Bitcoin Wallet Guide, Reviews and Comparison
Bitcoin wallets are programs that allow you to send and receive Bitcoin. However, in order to choose the best wallet for your needs there are a lot of factors to take into account. In this post I’ll cover everything you need to know about wallets and also review the best Bitcoin wallets around.
Bitcoin Wallet Summary
A Bitcoin wallet is a software program in which Bitcoins are stored. Technically, Bitcoins are not stored anywhere. For every individual who has a balance in a Bitcoin wallet, there is a private key (secret number) corresponding to the Bitcoin address of that wallet. Bitcoin wallets facilitate the sending and receiving of Bitcoins and give ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms. The four main types are desktop, mobile, web, and hardware.
If you want the complete guide to Bitcoin wallets and different wallet reviews keep on reading. Here’s what I’m going to cover:
- What is a Bitcoin wallet?
- What is a private key?
- Types of wallets
- What is the Best Bitcoin Wallet to Use?
- Additional Bitcoin Wallet Terms
- Backing up your wallet
- Transaction fee
- Conclusion – My Top Picks
1.What is a Bitcoin wallet?
A Bitcoin wallet is a software program that allows you to transfer and store bitcoin. Bitcoin isn’t technically “stored” anywhere so the wallet actually stores a private security key that corresponds to the Bitcoin address of your wallet. The key is actually what gives you ownership and control of bitcoin stored in it, making it an invaluable tool as an investor.
A Bitcoin wallet is “a way for you to store your digital keys, or access, to certain locations on the blockchain”.
Similar to other cryptocurrencies, bitcoin is stored in addresses on its blockchain, which is essentially a ledger or database that can’t be modified or erased. Each address has two keys (i.e., alphanumeric codes) associated with it, a public key and a private key. The public key is what other people can use to send bitcoin to it, and the private key is what you’d use to send bitcoin from it.
This is precisely why some investors prefer storing their bitcoin on a wallet instead of a third-party platform. A wallet holds the private key, which is necessary to validate that the true owner of a Bitcoin address is really requesting that bitcoin be sent from that address.
Here’s a Bitcoin address example: 1i9qXx1ZhaY8DuZEwpexbfafa4DT2mSwP
(Bitcoin addresses always start with a “1” or “3”)
2. What is a private key?
A private key in the context of Bitcoin is a secret number that allows bitcoins to be spent. Every Bitcoin wallet contains one or more private keys, which are saved in the wallet file. The private keys are mathematically related to all Bitcoin addresses generated for the wallet.
Because the private key is the “ticket” that allows someone to spend bitcoins, it is important that these are kept secret and safe. Private keys can be kept on computer files, but are also often written on paper.
Private keys themselves are almost never handled by the user, instead the user will typically be given a seed phrase that encodes the same information as private keys.
Some wallets allow private keys to be imported without generating any transactions while other wallets or services require that the private key be swept. When a private key is swept, a transaction is broadcast that sends the balance controlled by the private key to a new address in the wallet. Just as with any other transaction, there is risk of swept transactions to be double-spending.
In contrast, bitcoind provides a facility to import a private key without creating a sweep transaction. This is considered very dangerous, and not intended to be used even by power users or experts except in very specific cases. Importing keys could lead to the Bitcoins being stolen at any time, from a wallet which has imported an untrusted or otherwise insecure private key – this can include private keys generated offline and never seen by someone else
Custodial vs. Non-Custodial wallets
Anyone who has been around the Bitcoin and cryptocurrency space for more than a couple of weeks has probably heard the phrase, “Not your keys, not your Bitcoin.” But what does this mean?
In Bitcoin, the idea is to give the individual user complete control over their money. In other words, when used properly, a user’s funds cannot be seized by a third party such as a government or financial institution.
To take full advantage of cryptocurrency technology, users must understand the differences between custodial and non-custodial wallets.
What Are Custodial Wallets?
