Bitcoin Wallets - Which, what, why?

Recommendations for choosing a bitcoin wallet

Bitcoin has become increasingly popular in recent years, and as a result, there are now more options than ever when it comes to choosing a Bitcoin wallet. A Bitcoin wallet is an essential tool for anyone looking to use Bitcoin, as it allows you to store, send, and receive your digital currency. However, with so many different types of wallets available, it can be difficult to know which one to choose.

In this article, we’ll be providing reviews of some of the most popular types of Bitcoin wallets. We’ll be looking at the advantages and disadvantages of each type of wallet, as well as their features, security, and ease of use. By the end of this article, you should have a better understanding of the different types of Bitcoin wallets available and which one might be right for you.

What is a Bitcoin Wallet? And types

Using a Bitcoin wallet is a great way to store, send and receive Bitcoin. It provides a secure and convenient way to manage your funds, and is a great option for those who are looking for an alternative to traditional banking. Think of it like a physical wallet that holds your cash and credit cards - a Bitcoin wallet holds your digital currency. There are many different ways to use Bitcoin and so there are many different types of wallets:

1. Online bitcoin wallets. Wallets that can be accessed on the web from any internet connected device.
2. Software wallets: These are wallets that are installed on your computer or mobile device. They can be either hot wallets (connected to the internet) or cold wallets (offline). Examples include Exodus, Electrum, and Mycelium.
3. Hardware wallets: These are physical devices that store your private keys offline. They are considered the most secure type of Bitcoin wallet. Examples include Trezor, Ledger, and KeepKey.
4. Paper wallets: These are physical pieces of paper that contain your private keys. They are considered the least secure type of Bitcoin wallet and are not recommended for beginners.

How to Store Bitcoins

Earlier it was mentioned that there are four types of Bitcoin wallets: online wallets, hardware wallets, software wallets, and paper wallets. These four categories can be broken down further into different kinds of storage and security:

Hot Wallets

Hot wallets refer to Bitcoin wallets used on internet connected devices like phones, computers, or tablets. Because hot wallets run on internet connected devices there is always a risk of theft. Think of hot wallets like your wallet today. You shouldn’t store any significant amount of bitcoins in a hot wallet, just as you would not walk around with your savings account as cash.

If only used with small amounts, hot wallets should be used for your everyday Bitcoin needs. One may, for example, want to keep $200 worth of bitcoins in a hot wallet for spending, with $10,000 locked away in cold storage.

Custodial Services

Although often called Bitcoin wallets, services like Coinbase and Circle aren’t true Bitcoin wallets. Customers’ private keys are held by these third party services, meaning users don’t really have control of their money. As Bitcoiners often say: “if you don’t control the keys, you don’t control the coins”. Mt. Gox is an extreme example, but one that illustrates the importance of holding private keys. Gox was the first and largest Bitcoin exchange up until 2013. Thousands of users stored more than 800,000 bitcoins in their Gox accounts.

At the time, one may have claimed to have 1,000 bitcoins in a Gox account. While true at the time, as soon as Mt. Gox claimed to have been victim of theft users with bitcoins in their accounts were left empty handed. Services like Coinbase and Circle may in fact use good security practices and there’s a chance your bitcoins are safe. But by storing bitcoins with a third party you are always taking on additional risk.

Cold Storage

Cold storage is achieved when Bitcoin private keys are created and stored offline. Private keys stored offline are more secure since there is no risk that a hacker or malware could steal your coins.

There are three ways to create cold storage: paper wallets, hardware wallets, and software wallets run on offline computers. Think of cold storage as your savings account. Use it to securely store bitcoins that you don’t plan to spend.

Multisignature Wallets

Multisignature wallets like Electrum make it easier to share control of bitcoins between multiple parties. If created offline, multisig can also make cold storage more secure.

Multisignature wallets require multiple parties to sign transactions in order for funds to be spend. In a 2-2 wallet, for example, both parties must sign a transaction. In a 2-3 multisig wallet, two of the three co-signers must sign each transaction.

Armory Multisig

Armory offers a Lockbox feature that requires any amount of up to seven co-signers to approve shared transactions. A Lockbox is created by one party who adds additional public keys as co-signers. This solution provides a mix of flexibility and security for personal use or organizations.

Armory’s fragmented backups is another useful feature. Instead of requiring multiple signatures for each transaction, fragmented backups require multiple signatures only for backups. A fragmented backup splits up your Armory backup into multiple pieces, which decreases the risk of physical theft of your wallet. Without a fragmented backup, discovery of your backup would allow for immediate theft. With fragmented backup, multiple backup locations would need to be compromised in order to obtain the full backup.

