Bitcoin is digital money. Just like cash, you will have to store this money somewhere. In your pocket, in your wallet, in a bank, in a safe or in a hole in your backyard, depending on how paranoid you are.
When it comes to Bitcoin, no matter where you decide to hold your coins it’s called a wallet. Depending on how safe you want to keep these coins, you have different options for wallets. Some cryptocurrency wallets act as a bank, others as a purse, others are the box in the hole in your backyard.
What is a cryptocurrency wallet
Bitcoin lives on the blockchain which is a public database that keeps track of all the balances and transactions that are going on between the Bitcoin users. When you own Bitcoin, it means you own a pair of a public key and private keys. You can compare them to a username and password. The public key is your username and the private key is your password, but they are automatically generated for you.
The public key
The public key is also known as your Bitcoin address. And it’s a combination of numbers and letters which might not make any sense, but it makes sense on the blockchain.
Public Key Example: 1NfgLjw5yjdNU5TmWMPREMkDcDtcw23QmK
This is what you share with someone when you want to receive Bitcoin. It’s sort of like your Bitcoin account number and it shows your balance on the blockchain.
The private key
The private key it’s also a combination of numbers and letters. But it only makes sense together with your public key. Just like a password, you should keep it safe and not share it with anyone.
Private key Example: 5KFXMnrN6W14gM3qdhgrcAW3uYy7AjTjDbmxJ34YNSVJvsfba6z
Only by knowing the correct private key, you are able to spend your Bitcoin.
To recap, your coins exist on the blockchain. And the blockchain is a public database that lives on all the computers of the network. To get access to your coins, you need a username and password: the public and private keys.
Bitcoin wallets don’t actually hold any coins, what they hold is your username and password to access your Bitcoin.
A Bitcoin wallet is like a key to your safe deposit box on the Blockchain. That’s why is critically important to ensure you are using a safe and secure wallet. If you don’t make sure your wallet is safe and secure, you are exposed to various risks.
Let’s just say a have a Bitcoin wallet on my phone.
If my phone gets hacked, there are no actual coins on the device. Hackers will look for my public and private key, get access to my bitcoin through them then send the coins to other wallets and leave my balance wallet empty.
And as you should already know, cryptocurrency transactions are irreversible.
The best Bitcoin wallet
Like I said in the beginning, you can store money in different ways. You keep some change in your pocket, a little bit more in your wallet, maybe your salary in the bank, and your life savings in a safe.
Why do you do that? You need money to spend during the day so you need it accessible and close to you. Some of the money you want to be safe and insured by a bank for later use. For your life savings, you want to be sure they are in a very safe place and that they are best protected.
That’s why there’s no best Bitcoin wallet: it depends on your needs. And you can have multiple wallets for different needs. Some are safer, some are more convenient. Also, you don’t have to commit to only one wallet. You can easily switch between them.
No matter what type of wallet you decide to use, be sure to have at least 2 separate backups for it. I want to emphasize this now but I’ll tell you more after I present to you all types of wallets that you can choose from.
There are 2 main categories of wallets: Cold and Hot.
Cold wallets are cryptocurrency wallets that are not connected to the internet all the time. You only connect them when you need to make a transaction. And because of this, they are the safest.
There are 2 types of cold wallets: hardware wallets and paper wallets.
If you want the safest and most secure wallet to own your cryptocurrency, hardware wallets are the best. This is your safe, where you would keep your life’s savings. Hardware wallets are digital devices that connect to the internet only when you need to make a transaction which means that even if your computer or phone gets hacked, your Bitcoin is safe.
Because they are the safest, you will have to take additional steps when sending/spending Bitcoin. For example, you have to have this device on hand, connect it to your computer, initiate the transaction on the computer then confirm it on your device. It’s not complicated, but it takes more than just paste in a bitcoin address, select the amount you want to send and click Send.
If you are serious about investing in cryptocurrencies, you should seriously consider such a wallet. The most popular ones are the Ledger Wallet and Trezor. I personally use the Ledger Nano S and I plan to upgrade to Ledger Nano X this year.
I don’t really need any other type of wallet knowing they are safe this way. When buying a hardware wallet, make sure you buy it directly from the company that is making it. This way you avoid being sold malicious or infected devices.
