secure as using the exchange’s website on a computer.
Lightning Network wallets
In the case of Bitcoin, it’s worth mentioning the Lightning Network (LN), which is used entirely on mobile devices. This is due to QR codes needed in LN transactions.
Bluewallet and Wallet of Satoshi are popular and reliable wallets for the Lightning Network. Detailed instructions on how to make LN transactions can be found in our Lightning Network guide.
The use of Bitcoin as a means of payment is still marginal. When payments are made, they are almost invariably made on the Lightning Network. The Bitcoin blockchain’s transaction fees are so high that they are only suitable for making larger payments.
Cold wallet (physical Bitcoin wallet)
A cold wallet (physical Bitcoin wallet) offers ultimate protection. When your crypto portfolio grows to thousands of euros, it makes sense to think about the monetary investment in the wallet. Then, your eyes turn to the cold wallet, i.e., the hardware wallet.
It is a device similar to a USB stick, which is connected to the computer with a cable for the duration of transactions. Cold wallets can also be managed from a mobile device using Bluetooth. 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, as shown in the picture. This link provides a comprehensive guide on how to use the Ledger Nano.
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 transfer the contents of the old wallet to a new device at any time using backup codes.
The Bitcoin wallet inside the hardware device is safe from all online threats. It’s no wonder it’s the solution professionally recommended by investors to keep large sums of money.
The biggest risk of a cold wallet is storing the device itself and recovery keys (backup codes). You will lose your money if you lose these backup words to another person. However, this risk is also the same for mobile and desktop wallets. Recovery keys are generated every time you manage your wallet.
We do not recommend a hardware wallet for someone without experience with technical devices or software installation. This kind of Bitcoin wallet also occasionally requires software updates, which must be performed through management software. A hardware wallet may not be suitable for all investors.
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. The Ledger Nano X costs around 150 euros, and you should always buy one from the official Ledger website.
The best free wallets are Exodus 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 bitcoins as safe as possible. Don’t keep your funds on exchanges for no reason if you don’t need them for active trading.
Whatever wallet you use, test it first with small transactions. Ensure you also know how to transfer coins out of the wallet. If you use a hardware wallet, it can also be smart to try resetting it 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 many user guides on YouTube about all popular Bitcoin wallets.
You can reduce storage risks by dividing your bitcoins between different storage methods. For example, you can keep a percentage in a cold wallet and a certain portion in a desktop or mobile wallet. There are so many different service providers that you can easily divide your portfolio into ten different wallets.
Nowadays, investing in Bitcoin, e.g., through ETF products or indirectly by buying shares of certain “Bitcoin companies,” is also possible. This eliminates the risk of losing bitcoins. This article explains different types of investment.