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How to choose a Bitcoin wallet

Choosing the right cryptocurrency wallet is one of the most important decisions for a crypto investor. What is the best way to store your coins? Is it a mobile wallet or a cold wallet? This is a question we’ll answer in this article. This is a beginner’s guide for choosing the right Bitcoin wallet (cryptocurrency wallet).

What is a Bitcoin wallet?

Let’s go through some basics first. What is a Bitcoin wallet?

As you might have guessed, a Bitcoin wallet is storage for bitcoins. In the crypto world, a wallet can be an online service, a program installed on your laptop, a mobile app, or a hardware wallet (a cold wallet).

All wallets have the same basic functions. Cryptocurrency wallets provide a graphical user interface (GUI) to access the blockchain.

Exodus wallets

Exodus is a popular wallet provider. They have a desktop and a mobile wallet app.

Many wallets make it possible to create a new receiving address for every incoming transaction. This is a very good privacy feature for public blockchain coins, such as Bitcoin. The wallet app will then merge balances of many addresses together.

The most important function of a Bitcoin wallet is to enable sending and receiving transactions easily. In the background, Bitcoin uses public-key cryptography. There is a public key and a private key. The public key proves to the network you have the right to use the address.

The private key is for your eyes only. It can be used to access the funds anywhere. If you lose the private key of your Bitcoin wallet, it’s like losing the PIN codes and passwords to your internet bank. Normally you don’t ever even see the private key when using a wallet app.

Each cryptocurrency works a bit differently. Some older ones work just like Bitcoin, but there are dozens of different systems out there. This means there is no one wallet for thousands of cryptocurrencies. Each wallet app maker has to include different cryptocurrency networks one by one.

To put it all together: cryptocurrency wallets have two main functions. They store your cryptocurrencies and enable transactions. Without graphical interfaces, it would be close to impossible for newbies to send and receive cryptocurrencies.

No cryptocurrency wallet is 100% safe

It’s important to understand, that each wallet has its own pros and cons.

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.

hacker

Cryptocurrency investors must be very careful. There are online threats everywhere.

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.

If you lose your online bank password, you can always call the bank and get a new one. Banks can even reverse transactions. Your credit card can be also frozen in case of theft. If you lose your bitcoins, there is nothing that can be done. Your coins are gone forever.

Cryptocurrency exchanges

Binance front page

Binance is the leading cryptocurrency exchange.

Cryptocurrency exchanges hold the most coins in the market. The most popular exchange is Binance, which has tens of millions of customers.

Exchanges are marketplaces for traders to interact with each other. They are not recommended for long-term holding, because you are not fully in control of your coins. The private keys of your wallets are held by the exchange.

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, risks are small. Exchanges have improved their security levels significantly in the last few years. A risk for 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 for no reason. It only makes sense if you are a newcomer and not comfortable yet to install your own wallets.

Other online cryptocurrency wallets

blockchain.com

Blockchain.com is a good example of an online wallet.

An online wallet is almost a synonym for a cryptocurrency exchange. Many newcomers with small portfolios use online wallets. If you have bought crypto for $300, it doesn’t make sense to purchase a hardware wallet for $100 to protect your coins.

An online wallet is a cryptocurrency wallet used with a web browser. The border between an online wallet and exchange is almost non-existent because so many wallets have enabled cryptocurrency purchases.

Blockchain.com is a good example of an online wallet. It used to be just a simple browser-based wallet, but now you can also buy cryptocurrencies directly from Blockchain.com.

We will also list local cryptocurrency services under online wallets. Northcrypto and Coinmotion are good examples of Nordic cryptocurrency services. They are technically still exchanges, but there are some added benefits.

Local cryptocurrency exchanges are significantly smaller than the global giants. Hence, they hold fewer coins and are less targeted by hackers. You will also get help faster in case of issues.

The negative sides are the same as in exchanges. You don’t hold your own private keys. The service provider might go offline or become hacked. You might also lose your funds due to a phishing attack if not being careful.

If you use an online wallet from your home computer with virus protection & VPN and 2FA enabled, the risk of losing your coins is small. You’d also consider holding your funds in different wallets to reduce the risk of losing all in one attack.

Desktop wallet

Exodus desktop cryptocurrency wallet

Exodus is a popular destkop wallet.

A desktop wallet is a step towards safety. It is still a hot wallet. This means your private keys are accessible through your internet connection and not stored offline.

A desktop wallet is simply a program installed on your PC or laptop.