Learn more about the Ledger wallet: cryptogrubber.com/ledgerwallet
Learn more about the Trezor wallet: cryptogrubber.com/trezor
Another type of cold wallet is a paper one. A paper Bitcoin wallet has printed on it the public and private key. Like I said before, you would use the public key to check the balance and receive Bitcoin and the private key when you want to spend Bitcoin.
This is maybe the safest method to store Bitcoin because it’s never connected to any digital device. And it’s safe as long as you keep the paper wallet very well protected from fire, flood, theft, or any kind of risk of losing it. Because if you lose it and you don’t have backups, your Bitcoin is lost forever.
I never use this kind of wallet and I don’t believe I ever will. The hardware wallet is good enough for me.
If you want to generate your own paper wallet, you can do it here: bitaddress.org
Maybe you already figured this out, but the hot wallets are the opposite of the cold wallets which means they are always or most of the time connected to the internet. These are the wallets that you can install on your phone, on your computer, or access in a web browser.
If you search in your mobile app store, you’ll have plenty of options. Most of them are safe to use and very well secured, but I would only hold in these wallets the same amount of money I would keep in my pocket. These kinds of wallets are straightforward to use, and I’ll recommend a couple of them.
When you are using hot wallets you are trading convenience for security. You are free to hold any amount of coins in these wallets, just keep in mind there are safer options. Your Bitcoins are always under threat when placed online and connected 24/7.
Two good all-round cryptocurrency wallets are Atomic Wallet and Exodus.
Learn more about Atomic Wallet: https://atomicwallet.io/
Learn more about Exodus Wallet: https://exodus.io
I chose these two wallets for various reasons:
1. The wallets are available on Android and iOS devices as well as Mac, Windows, or Linux. So you can access and use your funds from any of these devices as long as you installed the wallet on them
2. They are decentralized wallets and you are anonymous when using them. These companies don’t know who you are and can’t access your funds. They don’t collect your private information and you own your private key
3. They have attractive user interfaces and are beginner-friendly but also suited for advanced users. If I would need a hot wallet I would totally use one of these two
4. They support multiple cryptocurrencies, not only Bitcoin
Many hot wallets will offer you the option to buy cryptocurrency or trade cryptocurrency within the app which I don’t usually recommend. It might be convenient but there are fees you should be aware of. If you choose to use these features, be wary of the fees you are paying for the convenience.
But it only takes a couple of minutes to create your wallet so here is a brief step-by-step guide:
Always backup your Bitcoin Wallet!
Whenever you create a wallet that gives you control over your private key, you must backup the seed phrase. The 12 or 24 words are the master password of your Bitcoin wallet. Backup them in multiple places where they can’t be lost or destroyed.
But be careful, whoever gets their hands on this seed phrase, they have full control of the wallet. You can even remember the words in the correct order and your Bitcoin wallet lives in your head. Just to be sure, have backups!
You can switch from Atomic Wallet to Exodus just by typing in this seed phrase. This is also how you change wallets.
Another type of hot wallet is the one that you open with a company that offers such services. Like blockchain.com for example. You create an account with one of these companies and they hold the private key for you.
In a way, exchange platforms can be a cloud wallet, but they are more like banks. It’s fine to keep money in the bank, but you are not the owner of the money anymore. You gave the money to the bank and they owe it to you.
It’s the same for cryptocurrency. If you let other companies take care of your private key, they have access to your Bitcoin and they let you access it through their company.
If the website goes down or the company goes bust, you risk losing your Bitcoin that you kept in those wallets. You also share your private information with the company, only if it’s just the email address.
The cloud wallets are best suited when you make many transactions per day or per week. When moving the coins from the wallet to the exchange so many times that you lose time and money by doing so.
A mobile wallet like Atomic or Exodus is enough to get started.
Mobile and desktop wallets have medium security, medium ease of use, and are designed for medium-frequency of transactions.
Hardware wallets like the Ledger offer the best security, they are not as convenient to use as mobile wallets and they are designed for a low frequency of transactions.
Web wallets are the lowest security of them all, they are the easiest to use and are designed for a high frequency of transactions.
Which one are you using or are you planning to use? Let me know in the comments below!