Bitcoin Wallet and Its Types

Introduction

People invest in Bitcoin mainly by buying and holding the currency. For that, a secure storage or platform is required. Having a wallet to protect all your invested funds becomes necessary, but choosing the right one can be confusing.

Do you know how many wallets are out there and which is best for you? Let's delve into this article to get an overview of different Bitcoin wallets.

What is a Bitcoin wallet?

A Bitcoin wallet is used to interact with the blockchain network. This can be done using a software or hardware device. Unlike regular wallets, it does not actually hold the currency but instead acts as an intermediary between the user and their funds, being live on the blockchain.

Users can view and manage their Bitcoin transactions and hold the funds with a wallet. All the wallets are there and exist in numerous forms; leading crypto exchanges offer the web wallet, while technically complex and secure are hardware-based wallets.

To access or operate these wallets, a key is needed. When a Bitcoin wallet is created, a pair of keys is generated. One is public, and the other is private. Both of these keys are alphanumeric sequences that appear similar but are very different in their functions.

A public key is shared with all who want to send you the currency, while private keys act like a passcode. Anyone who accesses the private key can control your Bitcoin holdings.

Hence, various wallets are significant for performing transactions per the requirements.

Knowing a Bitcoin wallet and its basics, let's move forward with the multiple types of Bitcoin wallets.

Types of Bitcoin wallet

There are two types of wallets in Bitcoin: Hot wallets and cold wallets. Any kind of wallet connected to the internet is termed a hot wallet, while offline wallets are cold. These are certainly more bifurcated, so let's learn their differences and distinct categories.

Hot Wallet

Hot or software wallets are the ones that have desktop and mobile applications. These wallets are installed through the internet and can access your cryptocurrencies, make transactions, view your funds, and more. Some advanced wallets have additional functionality like integration with exchanges for easy conversion from crypto to fiat.

These wallets are excellent for convenience but simultaneously in line with vulnerabilities to get hacked.

Types of Hot Wallet

Hot wallets have three variants, each with potential benefits and drawbacks per your needs and usability factors.

Desktop Wallet

In desktop wallets, encryption keeps the private keys secured in their hard drive. Some well-known desktop wallets are Exodus, Electrum, Bitpay, etc. Anti-virus is required as the system is connected to the internet, which can raise fundamental security issues. To understand it well, let's move with the pros and cons of it:

Pros:

• Securely conducts small crypto transactions using a computing device.
• Free to access and easy to use.
• Private keys are not given to any third party and are managed in the device itself.
• Some have the feature of offline storage associated with the

Cons:

• Your currencies are connected to the internet all the time your device is on.
• Vulnerable to the malware and other viruses.
• Whoever can access the computer device has the potential to access your cryptocurrency.

Mobile Wallet

Mobile wallets are a convenient form of desktop wallets. These wallets are convenient as they use QR codes for transactions. They are suitable for all daily operations but are susceptible to malware attacks, making it necessary to have encryption. Some of the most trusted mobile wallets are Speed, Trust, Electrum, etc. Let's proceed with its pros and cons.

Pros:

• Send and receive the Bitcoin payments on the go.
• Convenient to the generation and easy to use.
• One easy way to spend all the Bitcoin is either buy a new currency from it or invest in any asset class.

Cons

• Holdings are as secure as a mobile wallet is in your device.
• There are chances of the device getting lost or stolen creating a compromising situation for the Bitcoin account.
• Potential vulnerability to viruses and malware.

Web Wallet

As per its name, web wallets are accessed through internet browsers only. The private keys are held there and can be hosted or non-hosted. Non-hosted funds are preferable as funds remain in control, ideal for small investments and quick transactions. Some recommended web wallets are Coinbase, Metamask, and Guards.

Pros:

• Ease of use favored the most Bitcoin newcomers.
• Supports a variety of transactions like buy, sell, swap, etc.
• The security is given to the trusted third party like exchanges.

Cons

• Trusting a 3rd party can be risky sometimes, as they have your private keys.
• It is potentially at high risk of getting hacked
• Subjected to many threats like malware, viruses, and keyloggers.

Cold Wallet

Any digital wallet offline or nonconnected to the internet is termed a cold wallet. Blockchain is available on the internet; hence, cold wallets are highly secure and virtually impervious to hacking. The technical know-how needs to be updated so that these wallets are suitable for experienced users with large asset amounts.

Types of Cold Wallet

People who want to take charge of their account security generally opt for cold wallets. There are two variants of cold wallets: hardware and paper wallets. These fall opposite each other; paper wallets are low-tech solutions you get while the other is sophisticated and high-tech, and both are highly secure.

Hardware Wallet

A hardware wallet is secure in private storage for people who prefer a more high-tech solution. These devices look like USB thumb drives and remain offline until connected to a computer device or mobile.
One of the safest wallets that allows you to store the currency and conduct transactions also holds some benefits and backdrops.

Pros:

• Most secure method of crypto storage.
• Transactions are signed offline with the use of a private key, and the internet is used only to upload the transaction over the blockchain.
• Available in the market amongst the major retailers.

Cons

• Hardware wallets are not free; they range between $30 and $200 or even higher.
• Operating these wallets in Bitcoin is challenging for beginners.

Paper Wallet
A paper wallet is an offline solution where you can write down or print private keys and then securely store them. A good old paper and pen approach will be good, but creating your own printable wallet is very simple.

Many dedicated websites for printable paper wallets, such as WalletGenerator.net and BitcoinPaperWallet.com.

Pros:

• Impossible to hack as it is completely offline.
• No other person can access your private keys.
• You have an option of QR code inclusion for easier access of funds.

Cons:

• Paper can be easily lost or stolen or can be destroyed.
• More time and effort are invested to move Bitcoin between wallets.
• More technical know-how is required for printable paper wallets.

What are custodial and non-custodial wallets?

Apart from hot and cold wallets, two other variants of wallets play an essential role in the Bitcoin landscape: custodial and non-custodial wallets.

Let's take a quick look at various aspects of both wallets:

Conclusion

A Bitcoin wallet is efficient in storing your public and private keys. This implies that a person doesn't have to depend on any third party or other financial organizations to access their funds and keep them safe. Different types of wallets offer various benefits, such as security and ease of use. You may be aware of certain differences between wallets. Still, there are multiple Bitcoin wallets in the ecosystem with a variety of types that you would have found in this article.