Custodial wallets are despised by some segments of the Bitcoin community. The basic idea is your cryptocurrency is handed over to a third party to be stored rather than taking care of the funds on your own. The removal of third parties from the financial system is a clear point of this technology and explained in the original Bitcoin white paper, which is why custodial wallets are sometimes referred to as Bitcoin banks.
Pros & Cons of Custodial Wallets
- If computer security isn’t your strong point you may be better off letting a third party secure your crypto.
- A third-party custodian can be helpful in making sure you don’t lose access to your funds.
- Custodial wallets are often a requirement if you want to trade on the most popular cryptocurrency exchanges.
- Some custodians will offer you a return on your cryptocurrency-based savings.
- You don’t own your private keys, which means security is being left up to a third party.
- Someone else is holding your money for you, which means they could decide to simply take it.
- Custodial wallets operate very similarly to the traditional financial system due to the fact that they are centralized.
- You may not gain access to new cryptocurrencies that are created via forks of cryptocurrencies that you already hold.
What are Non-Custodial Wallets?
Non-custodial wallets are Bitcoin in its truest form. A non-custodial wallet is simply a piece of software on your own computer or phone that puts you in full control of your cryptocurrency holdings. You hold your own private keys, which means no one else is able to make a transaction on your behalf. However, with greater power comes great responsibility.
Pros & Cons of Non-Custodial Wallets
- You are in complete control of your Bitcoin, which means your assets are much more difficult to seize.
- You can make transactions without someone looking over your shoulder.
- You can gain access to advanced features such as non-custodial access to the Lightning Network.
- You can opt into different levels of security depending on your threat model.
- You can gain access to higher levels of security through the combination of hardware and paper wallets.
- You will have full access to any dividends or staking rewards associated with your cryptocurrency holdings.
- It will be more difficult to trade your cryptocurrency quickly, as it will first need to be sent to an exchange.
- Being in charge of your own security comes with great responsibility, and human error could lead to theft or accidental deletion.
- You will usually be presented with user interfaces that are a bit more difficult to understand.
3. Types of Wallets
There are two main types of Bitcoin wallets – cold storage, and hot wallets.
Cold storage: The secure way to hold Bitcoin
Cold storage (or cold wallets) refers to any type of wallet that is detached from an Internet connection and therefore cannot be hacked remotely. Some examples of cold storage wallets are hardware wallets, paper wallets, and brain wallets. All cold storage wallets are non-custodial.
A hardware wallet is a physical electronic device, built for the sole purpose of securing crypto coins.
The core innovation is that the hardware wallet must be connected to your computer, phone, or tablet before coins may be spent.
The two most popular and best Bitcoin and cryptocurrency hardware wallets are:
Hardware wallets are a good choice if you’re serious about security and convenient, reliable Bitcoin & crypto storage.
Hardware wallets keep private keys separate from vulnerable, internet-connected devices.
Your all-important private keys are maintained in a secure offline environment on the hardware wallet, fully protected even should the device be plugged into a malware-infected computer.
As bitcoins and cryptocurrencies are digital, cyber-criminals could, potentially, target your computer’s “software wallet” and steal them by accessing your private key.
Generating and storing private keys offline using a hardware wallet ensures that hackers have no way to reach your coins.
Hackers would have to steal the hardware wallet itself, but even then, it can be protected with a PIN code.
Don’t worry about your hardware wallet getting stolen, lost or damaged either; so long as you create a secret backup code, you can always retrieve your coins.
A paper wallet is an offline mechanism for storing bitcoins. Unlike fiat currency, there is no physical representation of a bitcoin (or most other types of cryptocurrency). Rather, wallets that are used to store digital tokens are usually software programs that help to facilitate updates to the blockchain ledger when transactions are made.
Paper wallets are different from so-called hot wallets because they operate separately from the Internet. However, they still do not store physical bitcoins; the paper quality of these wallets refers primarily to the method of access for the cryptocurrency owner.
