Bitcoin Wallet Types

Getting started with Bitcoin? Advantages and Disadvantages

May 2020, 3 min read

Privacy coins

I n the crypto community, a wallet refers to storage for cryptocurrencies, or storage for private and public keys. There are different types of Bitcoin wallets with different features, each type of wallet with its set of pros and cons. It may interest you to know that there are two basic classifications of bitcoin wallets: Cold wallets, and hot wallets.


Cold Wallets

These are bitcoin wallets that are used for the offline storage of Bitcoin and other cryptocurrencies. They refer to wallets that are not dependent on a network to function. Cold wallets take away the ability to interact with the internet.

Advantages

  • Improved security.
  • Offline Storage
Disadvantages
  • Needs frequent backup.
  • Can be misplaced easily.
  • Not easily adapted for use in making regular payments.


Hot Wallets

These refer to programs that are created for the storage of bitcoin and other cryptocurrency, and need the internet to aid its functionality. It enables the user transfer and receive cryptocurrency.

Advantages

  • Ease of use.
  • A good tool to facilitate micro and regular payments.
  • Functions without the use of physical media
Disadvantages
  • Susceptibility to hacks.
  • Needs the internet at all times.
  • Improper installation/uninstallation can lead to loss of wallet and bitcoin/cryptocurrency.



Online Wallet

These refer to programs that are created for the storage of bitcoin and other cryptocurrency, and need the internet to aid its functionality. It enables the user transfer and receive cryptocurrency.

Advantages

  • Registration is quick.
  • Can facilitate transactions with multiple cryptocurrencies.
  • Users can remain anonymous, because verification is not a necessity.
Disadvantages
  • Susceptibility of the crypto exchange getting hacked, and thus exposes private and public keys of crypto owners.



Mobile Wallets

These come in form of installable crypto wallet programs on mobile devices. It comes in handy for people who always make payments with cryptocurrencies.
Advantages

  • Much safer than online wallets.
  • Convenient to use.
  • Added features including scanning of QR code.
Disadvantages
  • Not suitable for holding large amounts of crypto, due security reasons.

Examples include Xapo, Coinomi, Exodus, Bitcoin Core. etc.



Hardware Wallets

These refer to wallets that come in the form of flash drives, and allow for transfer, receipt, and storage of cryptocurrencies.
Advantages

  • There is no risk of exposure of private keys on users’ computers.
  • Immunity to viruses.
  • Transaction confirmation happens on device via dedicated device buttons.
  • Good for storing large amounts of bitcoin and other cryptocurrencies.
Disadvantages
  • May be too expensive to purchase.

Examples of hardware wallets include: Trezor, Kedger, KeepKay, etc.


Paper Wallet

A paper wallet is in the form of a special printout of a QR code that contains a private and public key.
Advantages

  • Good for long term storage of bitcoin and crypto funds
  • It’s secure.
  • Transaction confirmation happens on device via dedicated device buttons.
Disadvantages
  • Susceptible to theft and loss.


There are a variety of wallets to choose from, depending on what you intend to achieve with them.