Which bitcoin wallet should you choose?

13.09.2022

Beginner

#Bitcoin #Hardware Wallets #wallets

Key points

To hold bitcoin you use a dedicated application—a wallet. It lets you create addresses on the bitcoin blockchain and receive and send transactions. Wallets differ in features and functionality.
Bitcoin wallets exist for multiple platforms, including desktop and mobile. Mobile wallets are the most popular option for individual users.
Beyond “hot” wallets, which require an internet connection, there are also “cold” ones—physical devices that store the currency offline.

Types of bitcoin wallets

Apps for storing and transferring bitcoin are classified by several criteria:

Platform: PC (Windows, macOS, Linux) or phone (Android, iOS). Desktop wallets are further split into “light” and “full”. The latter require storing the entire bitcoin ledger on the device. A wallet may have apps for several platforms.
“Hot” wallets work only when connected to the internet; “cold” wallets are physical devices that do not need to be online. Most wallets are hot.
Custodial—where a third party has access to the address and the bitcoins stored on it—or non-custodial, where only the owner controls the wallet and funds. Individual users mainly encounter custodial wallets when using a centralised crypto exchange.

Mobile bitcoin wallets

Today the most popular platform for bitcoin wallets is mobile. The vast majority of individual holders use mobile apps. As a rule, each app can be installed on both Android and iOS devices.

Any mobile wallet lets you create an address to store coins and to receive and send transactions. These wallets differ in settings and features: some support other cryptocurrencies, others offer extra privacy options when sending.

Popular mobile bitcoin wallets in 2022:

Blockchain.com;
Mycelium;
Exodus;
Trust Wallet;
Atomic Wallet;
Electrum;
Coinomi;
Samourai Wallet.

Advantages of mobile wallets include access to your bitcoin anywhere and anytime, user-friendly interfaces and, in some cases, support for other cryptocurrencies and additional settings. Many mobile wallets also generate QR codes for paying for goods and services in bitcoin.

At the same time, many mobile crypto wallets are owned by private companies and are closed-source. That means there could be a vulnerability or backdoor allowing access to users’ funds. Even so, the popular wallets listed above have been around for years and have proved reliable.

Bitcoin wallets for PC: the difference between “full” and “light”

A desktop wallet makes sense if you plan to work with meaningful sums and place a premium on security and the safety of funds.

There are two types of bitcoin clients for PCs: full (sometimes called “heavy”) and light. A full client requires downloading the entire blockchain in addition to the wallet software itself. A light client queries the blockchain via third-party services and therefore does not need to download or store it.

The advantage of a full wallet is that it also operates as a full bitcoin node. You can broadcast transactions directly to the network, bypassing intermediaries, for maximum security. The drawbacks: you must store the bitcoin blockchain file, which exceeds 500 GB (as of September 2022) and grows by another 5–10 GB each month. Running node software also requires technical skills.

Full wallets are used by miners and by developers and services that handle large volumes of transactions—such as crypto exchanges and merchants.

The best-known full wallet is Bitcoin Core, the original client based on the work of bitcoin’s creator Satoshi Nakamoto. Its source code is open and actively maintained by the community. You can download Bitcoin Core from the project website or Bitcoin.org.

Other full bitcoin wallets include:

Armory;
Bitcoin Knots;
Specter.

Light desktop clients aim to make using the bitcoin network as fast and simple as possible, though they do not offer the same level of security. Notable light desktop wallets include:

Electrum;
Exodus;
Sparrow;
Wasabi.

Cold (hardware) bitcoin wallets

So-called cold wallets are external devices that connect to a computer or mobile gadget via USB or wirelessly.

The key advantage of hardware wallets is that they do not need an internet connection to keep your funds secure. You can connect a device once, transfer bitcoin to it and disconnect. After that, the cryptocurrency is stored entirely on the physical device, which almost entirely eliminates the risk of a hack.

In 2022 the hardware wallet market is led by several makers:

Hardware storage suits investors who hold their funds for long periods without moving them. For those actively trading on online platforms, such wallets make little sense.

Custodial bitcoin wallets

All the wallets described above are non-custodial. Only the owner has access to the private key and funds. Some apps, however, use custodial wallets.

The most common custodial setup most users encounter is the wallet provided by a crypto exchange or similar service.

When you register with an exchange you receive an individual blockchain address for bitcoin and other assets. Cryptocurrency bought on the platform is credited to a custodial wallet, where it can also be kept.

Bear in mind that the platform operator has access to users’ funds at addresses within the system. The operator controls the private keys to those bitcoin addresses, which adds an extra layer of risk.

How to avoid falling victim to fraud when using a bitcoin wallet

To conclude, a few tips—especially pertinent for newcomers.

When you create a new bitcoin address, the wallet generates a unique public–private key pair used to sign transactions. The private key is for the address owner only; never share it. You can use the private key to export an address with its balance from one wallet to another.
Keeping bitcoin on a centralised exchange in a custodial wallet is, above all, a matter of trust in the platform operator. Where possible, withdraw coins from an exchange to your own wallet.
Download mobile wallets only from official app stores such as Google Play (Android) and the App Store (iOS). Before installing, check reviews and download counts.
If you download a wallet from a website, make sure it is the project’s official site. Fraudsters often create clones of popular wallets’ sites with addresses that differ only slightly from the official one.