Paper wallets were primarily popular in the early years of bitcoin. In recent years, cryptocurrency users have tended to explore other methods of securing their holdings.
Hot wallets – The convenient way to store Bitcoin
A hot wallet refers to any form of Bitcoin wallet that is connected in some way to the Internet. This can be a wallet that is connected to a web service, a wallet installed on a computer connected to the Internet, or even a wallet installed on your mobile phone, assuming you have an active data connection to and from your phone.
Hot wallets, while being the most popular type of wallet, are also the least secure because they allow access to their inner workings through Internet connections.
As the name infers, a Desktop wallet is a product you download and execute locally on your PC. Not at all like some online adaptations, work area wallets give you full command over your keys and assets. At the point when you create another work area wallet, a document called “wallet.dat” will be put away locally on your PC. This document contains the private key data used to get to your cryptographic money addresses so you ought to encode it with an individual secret key.
In the event that you scramble your Desktop wallet, you will be required to give your secret phrase each time you run the product with the goal that it can peruse the wallet.dat record. On the off chance that you lose this record or overlook your secret word, you will undoubtedly lose the entrance to your assets.
Hence, it’s pivotal to reinforcement your wallet.dat document and keep it some place safe. On the other hand, you can trade the comparing private key or seed state. Thusly, you will have the option to get to your assets on different gadgets, in the event that your PC quits working or becomes out of reach by one way or another.
All in all, work area wallets might be viewed as more secure than most web adaptations, however it’s critical to ensure your PC is spotless of infections and malware before setting up and utilizing a cryptographic money wallet.
Mobile crypto wallets are generally the same as desktop crypto wallets — they’re still non-custodial, hot, software wallets — except they’re downloaded on your phone or tablet. Some mobile crypto wallets support Android and others iOS, and some support both operating systems. They can also allow you to trade while in control of your private keys. Other software wallets can have both mobile and desktop versions.
The major benefit of a mobile crypto wallet over a desktop one is its portability. If your mobile crypto wallet is on your primary phone, it’s likely on your person whenever you need it. That’s also it’s biggest drawback; many are reluctant — others tempted — to walk around with all their crypto in their pocket. Even though your mobile crypto wallet likely has a PIN and recovery phrase, you could be putting your funds at risk if you haven’t taken sufficient precautions.
You can utilize web wallets to get to blockchains through a program interface without downloading or introduce anything. This incorporates both trade wallets and other program based wallet suppliers.
As a rule, you can make another wallet and set an individual secret key to get to it. Nonetheless, some specialist organizations hold and deal with the private keys for your benefit. Despite the fact that this might be progressively helpful for unpracticed clients, it’s a hazardous practice.
On the off chance that you don’t hold your private keys, you’re confiding in your cash to another person. To address this issue, many web wallets currently permit you to deal with their keys, either completely or through shared control (by means of multi-marks). So it’s imperative to check the specialized methodology of every wallet before picking the most reasonable for you.
4. What is the Best Bitcoin Wallet to Use?
Different people use different Bitcoin wallets for different purposes. For example, if I need to store a large amount of Bitcoin safely, I will probably use cold storage. If, on the other hand, I just want to pay for a cup of coffee a hot wallet would be more suitable.
Usually, wallets vary on the scale of security versus convenience, and you need to decide where you want to be on that scale. Some of the questions you should ask yourself include:
- How many bitcoins will I be storing?
- How frequently will I use the wallet?
- Can I afford to pay for a wallet?
- Will I be storing additional coins other than Bitcoin?
- Do I need to carry the wallet around with me?
- Do I need to share the wallet with someone else?
- How tech savvy am I?
- How much do I value my privacy?
- Do I trust myself to safeguard my wallet, or do I want to give a third party the task of doing so?
