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A Brief Guide on Types of Bitcoin Wallets

A Brief Guide on Types of Bitcoin Wallets

Bitcoin & Blockchain
Typography

Once you decide to buy some bitcoins, a question right away props up how to store that digital currency. The answer is similar to how you store your fiat currency, that is, in a wallet. The difference here is that a ‘Bitcoin wallet' is a digital wallet. A Bitcoin wallet is equivalent to a bank account. It allows you to receive bitcoins, store them, and then send them to others. Basically, it is a software program where Bitcoins are stored. 

Quick Look:

  • ‘Bitcoin wallet’ is a digital wallet to store bitcoins.
  • It allows you to receive bitcoins, store them, and then send them to others.
  • The Bitcoin wallet comes in many forms like desktop, mobile, web, paper, and hardware.
  • The choice of the wallet is up to the user, depending on which features they want.

Once you decide to buy some bitcoins, a question right away props up how to store that digital currency. The answer is similar to how you store your fiat currency, that is, in a wallet. The difference here is that a ‘Bitcoin wallet' is a digital wallet. A Bitcoin wallet is equivalent to a bank account. It allows you to receive bitcoins, store them, and then send them to others. Basically, it is a software program where Bitcoins are stored. Creating such a wallet is a vital step in the process of obtaining Bitcoins. After buying your first bitcoin, knowing which Bitcoin wallet to choose is the second most important step in becoming a Bitcoin user. Factors to consider when choosing the best bitcoin wallet for you include security, anonymity, and control.

Like Bitcoins are the digital equivalent of cash, similarly, a Bitcoin wallet is equivalent to a physical wallet. Broadly, there is a software wallet and a web or hosted wallet. The one that you install on your own computer or mobile device is a software wallet. It gives you complete control over the security of your coins, but they can sometimes be complicated to install and maintain. A web wallet or hosted wallet, on the other hand, is hosted by a third party. They are often much easier to use, but you have to trust the provider to protect your coins.

Technically, Bitcoins are not stored anywhere; there is a private key (secret number) for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. The Bitcoin wallet comes in many forms; desktop, mobile, web, and hardware.

Desktop wallets:

Desktop wallets are those that allow users to create an address for sending and receiving bitcoins and provide a place to store the private key for doing so. This can be done by downloading software to an individual computer. If you have already installed the original bitcoin client (Bitcoin Core), then you are running a wallet, but may not even know it. In addition to relaying transactions on the network, this software also enables you to create a bitcoin address for sending and receiving the virtual currency and to store the private key for it. The most well-known desktop wallets are EXODUS, Armory, Multibit HD and Electrum.

Mobile wallets:

The use of Desktop-based wallet is limited if you want to pay for something in a physical store. This is where a mobile wallet comes in handy. Mobile wallets are accessed through apps and allow users to transact on the go. Running as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay for things directly with your phone. While "full Bitcoin" clients download the entire Bitcoin blockchain, mobile wallets are designed to utilize only a small fraction of the blockchain and rely on other nodes within that network to access the remaining necessary information. For example, the Android-based Bitcoin wallet, Mycelium, Xapo and Blockchain (which keeps your bitcoin keys encrypted on your phone, and backed up on a web-based server).

Custodial wallets:

Web-based wallets store Bitcoin keys on the internet through a third-party website and allow users to access their bitcoins from almost anywhere. Several online services are available, and some of them link to mobile and desktop wallets, replicating your addresses between different devices that you own. There is, however, the potential danger associated with entrusting someone else with that information. For example, Coinbase, an integrated wallet/bitcoin exchange operates its online wallet worldwide.

                                                                         Sending coins with Coinbase

Bitcoin paper wallet:

Bitcoin paper wallet services provide users with a Bitcoin address and two QR codes, one that links to that address and another that provides the private key necessary for transferring bitcoins stored on it. The aim is to eliminate the digital storage of the key and, thus, the potential risk of a cyber attack.

Hardware wallets:

Hardware wallets are the most secure way of storing bitcoins and other cryptocurrencies. These are dedicated devices that can hold private keys electronically and facilitate payments.

The well-known hardware wallets are:

  • Trezor
  • Ledger Nano S 
  • Keep Key.

Ultimately, the choice is up to the user, depending on which features they want. Whatever they decide, it will be a crucial aspect of their experience with the digital currency.

 

Disclaimer:  This is not an investment advice. It is of paramount importance that everyone should do his or her own due diligence before investing in any product, platform, tokens etc. Cryptocentral.io does not endorse any content or product published on this page. Our aim is to simply provide all the readers with the latest information in the field of cryptocurrency / blockchain industry that might be of interest to our readers.

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