The world of cryptocurrency trading can be volatile yet financially rewarding at the same time. This means that where there is treasure, interested eyes will be watching the most active crypto exchanges closely. If you’re not careful, you might lose your valuable Bitcoins (or other cryptocurrencies) to skilled hackers.
Fortunately, it is possible to protect your treasured Bitcoins with the use of Bitcoin wallets. So it’s time to get to know this trading tool more intimately.
What Is A Bitcoin Wallet?
A Bitcoin wallet is, at its simplest, a tool that allows for storage of any Bitcoins that you procure online via crypto trading exchanges. There are three kinds of Bitcoin wallets: the hardware wallet, the software wallet, and the paper wallet. Which is better?
Well, first, you need to understand how each crypto wallet functions.
The hardware crypto wallet is actually a tangible thing where you can store your Bitcoins. This means you can touch it with your hands and is externally connected to your computer.
With a hardware wallet, also known as a “cold wallet”, you will download Bitcoins into the wallet itself. The cold wallet is then sealed with a code known as a “private key”.
The private key works like your PIN for an ATM. You can access your Bitcoin “funds” inside the hardware wallet if you know the private key. For this reason, it is recommended by bitcoin.com that you use your cold wallet only for long term storage. After all, this kind of crypto wallet can be rather tedious to use. Bitcoin.com notes that you should also store your private key on paper and lock it up somewhere safe.
To contrast, there is also the software wallet which is sometimes called a “mobile wallet” instead. As its name suggests, the software wallet is not made of any hard substance but is actually an app (software application) that you can download into your smartphone or computer. With a software wallet, the principle is the same as with a cold wallet: you will seal the wallet with a code (the private key).
Last on our agenda is the so-called “paper wallets”. This is actually derived from the software concept but with a twist. According to bitcoin.com, you will need to download a specific software package into your computer.
This software will then generate for you a pair of private keys known as “public/private key pair” that can be used for either sending Bitcoins to another party or for your private spending.
Pros and Cons of the Three Wallets
The problem with cryptocurrency is that it doesn’t bear any marks of ownership. Hence, it is very important to have either a hardware wallet, a software wallet, or a paper wallet for stashing your Bitcoins during and after trading. However, each has its own good points and weak points.
The hardware wallet can be cumbersome to use if you tend to trade with crypto frequently. But the advantage is that it is the most secure of the three kinds of wallets mentioned.
This is because you will remove the Bitcoins from the Internet and physically store them within the hardware wallet. If you then shut down your Internet, there is no way anyone online can tap into your hardware wallet.
On the other hand, the software wallet permits for more rapid trades with Bitcoins if you prefer that. However, since it directly connects to the Internet at the touch of a button, it is also riskier than hardware wallets.
If someone gets lucky and finds out the private key to your software wallet, they can instantly download your Bitcoins – and that person can run away with them all. Again, since there are no marks of ownership on the Bitcoins, you can never prove the identity of the thief.
The paper wallet is actually just a printout of the private key used to encode the location of your Bitcoin stash. With this private key printout, you can literally trade face-to-face with another individual and just hand over the private key to the paper wallet to them, in exchange for whatever you wanted to get from that person.
The advantage is that you don’t have to spend much electricity to print out the private key. And since your computer would be shut down the rest of the time, it isn’t as risky as the software wallet.
The Cost of a Bitcoin Wallet
The truth is, there are so many Bitcoin wallet brands out there now that it can be dizzying to find out which one is best. However, you do have a choice when it comes to pricing.
For example, money.usnews.com lists the price for a hardware wallet under the Trezor Model One brand starting at $69. On the other hand, the price of a Trezor Model T is listed in cnet.com as $219. Cnet.com also notes that another wallet known as the Ledger Nano X costs $149. There are also “free” wallets such as the Mycelium, the Exodus, and the Coinbase wallets.
At the moment, buyers have a wide range of choices when it comes to acquiring Bitcoin wallets. It really depends on what you intend to download into the wallet itself.
The good news is that all this competition for Bitcoin wallets will result in the weaker products being weeded out in favor of the best of the bunch. You just need to be very picky when you’re choosing your preferred Bitcoin wallet since it can be quite expensive, but in the end it may be worth your time after all.