Here’s a look at some everyday use cases for multisig:

2-2 Wallet

Two business partners work together at a startup. They create a 2-2 multisig wallet so that no funds can be spent without the permission of both founders. If one tries to create a transaction, the other partner will be required to sign off on the transaction before money can be moved

2-3 Wallet

A 2-3 multisig wallet could be used to create secure offline storage with paper wallets or hardware wallets. Users should already backup their offline Bitcoin holdings in multiple locations, and multisig helps add another level of security. A user, for example, may keep a backup of a paper wallet in three separate physical locations. If any single location is compromised the user’s funds can be stolen. Multisignature wallets improve upon this by requiring instead any two of the three backups to spend funds—in the case of a 2-3 multisig wallet. The same setup can be created with any number of signatures. A 5-9 wallet would require any five of the nine signatures in order to spend funds.

How to Get Bitcoin

Once you have a Bitcoin wallet, you can acquire Bitcoins in several ways:

1. Mining: You can mine Bitcoin by using specialized software to solve complex mathematical equations.
2. Buying: You can buy Bitcoin on cryptocurrency exchanges, such as Gate.io, Coinbase, Binance, or Kraken.
3. Accepting: You can also accept Bitcoin as payment for goods or services.

How to Choose a Bitcoin Wallet

When choosing a Bitcoin wallet, there are several factors to consider:

1. Security: Look for wallets that have strong security features, such as two-factor authentication and encryption.
2. Ease of use: Make sure the wallet is easy to use and understand, especially if you’re new to Bitcoin.
3. Compatibility: Check that the wallet is compatible with your operating system and the type of device you’re using.
4. Reputation: Do your research and choose a wallet from a reputable provider.
5. On the go? If you are making payments in person and not online then a mobile wallet like breadwallet (iOS) or Edge (Android) is a must.
6. Frequency of payments: If you will need to make frequent payments then it will be best to keep your funds in wallet that is easy to use and accessible. Mobile wallets and desktop wallets are good options.
7. Amount: If you are dealing with large amounts of bitcoins you will need a secure wallet. Hardware wallets and secure offline wallets like Armory are good options.
8. Use combinations: Use a mobile wallet as your checking account, and a hardware or secure offline wallet as your savings account. Mix and match to find a combination that provides both security and accessibility.

Recommended wallets for each type

Universal Wallets

Universal wallets are wallets that are available for Android, iOS, Mac OS X, Windows, and Linux.

A good example of such a wallet Jaxx Liberty. Although not designed as a BTC-only wallet, this wallet supports many altcoins and has many useful features. In addition to a user-friendly UI, the wallet incorporates the KYCless exchange provided by ShapeShift. Users can exchange coins directly from the wallet without any registration process. In addition, the wallet also offers real-time crypto market prices similar to CoinMarketCap and includes a news section where users can read various news from the crypto sector. Security is also assured; Jaxx is an unsecured wallet, where users manage their own private key and are provided with a locally stored 12-word recovery phrase. Additionally, users can lock their wallet funds with a password.

Desktop Wallets

Desktop wallets are software wallets that are downloaded and installed on your computer. They allow users to store, send, and receive digital currency securely. They are usually compatible with various operating systems and can be used to store multiple types of digital currencies. Desktop wallets provide users with full control over their funds, as the private keys are stored locally, and not on a third party server. Desktop wallets are generally considered to be more secure than web wallets as they don’t rely on third-party servers.

1. Bitcoin Core - is the “official” Bitcoin client and wallet, but it is not used by many people because of its slow speed and lack of features. However, Bitcoin Core is a full node, meaning it helps validate and transmit other Bitcoin transactions on the network and stores a copy of the entire blockchain Core does not need to rely on data from external servers or other peers on the network Bitcoin Core via Tor is considered one of the best ways to use Bitcoin privately.
2. Wasabi - “Wasabi is an open-source, non-custodial, privacy-focused Bitcoin wallet for Desktop, that implements trustless coin shuffling with mathematically provable anonymity - Chaumian CoinJoin”. This wallet uses Tor by default.
3. Armory - is the most mature, secure, full-featured bitcoin wallet, but it can be technically intimidating for users. Whether you are an individual storing $1,000 or an organization storing $1,000,000, this is one of the most secure options available. Users have complete control over all their bitcoin private keys and can set up a secure offline signing process with Armory.
4. Electrum - may be the most popular desktop wallet, due to its speed and ease of use. Electrum can also be used as cold storage if you have an extra computer that can be used offline. Additionally, Electrum offers other features like connecting through Tor, multi signature wallets, integration with hardware wallets, and more.
5. Bitcoin Knots - Alternative to Bitcoin Core, “Bitcoin Knots is a derivative of Bitcoin Core (since 2011 December) with a collection of improvements backported from and sometimes maintained outside of the master git tree”.

