A cryptocurrency wallet is the first step to owning and using Bitcoin or other crypto. There are several types of Bitcoin wallets that suits different kinds of crypto users.
A wallet for cryptocurrency is the equivalent of a bank account. It allows you to receive, store and send cryptos such as Bitcoins. Wallets are often described as a place to hold Bitcoins, but it is more correctly defined as something that “stores the digital credentials for your Bitcoin holdings”.
It’s not the digital coins that need to be stored and secured, but the private keys that give you access to them.
To put it simply: A Bitcoin wallet is an app, website or device that manages private keys, which gives you access to your Bitcoins. You need a wallet to store your bitcoin so you can start transacting on the network.
A hardware wallet stores the user’s private key in a secure hardware device. It is a physical electronic device, built for the single purpose of securing crypto coins. They have many advantages over standard software wallets:
- The device must be connected to your computer, phone or tablet before coins may be spent
- Private keys cannot be transferred out of the device in plaintext
- They are immune to computer viruses that steal from software wallets
- The software is often open source, allowing a user to validate the entire operation of the device
Hardware wallets are a good choice if you’re serious about security. They are a convenient and reliable crypto storage. This kind of offline storage ensures that hackers have no way of reaching your coins – they would have to steal the device itself, but even then it can be protected with a PIN kode.
Software wallets, or hot wallets, run on internet connected devices like a computer, mobile phone or tablet. They generate your private keys on an internet connected device, and cannot be considered 100% secure.
They are great for making frequent payments just like your normal wallet, but not a good choice for the secure storage of big amounts of Bitcoin. Some software wallets even allow you to buy Bitcoin directly in the app.
Software wallets are a good choice for storing small amounts of Bitcoin, and spending and receiving is easy and fast. They also function across multiple devices. However, if you store a large amount of Bitcoin they are not safe.