You may want to use more than one wallet. For example, you can use a hardware wallet for large sums of Bitcoins and a mobile wallet with a small balance on it for daily payments. This way, even if your mobile phone breaks or gets stolen, you’re not risking a lot of money.
How do I get a Bitcoin Wallet?
Desktop and mobile wallets can be download for free from the Internet, hardware wallets can be bought online and will be shipped to your home or office. Web wallets require you to sign up to a specific service. What is the Best Bitcoin Hardware Wallet?
What is the Best Bitcoin Hardware Wallet?
Ledger wallets are hardware cryptocurrency wallets made by Ledger, a company headquartered in Paris, France. In the U.S., the company has offices in San Francisco, California. Ledger was launched in 2014 by eight experts who had backgrounds in embedded security, cryptocurrencies, and entrepreneurship. The company’s goal is to create secure solutions for blockchain applications.
Pascal Gauthier is the company’s chief executive officer (CEO). The company has over 130 employees.
TREZOR is a pioneering hardware wallet company. The combination of world-class security with an intuitive interface and compatibility with other desktop wallets, makes it ideal for beginners and experts alike. The company has been gained a lot of the Bitcoin community’s respect. TREZOR offers two main models – The TREZOR One and TREZOR Model T (which has a built in touch screen).
The KeepKey has a robust design with anodized aluminum on its backside, making it portable and easy to hold.
One of the main innovations of the Keepkey is its native integration with web-based trading platform ShapeShift. It’s worth noting that while the KeepKey has the deepest integration with ShapeShift, you can still use it with other wallet software.
CoolWallet is a credit card sized Bluetooth device that stores and secures your bitcoins and private keys. It fits in your wallet and works wirelessly.
Every Bitcoin transaction must be manually confirmed and approved through its e-paper display and button.
CoolWallet only acknowledges the paired smartphone. Whoever stole the CoolWallet are not able to steal any bitcoins. Using recovery Seed can restore all your bitcoins in case you lost the device.
What is the Best Bitcoin Desktop Wallet?
Exodus is a multi-currency wallet that supports over a hundred cryptocurrencies. The crypto wallet was originally available only on desktop, but is now also available for iOS and Android mobile platforms as well.
Exodus sets itself apart from other wallets with a design focus on people who have never dabbled with cryptocurrencies. It has an easy-to-use interface and its developers spend a great deal of time and effort polishing the UI to make it more intuitive.
Electrum is one of the oldest Bitcoin wallets out there, with a focus on speed and low resource usage. Written in Python, the open source wallet manages to achieve this by using servers that index the Bitcoin blockchain.
Electrum makes judicious use of disk space and bandwidth, using the Simple Payment Verification (SPV) mechanism to verify transactions. Since it uses SPV, Electrum doesn’t download the entire blockchain, but instead tracks transactions by querying servers on the Bitcoin network. Using SPV also helps Electrum to verify transactions faster than some of its peers.
The wallet also packs quite a few advanced features. It can be used to set up MultiSig transactions, supports the replace-by-fee (RBF) mechanism and also offers coin control features.
Bitcoin Core (also known as Bitcoin QT) is a full node, meaning it’s a wallet that downloads the complete Bitcoin blockchain to your computer. This takes a lot of time (can reach several weeks) but also gives you an array of advanced options that are more suitable for experienced users. If you’re just starting out I suggest avoiding this wallet.
Armory wallet is one of the oldest cold storage systems for Bitcoin. The BTC-only wallet allows you to store your Bitcoins away from prying eyes of hackers and scammers. This wallet has been one of the safest and most popular options for people who want to keep their BTC funds safe in an open source, cold storage wallet that provides offline functionalities too.
What is the Best Bitcoin Mobile Wallet?
Ledger Nano X
The Ledger Nano X is the latest hardware wallet by Ledger. The Nano X’s interface is done through the Ledger Live mobile app (via a bluetooth connection). Ledger’s intuitive design is maintained with this model. This is probably one of the safest ways to store coins on your mobile device since the private key isn’t on the device, it’s on the Nano X itself.
