You’ve heard the stories.
Someone had a huge quantity of Bitcoin. They thought it was secure, and they were excited for the huge gains they were going to make with Bitcoin’s recent surge into popularity.
But then the unexpected happened. They got hacked and lost it all.
We have all heard those sad stories of unfortunate people losing their Bitcoins. From online wallet hacks to desktop trojans watching for passphrases – the world of cryptocurrency storage is only in its early stages.
A realistic strategy is always needed when securing your digital assets – both for long-term storage and for everyday use.
I strongly believe that choosing a good wallet is the most important part of learning how to use Bitcoin. Using a safe storage solution is still not an easy task.
In fact, the most convenient wallet systems (web-wallets) are usually the most unsafe. Thankfully there are many extremely safe options for holding your Bitcoins.
Throughout this article, I’ll help you choose the best wallet for keeping your digital currency safe.
Let’s jump in!
To keep things simple, remember that the private keys of your wallet are what enables sending the coins elsewhere.
They form a sort of “password” that’s required to withdraw money from your account. The safest wallets are those where the private keys are kept hidden away from the outside world to see.
Use the following table to quickly compare the advantages and disadvantages of each wallet type:
|Hardware||very safe||average||average||$90 – $400 USD|
|Paper||very safe||difficult||not convenient||usually free|
Before we look at different types of wallets in more depth, you need to understand the difference between so-called “hot” and “cold” wallets.
The terms “hot” and “cold” are used to describe the online connectivity of a Bitcoin wallet, and by extension, its risk factor.
The difference between the two is simple. A hot wallet is constantly connected to the internet with the private keys loaded ready for use. For this reason a hot wallet is riskier because a hacker can theoretically access the private keys if they find a vulnerability.
Sometimes I hear people use the term “online wallet” interchangeably with “hot wallet”. Hot wallets make it easy to do transactions quickly and on the go. Web, smartphone, and to a certain extent, desktop wallets can all be considered “hot” wallets.
A cold wallet is not connected to the internet and the private keys are offline. Sometimes I hear people use the term “offline wallet” interchangeably with “cold wallet”. Cold wallets are therefore safer because hackers would have a very hard time accessing your private keys.
Some cold wallet systems need to connect in order for transactions to be made. Others allow transactions to be signed completely offline and subsequently broadcast it to the Bitcoin network (without connecting the private keys).
Hardware (USB) and paper wallets are popular cold wallet systems.
The term “warm wallet” is occasionally used by experts when describing cold wallet systems that must connect to the internet to make transactions (most hardware wallets must do this).
A warm wallet can be defined as a mix between a cold wallet and a hot wallet. Warm wallets are therefore not as safe as pure “cold” wallet systems, but they offer some conveniences of a “hot” wallet.
With that in mind, let’s look at each type of wallet and its advantages and disadvantages.
Online web-wallets are websites or even online exchanges that allow storage.
As I mentioned above, this is the least secure option as it usually involves leaving the management of your private keys to a web server.
Web servers are prone to hacking, and users must also trust the online wallet operators. But it is a really convenient way to keep a couple dollars worth of Bitcoin online for quick and easy payments.
If you have large amounts, or want to ensure that the quantity you have never gets stolen, then never keep it all in a web-wallet.
Here are the best web-wallets:
A mobile or smartphone wallet is, as the name suggests, a Bitcoin wallet on your smartphone. I love mobile wallets because it is really easy to scan QR codes with my phone’s camera to make quick payments to friends and merchants.
Nomenclatures may vary, but I definitely consider mobile wallets to be as unsafe as web-wallets in terms of private key security.
I say this because most mobile apps automatically update by themselves. If a hacker got access to the developer’s iTunes or Google Play account, they could potentially infect and steal millions of users’ wallets as their next update gets pushed through.
Nevertheless, this type of wallet is great for having small amounts ready to pay.
The top mobile wallets for iOS and Android are:
Desktop wallets are apps installed on a desktop computer or laptop.
Many people store significant proportions of their Bitcoins in desktop wallets as these are much safer than web or mobile wallets.
If you asked me a few years ago, I would have said that this is the safest way to store Bitcoins. Now, in 2018, with all the backdoor hacking stories, I would prefer using a variety of offline wallets (desktop, hardware, paper) to store my Bitcoins.
If you are comfortable with ensuring your PC’s security and/or using a Linux system (Windows is considered the least secure operating system) then this may be a relatively secure option for you.
A desktop wallet could also be an option for keeping a certain percentage of your portfolio.
Here are the most secure desktop wallets:
Hardware wallets are very sophisticated semi-cold storage (mostly offline) systems.
A piece of hardware is used to store the private keys to your Bitcoins. Every time you want to send coins then you’ll just connect the hardware wallet to a PC and then take it offline again once the transaction is complete.
Keep in mind that you have to buy hardware wallets, unlike the other types of storage solutions which are mostly free.
Although you still have to trust the hardware-wallet manufacturer and suppliers, many people claim that this is the safest type of Bitcoin wallet.
These are the most popular hardware wallets:
Note: some experts suggest that hardware wallets are not true cold storage because they require USB connections to make transactions.
I feel that using a paper wallet is the most secure cold-storage solution (more so than hardware wallets).
With a paper wallet you only have to trust the wallet-creating software and the physical location that it will be stored in (usually a safe in a bank or at home).
As with all super-secure solutions, this is the least convenient as you’ll need to create a new paper wallet every time that you want to send Bitcoins somewhere.
If you are planning to hold on to your cryptocurrency for a long time without spending it, a paper wallet could be a super-safe option for you.
Here are the most trustworthy paper wallet systems:
Note: I no longer recommend paper wallets to beginners. Such storage systems may seem safe at first glance, but you need to be careful how you create, print, and spend your paper wallet Bitcoins.
It is still possible for beginners to have a paper storage system. Simply write down your desktop wallet recovery phrase on paper – voila!
Most Bitcoin wallets simply need one private key signature to make a transaction. In contrast, multi-signature wallets require multiple private key signatures to make a transaction.
For example, if you wanted to send Bitcoin you would first need to authorize the transaction, and then another trusted person would also need to authorize it.
Neither you nor the other person can make a transaction on your own. Both parties require the other’s consent (signing) to make a transaction.
This allows for some pretty advanced features and very safe storage solutions. This type of wallet is great for business using Bitcoin.
Multi-signature capabilities are sometimes available in web, smartphone, desktop, and hardware wallets.
These are the best wallets for multi-sig capabilities:
So now that you understand the differences between each type of wallet, which one should you use?
The type of wallet you decide to use depends entirely on how you intend on using your Bitcoins.
If your goal is to spend your Bitcoins often, you’ll probably want a hot wallet. This is similar to keeping cash in your physical wallet. It might get lost, but you’re planning on spending it anyways, and you don’t keep your entire life savings there.
If your goal is short-term investment–that is, trading your Bitcoins within the next year or so–I’d recommend a warm or cold wallet. Consider a hardware or desktop wallet, where your Bitcoins will be more secure than keeping them on an exchange.
Finally, if your goal is long-term investment, I can only recommend a cold wallet. If you plan on keeping your Bitcoin investment for years–or if you have a large amount–you should take extra precautions.
Encoding your secret key on a piece of paper and storing it in a bank safety deposit box is probably the right move if you’re planning on keeping your investment secure for years to come.
Still not sure? Feel free to look at what the experts are doing. In this video, Andreas M. Antonopoulos (a Bitcoin expert, author, and entrepreneur) talks about his personal wallet choices.
No matter what your priorities, there’s a great way to store your Bitcoin.