There is one major difference between a desktop wallet and the previous options: your private keys are not controlled by a third party. This means you are fully in control of your funds.

Exodus is a popular, free, and easy-to-use desktop wallet. See the picture above. You’ll find more screenshots and download links at exodus.io. It also has a built-in swap feature, and Exodus even supports staking for some cryptocurrencies.

Many popular cryptocurrencies have also built their own desktop wallets. These wallets might have some additional features, like staking. NEO, Monero, and Cardano are examples of such cryptocurrencies.

The risk of losing your funds goes significantly smaller when using a desktop wallet. It’s still not a risk-free solution, though. Anything that exists on your computer can be accessed, deleted, or hacked in one way or another. Make sure you run anti-virus and VPN software.

Mobile wallet

Trust Wallet - a mobile cryptocurrency wallet

TrustWallet is a popular mobile wallet. You can store dozens of different coins there.

Mobile wallets and desktop wallets are pretty much the same. The difference is you install the wallet app on your mobile phone or tablet instead of a laptop. There is an increasing number of people who use mobile devices for everything. Hence, mobile wallets have become extremely popular.

There is one major benefit to having a mobile wallet: you can scan QR codes. It’s also portable and accessible anywhere.

TrustWallet is a popular mobile wallet. It’s easy to use and the app supports dozens of different cryptocurrencies. TrustWallet also has a built-in exchange and you can even buy cryptocurrency with your credit card.

The previously mentioned Exodus has also a mobile version. You can also try Coinomi.

All exchanges and online services have also native mobile apps. In that case, you are still using an exchange wallet. It has the same weaknesses as using the exchange with a web browser.

You can increase your mobile wallet security by using a PIN code or other sign-in method in the app.

Hardware wallet (cold wallet)

ledger nano x

Ledger Nano X is a best-selling hardware wallet.

If your portfolio is worth thousands of euros, it’s wise to invest in a hardware wallet. It is also called a cold wallet or a cold storage. A hardware wallet is a small device connected to your laptop via a USB cable. You can also manage some wallets with your mobile device using Bluetooth.

The device is only used for confirming transactions and managing your account. Once these operations are done, it’s stored offline. There is no way anyone can hack into your hardware wallet.

Ledger Nano X is the most popular hardware wallet in the market. It’s made by the French manufacturer Ledger. It can be managed by a mobile device or a laptop. Trezor Model T is another popular option. It’s manufactured in the Czech Republic by Satoshi Labs.

What are the risks with hardware wallets?

Some people are afraid of mechanical failures and losing their wallets. These are actually not the risks. Once you set up the device, a list of backup codes is created. You can re-install your wallets to a new device at any time.

These backup codes are the biggest security risk. It is a list of 24 words on a piece of paper. Your funds are as safe as these backup codes are. Think carefully about where and how you store them.

Hardware wallets provide ultimate safety. However, they are not free. Previously mentioned Ledger Nano X and Trezor Model T are in a price range of 150 euros. If your entire portfolio is smaller than thousand euros, it makes more sense to use free options.

Managing hardware wallets requires some technical knowledge. Besides the installing process, there are some firmware updates you must perform every now and then. Then there is also the issue with backup codes.

Even if hardware wallets provide ultimate safety, they are not for everyone.

Overview of cryptocurrency wallets

We have presented multiple cryptocurrency storage options in this article. There are so many Bitcoin wallets alone that it’s difficult to pick one.

Every person is different, and everyone has also different needs and interests. There is no one wallet that fits all.

  1. What cryptocurrencies do you want to invest in?
  2. What is your risk profile?
  3. Are you an active trader?

Let’s say you want to buy and hold Cardano (ADA) and earn interest while doing that. This limits your wallet options quite a bit. If you are an active trader, you must have a balance on exchanges. If you have a large portfolio for just holding and good technical skills, a hardware wallet is a must.

The most important thing is to try to use the safest storage possible for long-term holdings. Don’t store your coins in exchanges just for fun. Don’t be lazy. If you are not actively trading the coins, move at least some of them to private wallets.

Whatever wallet you choose, try it with small transactions first. Send some pennies and make sure they are received. Send them back to make sure you know how to make transactions both ways. There are lots of how-to-videos on Youtube for all popular wallets.

If you have a large portfolio, we recommend distributing it to different wallets. One exchange, one online wallet, one desktop wallet, one mobile wallet, and one hardware wallet will leave just 20% in one place. It’s easy to distribute your coins even further.

Image by Gerd Altmann from Pixabay, Image by Gerd Altmann from Pixabay

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