Edge is a decentralized and secure mobile multicurrency wallet. Rebranded from Airbitz, the Edge Wallet provides true financial autonomy & privacy for its users. Neither Edge nor any 3rd party can access users’ funds or data within the Edge wallet. A clean, user-first interface solves many of the usability issues plaguing current wallet solutions while adding features including:
- Decentralized server architecture. Wallets work even if Edge servers are down
- Supports Bluetooth Low Energy (BLE) to transfer funds instead of scanning QR codes
- Simple account creation using just a login & password (no printing or emailing of PDFs, writing down passphrases or adding encryption settings)
- Automatic wallet encryption, backup, and multi-device synchronization
Founded back in 2014, Coinomi is the oldest multi-asset wallet available, with millions of active users. Most importantly, no Coinomi wallet has ever been hacked or otherwise compromised to date.
Coinomi is a security-first, multi-asset wallet for both mobile & desktop that provides native support and true ownership for as many as 125 blockchains (the largest number in the market) & 382 tokens — a total of 507 assets. Supports virtually thousands of assets since the user can add any ERC20 token himself!.
Review BRD is probably one of the simplest Bitcoin mobile wallets around. The wallet is open source which makes it more secure and reliable. No registration is required to use the app; once the app is installed you can instantly start sending or receiving Bitcoin. However, its simplicity also makes it lacking in features.
5. Additional Bitcoin Wallet Terms
Multi-signature (multisig) refers to requiring multiple keys to authorize a Bitcoin transaction, rather than a single signature from one key. It has a number of applications.
- Dividing up responsibility for possession of bitcoins among multiple people.
- Avoiding a single-point of failure, making it substantially more difficult for the wallet to be compromised.
- m-of-n backup where loss of a single seed doesn’t lead to loss of the wallet.
Use as a joint account
Standard transactions on the Bitcoin network could be called “single-signature transactions,” because transfers require only one signature — from the owner of the private key associated with the Bitcoin address. However, the Bitcoin network supports much more complicated transactions that require the signatures of multiple people before the funds can be transferred.
These are often referred to as m-of-n transactions. The idea is that Bitcoins become “encumbered” by providing addresses of multiple parties, thus requiring cooperation of those parties in order to do anything with them. These parties can be people, institutions or programmed scripts.
Use for increasing security
The private keys needed to spend from a wallet can be spread across multiple machines, eliminating any one of those machines as a single point of failure, with the rationale that malware and hackers are unlikely to infect all of them. The higher the number of keys required to spend the funds (ie the higher m is in m-of-n), the more difficult it would be for an attacker to successfully steal your funds, however the more cumbersome actually using that wallet becomes.
The multisig wallet can be of the m-of-n type where any m private keys out of a possible n are required to move the money. For example a 2-of-3 multisig wallet might have your private keys spread across a desktop, laptop, and smartphone, any two of which are required to move the money, but the compromise of any one key cannot result in theft.
This can be used in conjunction with hardware wallets. By requiring that keys from multiple hardware wallets sign transactions, it can vastly reduce the likelihood that a malicious party that handled your hardware wallet could steal your funds, because in order for it to do that, the malicious party would have to compromise multiple hardware wallets. If each hardware wallet you use in a multisig wallet is made by a different company, it would be incredibly difficult for them to secretly conspire on an attack.
Use as a backup
Storing multiple keys to an m-of-n wallet in different locations can serve as a backup. For example, in a 2-of-3 multisig wallet, the loss of one key does not result in loss of the wallet, since the other two keys can be used to recover the funds. The redundancy of the backup is the difference n minus m, so for example a 3-of-5 multisig wallet (with no additional seed backups) has a redundancy of 2, meaning that the loss of any 2 keys can still be recovered from.
