Guide, Bitcoin Wallet Types – Know the Difference
Bitcoin wallets are the same as bank accounts to store bitcoins. There, you can hold the amount of bitcoin you have, along with the private key that you use to access your bitcoin address. Your bitcoin address is your public key as well, which you can share with someone to send bitcoins to, or they deposit bitcoins in your account through that address. Yet, do you have any clue on the types of Bitcoin wallets?
There are 3 Main Types of Wallet
Bitcoin wallets vary in type. They can be software-based, online wallets, hardware devices, or paper wallets.
Each of those types has its properties that make it different from the other.
1- Paper Wallet
This is the simplest type of wallet, which is a sheet of paper you print out or written by you, that contains the private and public keys of your bitcoin address.
There are service providers out there, where you can create your bitcoin address with them, and ask for this type of wallet.
The privilege of this type of wallet is embodied in being not connected to a network, which means your keys are not exposed to third parties.
The negative side in such a type of wallet is that it is easy to lose it.
2- Software Wallet
It’s a program to install on your computer, laptop or mobile phone, that plays the role of an incubator of your bitcoin data, which are your bitcoin balance and private and public keys. Most of those are usually free, and easily configurable.
This type of wallet gives you the security of controlling your keys yourself, without exposing them to other parties. However, such type of wallet needs a constant care of maintaining a regular backup of it. This is to make sure you have a means of recovery in case of system crash or emergency. With this regard, backups are preferred to be stored not only on the PC/mobile phone that hosts the wallet, but on external sides as well. External storage media can serve very well here.
The negative side of this type of wallet is that your PC or mobile phone you installed the software on, may get stolen or hacked. This scenario means, the hands that take control of it, will have access to your wallet, and will most likely take out your balance. It is vitally important therefore to have your keys stored elsewhere too, so that you always have them within reach if you lose your phone or PC.
Many cryptocurrency service providers today have their own wallet software, however, the original one is the Bitcoin Core Protocol, which used to run the bitcoin network and is released by bitcoin.org.
Other types of software-based wallets are those created and hosted on online clouds. (which are also known as online wallets).
Having opted for a cloud-based wallet (online), means you have shared your keys with a third-party, so with that being said, this means you are at risk of compromising your privacy and financial security.
3- Hardware Wallet
This wallet sounds to be the best option, safety wise.
It is a small piece or devide of hardware (gadget), that works offline, and only connects with the web to execute the transaction.
With that in mind, this sounds to be the best option, safety wise.
It can still be stolen or lost, on the other hand, which means the bitcoins associated with the device, along with the keys registered on them, are lost then either way. To contain this security gap, big investors tend to keep their hardware wallets in highly-secured places, like bank vaults, for instance, while they will still be enjoying the dealing with confidentiality the wallet provide them.