Mobile Wallets for Android and iOS

Bitcoin mobile wallets for Android offer users a convenient and secure way to store, send, and receive Bitcoin and other digital currencies. These apps are designed to be easy to use, letting users access their funds quickly on the go. Mobile wallets provide users with the same features and tools as desktop wallets, including address book functions, but also have additional features such as QR code scanning to make payments. For added security, many mobile wallets come with built-in encryption and two-factor authentication. Mobile wallets can also be used to buy and sell Bitcoin, as well as facilitate payments to merchants who accept cryptocurrency. With these features, mobile wallets are the perfect choice for anyone looking to manage their digital currency on the go.

Mobile wallets for Android:

1. Samourai - This wallet is very privacy-oriented and it also implemented many privacy features that were implemented by Amir Taaki inside his Dark Wallet. It is available for Android and it has implemented an own version of Chaumian CoinJoin. Additionally, it has built-in TOR support.
2. Bitcoin Wallet - was the first Bitcoin wallet for Android. It’s simple, easy to backup, and connects directly to the Bitcoin network with SPV.
3. Edge - (formerly Airbitz) is another Bitcoin wallet that’s great for everyday use. Edge manages accounts with usernames and passwords, but doesn’t have access to your funds. This type of account creation is easier for less technical users who may have trouble backing up or understanding HD seeds. It is open-source.
4. BlockStream Green - is the native version of GreenAddress. It’s fast, simple, and supports hardware wallets Trezor One, Ledger Nano S, and Ledger Nano X.
5. Electrum (Android) - is among the most popular wallets, due to its speed and ease of use. Electrum can also be used as cold storage if you have an extra computer that can be used offline. Additionally, Electrum offers other features like connecting through Tor, multisiganture wallets, integration with hardware wallets, and more.
6. Unstoppable (Android) - It is easy to use, reliable, secure crypto wallet with focus on privacy. Truly decentralized, works directly with Bitcoin network. Open source code is publicly available. One of few wallets verified by walletscrutiny.com to be exactly as published code on GitHub.

Mobile wallets for iOS:

1. Breadwallet - combination of simplicity and security has made it the most popular iOS wallet. iPhone users in search of their first Bitcoin wallet should find Breadwallet easy to understand.
2. BlockStream Green - is also available in the App Store.
3. Edge - is also available in the App Store.
4. Unstoppable (iOS) - It is easy to use, reliable, secure crypto wallet with focus on privacy. Truly decentralized, works directly with Bitcoin network. Open source, code is publicly available. One of few wallets verified by walletscrutiny.com to be exactly as published code on GitHub. Available on App Store. User-friendly design, non-custodial secure storage, privacy oriented features.

Online Bitcoin Wallets

Online Bitcoin Wallets are digital wallets that allow users to store, send and receive Bitcoin. These wallets are held in an online form and are accessible using a web browser. Online Bitcoin wallets are convenient as they can be accessed from any device, anywhere in the world. They are also secure and private, as no personal information or funds are stored on the server. Online Bitcoin wallets also provide users with additional features such as the ability to exchange currencies, view transaction histories and generate Bitcoin addresses. Wallets can only be accessed with a user-set password.

1. BitGo - is a high-security multi-sig wallet, which protects your bitcoin from theft and loss. You maintain full custody; BitGo cannot spend or freeze funds. BitGo wallets are easy to use and offer advanced security features such as spending limits and multi-user access
2. Coin.Space - HD Wallet is a free online bitcoin wallet, which you can use to make worldwide payments for free. It makes paying with bitcoins easy and secure available anywhere on your phone or desktop.
3. Xapo - combines the convenience of an everyday Bitcoin wallet with the security of an insured deep cold storage vault. Xapo Debit Card links to your Xapo Wallet and allows you to spend bitcoins at millions of merchants all around the world.

Paper Wallets

Before hardware wallets were built, paper wallets were the standard cold storage method. A paper wallet is a private key printed on a piece of paper. Paper wallets are safe cold storage when created and printed using a secure offline computer.

The main problem with paper wallets is that it is impractical to create and print a new wallet every time funds are sent to cold storage. However, paper wallets can be printed in batches to save time and avoid address reuse.

Hardware Wallets

As Bitcoin and other cryptocurrencies continue to rise in popularity, the need for secure storage solutions has become increasingly important. This is where hardware wallets come in - these physical devices offer the highest level of security when it comes to storing your digital assets. Hardware wallets are designed to keep your private keys offline, protecting them from potential hacks and thefts that are possible with online wallets or software wallets installed on devices that are connected to the internet. Hardware wallets are small computers or smartcards built with the sole purpose of generating Bitcoin private keys offline. Hardware wallets securely sign transactions in the same offline environment.

