Despite the volatility in the cryptocurrency market, the continuous bullish price of Bitcoin in 2021 has increased the attention of both enthusiasts and experts on it. Now that Bitcoin is at an all-time high, it is safe to say that the surge in the price of Bitcoin is akin to an increase in its value. As expected, the higher the price of Bitcoin, the more the reason to jealously guard your crypto asset against cyber attacks.
What Is a Bitcoin Wallet?
A cryptocurrency wallet is like the physical purse that you take with you wherever you go and put your belongings for safekeeping. However, Cryptocurrency wallets do not store Bitcoin physically but store your public and private key.
Your key serves different purposes:
- Public key: This is a public and open key used to encrypt data. In cryptocurrency, the public key is the one you use to receive Bitcoin from another party that wants to send you coins. A public key is derived through your private key. In real terms, a public key is similar to your bank account.
- Private key: Private key, also known as a seed, is a secret key known only to you. Your private key is personal to you and cannot be shared with anyone. Think of it as a PIN to your ATM; anyone with your ATM PIN can gain access to the money in your bank account. Similarly, your PIN shows that you are the owner of the account, the same as a private key tells people that the Bitcoin is yours.
Factors to Consider When Choosing a Bitcoin Wallet
When deciding where to save your coin like Bitcoin (BTC), Bitcoin Cash (BCH), Bitcoin Gold (BTG), Ethereum (ETH), Ripple (XRP), and so on, you need to consider certain variables. Factors such as coin support, privacy, fees, customer support, and services as well as convenience differentiate one wallet from another. The criteria to help you in your decision include the following:
Custodial vs. Non-Custodial Wallet
Custodial wallets keep your private keys and provide the necessary security and backup for your digital currency. With custodial wallets, third parties hold and control access to your private keys. Hence, if you lose your mnemonic phrase or your private key, custodial wallets provide the necessary backup. Centralized exchanges like Coinbase and Binance provides custodial wallets. Another example of a custodial wallet is Freewallet.
On the other hand, non-custodial wallets give you the power to control the access and security to your fund. Since you are the only one holding your private key, you need to carry out the necessary security on your wallet.
Custodial wallets are usually free and easy for beginners who do not have much Bitcoin while Non-custodial wallet is for those who want the freedom provided by decentralized finance.
Cold vs. Hot Storage
The level of your Bitcoin security is dependent on whether they are kept in a software or hardware wallet. Keeping your Bitcoin in cold storage means you store your data in a physical device like a USB stick that you can carry around wherever you go. This will prevent an unnecessary party from gaining access to your fund because they do not have direct access to the internet. Some popular hardware wallets include Ledger Nano X and Trezor Model T.
Hot storage, on the contrary, stores users’ data on software. If you would like to access your Bitcoin at a regular interval, keeping them where they will be convenient to reach might be the best resort. Hot storage provides backup in case of lost wallet recovery and security on software that you can install on your devices. Remember that software is susceptible to malware and data loss.
Mobile vs. Desktop Wallet
For easy accessibility and convenience of use, some wallets are made strictly for mobile users. Mobile wallets are also hot wallets because they are constantly online through Apps downloaded on a mobile phone. Some mobile wallets require a high operating system. Mycelium is a typical example of a mobile-only wallet.
Unlike mobile wallets, desktop wallets work on desktop computers. You can connect your cold storage device to a desktop for accessibility. Furthermore, desktops are usually more powerful than a mobile phone so, synchronizing your Bitcoin wallet to your network is smoother than when using a phone.
Does your phone have the ability for your Bitcoin wallet to successfully synchronize with the network? Does your Bitcoin wallet support iOS or Android? These are important questions to ask. Alternatively, Bitcoin wallets, like Exodus, support both mobile and desktop usage.
Open-Source vs. Closed-Source
Open source wallets have been tested by third parties other than the developers. The codes to the wallets are given out to be peer-reviewed for vulnerabilities, scrutiny, and likely modification. Contributors are also invited online to improve on the app development. Open-source wallets are aimed at promoting transparency and security. Electrum, Keepkey, Copay, Armory are some of the well known open source wallets.
The closed-source wallets are not open to the public to tamper with or modify. The developers of the wallet are in charge of its security. The closed-source wallet is about trusting the developers of a cryptocurrency wallet not to insert malicious spyware or malware that will create vulnerability to the user.
Since Bitcoin is built around open-source and decentralization, closed-source wallets seem to be in the negation of the core purpose of cryptocurrency. However, it is difficult to find a fully open-source wallet.
Paper vs. Cloud Wallet
Using a paper wallet to store your Bitcoin implies that you print your private and public key on paper for a transaction. A paper wallet is a form of a hardware wallet that is considered safe because they are difficult to hack. However, you must have a hot wallet connected to the internet when you want to effectively carry out a transaction on your paper wallet. To import -your Bitcoin cash from a paper wallet, you go through the method known as sweeping. The Ripple (XRP) paper wallet is a typical example.
On the contrary, rather than printing out your data on a piece of paper, a cloud wallet provides a storage facility to store your Bitcoin through the internet. Most cloud wallets are used by centralized crypto exchanges but they are not fully in the control of users.
The Final Verdict
There are so many cryptocurrency wallets with different features. However, you need to bear in mind your reason for wanting a wallet and how much your cryptocurrency is worth. Luckily, most cryptocurrency wallets combine several features to make it easy for users. You can find a non-custodial, open-sourced, mobile wallet with cold storage, for example.
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