Simplified Payment Verification (SPV) – using Bitcoin without running a full network node. By default, upon receiving a new transaction a node must validate it: in particular, verify that none of the transaction’s inputs have been previously spent. To carry out that check the node needs to access the blockchain. Any user who does not trust his network neighbors, should keep a full local copy of the blockchain, so that any input can be verified.
As noted in Nakamoto’s whitepaper, it is possible to verify bitcoin payments without running a full network node. And this is called simplified payment verification or SPV. A user or user’s bitcoin spv wallet only needs a copy of the block headers of the longest chain, which are available by querying network nodes until it is apparent that the longest chain has been obtained.
Then, wallet using spv client get the Merkle branch linking the transaction to its block. Linking the transaction to a place in the active chain demonstrates that a network node has accepted it, and blocks added after it further establish the confirmation.
A brainwallet refers to the concept of storing Bitcoins in one’s own mind by memorizing a seed phrase. If the seed is not recorded anywhere, the Bitcoins can be thought of as being held only in the mind of the owner. If a brainwallet is forgotten or the person dies or is permanently incapacitated, the Bitcoins are lost forever. Using memory techniques allow them to be memorized and recalled easily.
To create a brainwallet, use Bitcoin wallet software to generate a seed phrase and then memorize it. Such seeds are generated by wallets like Electrum, Armory and Mycelium.
Brainwallets are not recommended to be used in general because of fallible human memory. But in special situations they could be very useful, for example when fleeing a country as a refugee with only the clothes on your back.
6. Backing up your Bitcoin wallet
Because private keys and seed phrases have complete power over your Bitcoins they must be kept secret and safe. If you fail to protect your wallet’s private key or seed, the Bitcoins it controls could be irretrievably lost.
A standard Bitcoin wallet (i.e. not an HD wallet) will create a wallet.dat file containing its private key. This file should be backed up by copying it to a safe location, such as an encrypted drive on your computer, an external flash drive, or even a piece of paper that’s hidden away.
An HD wallet, on the other hand, will supply you with a seed phrase with 12–24 words that you should write down in a safe place. One interesting product people often use for backing up their wallets is the Cryptosteel, an indestructible metal plate that has your private key on it.
7. Transaction fee handling
Each Bitcoin transaction has a transaction fee attached to it. This fee is included in order to incentivize Bitcoin miners to include the transaction in the next block of transactions. The larger the size of your transaction, the higher the fee you’ll need to pay in order to get confirmed in the next block.
Some transactions aren’t as time sensitive as others. For example, if I’m just moving funds from my desktop wallet to my hardware wallet for safekeeping, I don’t really care if it takes the transaction even two days to get confirmed. That’s why I can allow myself to use a lower fee. However, if I’m sending payment for a service or a product I purchased, I might want to use a higher fee so the transaction is confirmed faster.
Fees are also highly dependant on the number of transactions waiting to be confirmed. Since if a lot of people want to confirm their transactions, they will start bidding up the attached fees. Therefore, a fee that was considered high yesterday might be considered low today.
One of the important features to check out in a wallet is fee handling. Here is what you need to find out:
- Does the wallet allow you to choose your own fee or does it choose it automatically for you?
- Does the wallet support Segwit? An upgrade issued to the Bitcoin protocol, which—among other things—allows you to shrink your transaction file size (hence reducing your required fee).
- Does the wallet support Replace by Fee (RBF)? If your transaction can’t get confirmed because you didn’t pay a high enough fee, you can easily bump the fee via the RBF option. Your wallet will then rebroadcast the transaction with a fee raised to your required level.
8. Conclusion – My Top Picks
Now that you’re a Bitcoin wallet expert you probably understand that there’s no simple answer to the question “what is the best Bitcoin wallet to use?” But not to leave you empty handed here are my personal picks:
- Ledger (Hardware)
- TREZOR (Hardware)
- Exodus (Desktop)
- Electrum (Desktop, not beginner friendly)
- Edge (Mobile)