Ledger Nano - Ledger Nano is a smart card based hardware wallet. The private key is generated and signed offline in the secure environment of the smart card. The Nano is set up using the Ledger Chrome app. Once set, a random 24-word seed will be generated and saved offline by writing it on a piece of paper. In the event of theft, damage or loss, the entire wallet can be recreated with the seed. Additionally, a user-selected PIN is assigned to the device to protect it from physical theft or hacking. Ledger Nano can be used on any computer or Android phone running Mycelium or BlockStream Green.

Trezor - The TREZOR differs from the Ledger Nano in that it is a very small computer rather than a smart card. Private keys are still generated offline.

TREZOR also generates a 24-word seed on setup. TREZOR has its own built-in screen that displays and downloads torrents during the backup process. Since TREZOR is an offline device, it provides additional security as the torrents will not show up on the online computer. An additional password can be added to the 24-word seed. This provides additional protection, as anyone who finds someone else’s 24-word seed can spend those funds freely. After adding the optional passphrase, attackers still cannot access the funds without the seed and passphrase. If the password is forgotten, it cannot be recovered.

OPENDIME - The first are called Bitcoin Bearer Bonds or Bitcoin Sticks. Opendime is a small USB stick that allows you to spend bitcoins like dollar bills. Pass it multiple times. Connect to any USB device to check balance. Open it anytime to spend online. Don’t trust anyone. Acts like a write-protected USB stick. Compatible with any computer, laptop and mobile phone. A QR image and a text file containing bitcoin addresses and supports. The private key is generated in the device and is not known to anyone, not even you!

KeepKey - The hardware wallet is provided by ShapeShift, which acquired KeepKey in the past. It works similarly to the Nano and Trezor, but there are some differences. Physically, this is a very solid product. The KeepKey is twice the size of a Nano or Trezor at 38 x 93.5 x 12.2mm. The product is equipped with a 256×64 3.12-inch OLED large screen, which is large enough to display QR codes. However, due to its impressive size, this wallet is a no-go. It supports fewer cryptocurrencies than the Nano/Trezor, but as a bonus it offers a built-in ShapeShift exchange that allows users to exchange their coins directly from the hardware wallet. Although KeepKey can be used on Windows, Linux, and macOS, the official website states that it is “optimized for macOS. Not recommended for Windows.”

Cobo Vault - This may be the safest wallet on the market as far as durability is concerned, being suitable for usage in extreme conditions. Literally speaking. The product meets the US military standard MIL-STD-810G regarding durability, temperature shock, salt/fog resistance, vibration, and high/low-temperatures usage and storage. It is also certified as IP68 water resistant and IK9 impact resistant. For improved security, the wallet is completely air-gapped and it works just in offline mode, as it has no connectivity (no USB / WiFi / 3G/4G / NFC / Bluetooth). Cobo Vault supports various cryptocurrencies and tokens.

Lightning Network (LN) Wallets

The Bitcoin Lightning Network (LN) is a second layer protocol built on top of the Bitcoin blockchain that allows for faster and cheaper transactions. With LN, Bitcoin transactions can be made instantly and at a much lower cost than traditional Bitcoin transactions. However, in order to use the Lightning Network, you’ll need a Lightning Network wallet. In this article, we’ll be exploring what Lightning Network wallets are, how they work, and reviewing some of the most popular options available on the market..

Eclair Mobile - open-source, non-custodial wallet, available for Android. Eclair was coded in Scala by ACINQ and it is the first mobile Lightning Network wallet, this representing a huge advantage compared with its successors, at least in terms of usage. It can be used both as a regular Bitcoin wallet and as a Lightning Network wallet and it runs on mainnet.

Zap - a powerful tool for Lightning Network which is still in Beta stage of development. The wallet is cross-platform, being available on Windows, MacOS, Linux, Android and iOS. It has open-source code and it is non-custodial, the users having control over their private keys. The users have the option to create multiple wallets and run LN transactions in privacy, on mainnet. Future developments will include connecting to Lightning nodes over Tor and running full nodes.

Spark - open-source, non-custodial, cross-platform LN wallet, available for desktop (Windows, Linux, Mac), Android and iOS. The wallet runs on c-lightning, which is a Lightning Network implementation in C. Users will face a simple interface and a near-zero configuration, while having their privacy enhanced: Spark installs Tor automatically. Do not confuse Spark LN wallet with IOTA Spark wallet, as the one mentioned here is a Lightning Network software developed by Nadav Ivgy, while IOTA Spark is a low-security and temporary web wallet named also a “burner wallet”, developed by IOTA Labs.

