Bitcoin wallets - how they work and which one is the best?

4 min reading

If you want to buy bitcoin, then you have to store it somewhere. Crypto wallets are used to store bitcoins. In today's article we will look at the types of wallets and explain how they work.

crypto wallets

What are crypto wallets and how do they work?

A cryptocurrency wallet is a place to store and save your private key, i.e. a sequence of characters that allows you to send virtual currencies. It is worth knowing that the cryptocurrencies are not "physically" in it. The cryptocurrency wallet can only contain the numbers stored in the chronological database of the so-called blockchain. It should also be noted that each executed transaction must be signed with a private key. All persons who know the private key have unlimited access to the cryptocurrencies assigned to it.

Can I store all cryptocurrencies in one wallet?

Crypto wallet where we could store all the coins doesn't exist. Of course, such a solution would be extremely convenient, but it is very difficult to implement, because of technical reasons. It is worth knowing that each of the individual cryptocurrency works differently. They have a separate, autonomous systems. Of course, there are crypto wallets that allow user to handle many digital coins, but there is no one that would allow to store all possible coins.

Online bitcoin wallet (hot wallet)

The online bitcoin wallet can be classified as the least secure because it is connected to a internet, which in turn allows private keys to be hacked and seized by unwanted people. 

When using this type of wallet, you should use additional security measures to avoid falling victim to hacking attacks. Of course, there are also advantages associated with having this type of wallet. First of all, it is free of charge. It also does not require verification with documents.

The online crypto wallet belongs to the most popular group of wallets, however, it is not recommended to store a large amount of funds on these wallets, because you can easily lose control over them.

Types of online crypto wallets

Mobile bitcoin wallet

Mobile wallet is in the form of an application for a tablet or phone (smartphone). Portable wallet allows to make quick transactions e.g. in shops or restaurants by scanning the QR code. However, the security level is medium. Wallets of this type are not recommended for storing big amount of bitcoins.

Eamples: Mycelium (Android) -Breadwallet (iOS) -Copay (Windows Phone) -Xapo (Android, iOS) 

Browser crypto wallet

Browser wallet is available both from a computer and a mobile device via a browser. The main advantage of using this type of wallet is convenience. However, it is worth knowing that you can very quickly lose control over your digital currencies, because in this case you do not have private keys. This type of wallet is recommended only for people who want to trade cryptocurrencies in small quantities and short time. As the entity has our private keys, this is not a secure way to store funds.

Examples: Paxful, Coinbase, Circle

Desktop crypto wallet

Deskop wallet is an application which you download and install on your computer. These wallets can be divided into light (those in which a chain of blocks is stored on external servers, are fast and accessible) and full (they download the entire blockchain to your computer, which contributes to longer synchronization time, and larger storage on your hard drive).

Examples: Electrum, Bitcoin Core, Armory

Offline bitcoin wallet (cold wallet)

Offline wallets are among the safest group, because bitcoins stored on them are separated from internetl. This makes it impossible for third parties to seize funds. However, this group is not very numerous, we can only divide it into two categories.

Types of offline bitcoin wallets

Hardware wallet (USB)

Hardware wallet looks like a flash drive. Dedicated software is installed on it, which allows you to manage crypto assets. In order to perform the transaction, the device must be connected to a computer or laptop. Everything takes place in an isolated environment inside your wallet. Signed and encrypted transactions are then forwarded. It is worth adding that private keys do not leave the device. 

This type of mechanism allows you to use your USB even on computers infected with viruses. In addition, the hardware allows for backups. The big advantage is that the content can be recovered in case the wallet is lost or destroyed. Please note that each transfer requires authorization with a PIN entered manually. Due to the highest level of security, such wallets are dedicated to long-term cryptocurrencies storage. The only drawback is that they are moderately convenient. Of course you can also use them for everyday transfers, but its not so comforotable. Hardware wallet provide full control over your private key. It is located in the device and only its owner has access to it.

Examples: Trezor, Ledger

Paper wallet

Paper wallet is operating on an offline basis. It is nothing more than a sheet of paper on which we print both our public and private keys. The paper should be well secured, preferably kept in a safe and not shared with anyone. It is also a good idea to make a copy in case the original is destroyed. The advantage of a paper wallet is the high level of security, due to the offline mode and the ease of execution by generating a random sequence of characters. The disadvantage is convenience of use. To perform transactions, you first need to import a private key to the application. in this type of wallet we can only store Bitcoins.

Examples:, (for Litecoin)