How to choose a Bitcoin wallet

Bitcoins are stored digitally. This means, in order to store Bitcoin yourself, you will need a Bitcoin wallet. Much like shopping for a physical wallet, when you start shopping for a Bitcoin wallet, you are confronted with many choices. In this article, we will explore the options available when it comes to acquiring a new Bitcoin wallet.

Hot and Cold

The first decision you need to make is whether you will store your Bitcoins hot or cold. Any wallet that is connected to the internet is termed a hot wallet, whereas a wallet that is disconnected from the internet, such as a paper wallet, is referred to as a cold wallet.

Yes, you can store your Bitcoins on paper. Paper wallets are great for security but they are not very practical. To use your funds, you need to upload your off-line private key into a digital wallet. For this reason, paper wallets are best used for long term storage only. If you lose your paper wallet, you have lost your funds, so be sure to secure the paper you store your wallet on securely (i.e. in a fireproof safe). If you would like to make your own paper wallet, have an easy to follow guide.

Web or Mobile?

Software based wallets come in three main varieties; web, mobile or desktop. Web solutions are usually the most convenient. With a web based solution, you trust the wallet provider to securely store your private key online. A popular web based wallet is Web based wallets are super convenient but generally not recommended if you are storing a significant quantity of money. If you are using a web based wallet and are concerned about anonymity, be sure to choose a wallet provider that supports HD wallets.

A HD (Hierarchical Deterministic) wallet allows you to create many wallets from one seed.

A HD seed is a series of words, in a random order, used to generate your private key. When using a HD wallet, you are also able to recover your private key by utilising the HD seed.

Mobile wallets are similar to web based wallets, but as the name implies, are designed to be used on mobile devices. Mycellium and Airbitz are two popular mobile solutions. Both of these apps allow you to download an app onto your Android or Apple IOS phone, where you will have your wallet setup in minutes.

Desktop wallets

A desktop wallet offers better protection than a web or mobile based wallet. With a desktop wallet, you and you alone are in control of your private key.

Your private key is stored on your hard drive and in the case of hardware failure, you can recover it. However, if you have malware on your computer, someone could potentially access your private key, and if they can access your private key, they can access your funds.

If you are concerned about security, it is advisable to only connect your desktop wallet to the internet when you are actually transferring funds.

The most popular desktop wallet right now is Electrum. There are a number of reasons for this.

Electrum looks like it was designed about ten years ago judging from the UI, but don’t let this fool you.

It is very robust, and it is also very secure. The strength in security comes from the fact that Electrum is open source, so the source code for the application is in the public domain. Another great feature of Electrum is the fact that it allows you to increase the mining fee you’ve sent after you have broadcast your transaction. This means if a transaction is taking a particularly long time, you can increase your fee, in the hope that you will speed it along.

Hardware wallets

Hardware wallets (cold because they are disconnected when not transacting) offer a great balance between security and convenience. Your private key is stored in a gadget that plugs into your PC, and this device must be plugged in to the internet to transact with your funds. Two of the more popular hardware wallets are Ledger and Trezor.

Hardware wallets are a great all round choice for medium-long term storage of your Bitcoin funds.