General guidelines for LN wallets: except the three wallets listed above, be aware that several other LN wallets are available on Internet, including, but not limited to: LND Thin Wallet, Shango, Wallet of Satoshi, Breez, Blue Wallet, Bitcoin Lightning Wallet, Peach Wallet etc. However, we can only test and recommend so many. Use them only after performing a due diligence and also have in mind that not all of them are final products - some run on testnet and others on the mainnet.

Not recommended or outdated Wallets

These wallets are either not-recommended for some reason or outdated. You should not use them! Please note that here we only list wallets that were previously on the list, or were suggested to be included by others. This does not include ALL wallets that exist and are not recommended. Wallets that are strongly not recommended:

• Copay, Bitpay, Blockchain.info, BTC.com — untrustworthy, misleading customers, high fees, lacking implementation.
• Mycelium — iOS app has been abandoned. Mycelium team was involved in various unethical scandals, e.g. raising money from ICOs, partying with the collected money and more.
• Coinbase, Freewallet — Custodial wallets. Freewallet has also many scam accusations against it.
• Ledger HW.1, Ledger Unplugged — Discontinued hardware wallets.
• Bitfi - John McAffee’s “unhackable” hardware wallet, named also as “the world’s first unhackable device”. Besides McAffee’s notorious lack of ethics and besides the admitted vulnerabilities of this product, McAffee offered in 2018 a 100.000$ bounty (raised afterwards to 250.000$) to anyone able to hack the hardware wallet. One week later, a 15 years old teen cracked the wallet and launched Doom on it, but he never received a dime from McAffee.
• Coinomi — Initially open source, then changed again to closed source. Had controversial situations in the past.
• Trust Wallet — Mislead users that it was open source (only iOS app was). Later both versions of the wallet became closed source. They have not provided a reasonable explanation for this.
• Exodus — high fees (not customizable), security flaws, sync problems.

Best Practices

Bitcoin lets you control your money, meaning you are responsible for both your money’s security and your financial privacy. Here are some steps you can take to ensure your privacy and security:

Control your private keys

Services like Coinbase and Circle offer “Bitcoin wallets”, but in reality control your private keys. It’s best to use a wallet where you control your private keys. This is the only way to have full control of your funds and not have to rely on third parties for security.

Protect your privacy

Each time you request blockchain data from a wallet, the server may be able to view your IP address and connect this to the address data requested. Each wallet handles data requests differently. If privacy is important to you, use a wallet that downloads the whole blockchain like Bitcoin Core or Armory. Tor can be used with other wallets to shield your IP address, but this doesn’t prevent a server from tying a group of addresses to one identity.

Don’t reuse addresses

Most Bitcoin wallets today automatically create a new address for each transaction. Since all Bitcoin transactions are public, address reuse makes it easy for others to group transactions and understand which payments are connected to one identity.

Use different wallets for different sums of money

Just like you don’t walk around with your savings account as cash, there are different Bitcoin wallets that should be used depending on how much money is being stored or transferred. Secure wallets like paper wallets or hardware wallets can be used as “savings” wallets, while mobile, web, and desktop wallets should be treated like your spending wallet.

Create multiple secure backups

Users should create multiple backups of their wallets. Backups should be kept in separate physical locations in the case of fire or water damage. Paper wallets can be laminated or written in metal for extra protection.

General guidelines

Web wallets, custodial wallets and wallets requiring KYC should be avoided. Wallets with a shady reputation or whose name doesn’t tell you anything should also be avoided, at least until you do your due diligence. Also, discontinued products should never be used. Additionally, be careful when using misleading services which make you believe you control crypto, but in fact you have CFDs (eToro, Revolut etc.).

Conclusion

In conclusion, Bitcoin wallets are a critical tool for anyone looking to store and use cryptocurrency. While there are various types of Bitcoin wallets available, mobile wallets are the most convenient and accessible option. However, it’s crucial to back up your mobile wallet with a seed phrase to avoid losing your digital assets if your device breaks. On the other hand, paper wallets are an outdated and insecure method of storage. For those who prioritize security, hardware wallets are the best option. Although they may come at a higher cost, hardware wallets provide unparalleled security, acting as your personal vault to keep your digital assets safe. Ultimately, choosing the right Bitcoin wallet is a matter of balancing convenience and security, and by carefully weighing the options, you can ensure that your cryptocurrency is safe and accessible at all times. With the right wallet, you can store, send, and receive Bitcoin with ease.