You may have heard of Bitcoin wallets, but that brings up the question, “what is a bitcoin wallet?” Bitcoin is not a physical thing, and the wallet doesn’t have to be either. And interestingly enough, your digital Bitcoin are not even stored on the wallet!
Part of Bitcoin’s underlying technology is the blockchain. The blockchain is a series of open ledgers created roughly every 10 minutes. So every 10 minutes you can see which Bitcoin Addresses have Bitcoin associated with them etc. The point here is that the bitcoin are tied to the bitcoin address on the Bitcoin blockchain.
The Bitcoin on the ledger are identified with a public key (in public-private key pair cryptography). So the public key for the bitcoin are visible to everyone, while the paired private key for the bitcoin are only known to the owner of the bitcoin.
What allows someone to move bitcoin is control/ownership of the private key. The private key is an unmemorizable string of alphanumeric characters, but technology in Bitcoin wallets stores the private keys to your Bitcoin and gives you access to the private keys with a “seed word list”, also known as a “recovery seed” or “recovery word list” or “seed words”.
Returning to the topic of Bitcoin wallets…
What is a Bitcoin Wallet
A Bitcoin wallet stores the private keys to your bitcoin, which gives you the ability to move (transact/send) your bitcoin. Bitcoin wallets generate a seed word list that represents your private keys.
Side note: Do NOT lose your seed word list and NEVER store your seed word list on any electronic device (no phone, laptop, desktop, no pictures, etc). Only write it down with paper and pencil.
There are different types of Bitcoin wallets, with two major subdivisions: hot wallets and cold wallets.
Read more about hot wallets here.
Hot Bitcoin Wallets
In a nutshell, hot wallets are software wallets that store your private keys on a program on your laptop/computer or phone. Since your laptop and phone are connected to the internet more often than not, these wallets are highly susceptible to computer malware attacks (viruses) as well as brute force hacking.
Cold Bitcoin Wallets
Comparatively, cold wallets are hardware devices, typically a USB key type of device that has a secure chip element that stores your private keys entirely/physically separate from the Internet. The USB key connects to your laptop and requires on-device (aka not on your laptop) confirmation for addresses and send requests to prevent man-in-the-middle attacks and hacks.
Overall, the cold hardware wallets are significantly safer for storing your Bitcoin. But like most security, your cryptocurrency is only safe if you do your own due diligence. Like not boasting that you own Bitcoin on social media and carefully writing down and storing your seed word lists.
The Different Bitcoin Wallets
I’ll start by listing well known and reputable Bitcoin cold wallets. I will always recommend storing your Bitcoin wealth in cold wallets (hardware wallets).
A brief list of the Bitcoin Cold Wallets:
- Ledger Nano S
- Ledger Nano X
- Trezor One
- Trezor Model T
- CoolWallet S
The Ledger Nano series is the most popular and has a great reputation for security. They have the Ledger Nano S and the Ledger Nano X models. Ledger is an active company in the cryptocurrency space that is all about security, plus they have a sleek, simple high-end design.
Next up we have the Trezor wallet series, consisting of the Trezor One and Trezor Model T. The Trezor Hardware wallets are easy to use and have an additional functionality as a password manager, integrating online security to all of your online accounts.
Third, is the BitBox Bitcoin wallet. I love the simple, minimalistic design of the BitBox and its Swiss company background rooted in privacy and security. The BitBox is minimalistic in design and only supports a very small number of cryptocurrencies, with Bitcoin at the forefront of its focus. The BitBox Bitcoin wallet also supports U2F authentication for other online accounts such as Facebook, Google and Dropbox, improving online security.
A brief list of the Bitcoin Hot Wallets:
- NOT online exchanges
Unfortunately, I do not recommend using hot wallets. I recommend keeping your Bitcoin offline, in cold storage, as much as possible. However, having it in cold storage all the time certainly makes it a little useless. It’s great if you just HODL all the time and watch your portfolio grow, but realistically, many people will want to eventually use their Bitcoin or have it accessible in a hot wallet to buy/sell/trade.
You may also want an online/hot bitcoin wallet on your smartphone for travelling as this gives you access to your Bitcoin to spend if you find that you need to use it (i.e. lose your credit cards or cash).
Online Exchanges do NOT count as hot wallet because you typically do not have control of your private keys. The exchange company holds your Bitcoin (usually mostly in cold storage offline). But you do not have immediate/direct control over your cryptocurrency when with an online exchange.
Markshire Crypto Conclusion – What is a Bitcoin Wallet?
In closing, a Bitcoin wallet is a device or software that stores the private keys that grant you access to your Bitcoin. The actual bitcoin are not stored on the device, but rather live on the blockchain. The private key allows you to send the Bitcoin. Therefore, not having your private key is akin to not owning your bitcoin.
I always recommend that if you have any significant amount of Bitcoin, that you store it offline in a Bitcoin wallet, in one of the hardware wallets that I review here. If you are not in control of your private keys, then you really do not own the Bitcoin.
Leave a comment below and let me know what Bitcoin wallet you prefer to use, and if you’ve had any bad experiences with bitcoin wallets.