Deciphering bitcoin wallets; 9 types of bitcoin wallets
Why should one maintain a bitcoin wallet? And most importantly, is a bitcoin wallet safe?
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Bitcoin wallets are one of the most actively developed applications in the bitcoin ecosystem. There is intense competition, and while a new wallet is probably being developed right now, several wallets from last year are no longer actively maintained.
Many wallets focus on specific platforms or specific uses and some are more suitable for beginners while others are filled with features for advanced users. Choosing a wallet is highly subjective and depends on the use and user expertise.
It is therefore impossible to recommend a specific brand or wallet. However, we can categorize bitcoin wallets according to their platform and function and provide some clarity about all the different types of wallets that exist. Better yet, moving keys or seeds between bitcoin wallets is relatively easy, so it is worth trying out several different wallets until you find one that fits your needs.
TYPES OF BITCOIN WALLETS
Bitcoin wallets can be categorized as follows, according to the platform:
1. WEB WALLET
Web wallets are accessed through a web browser and store the user’s wallet on a server owned by a third party. This is similar to webmail in that it relies entirely on a third-party server. Some of these services operate using client-side code running in the user’s browser, which keeps control of the bitcoin keys in the hands of the user.
Most, however, present a compromise by taking control of the bitcoin keys from users in exchange for ease-of-use. It is inadvisable to store large amounts of bitcoin on third-party systems.
2. MOBILE WALLET
A mobile wallet is the most common type of bitcoin wallet. Running on smart-phone operating systems such as Apple iOS and Android, these wallets are often a great choice for new users.
Many are designed for simplicity and ease-of-use, but there are also fully featured mobile wallets for power users.
3. DESKTOP WALLET
A desktop wallet was the first type of bitcoin wallet created as a reference implementation and many users run desktop wallets for the features, autonomy, and control they offer. Running on general-use operating systems such as Windows and Mac OS has certain security disadvantages however, as these platforms are often insecure and poorly configured.
4. PAPER WALLET
The keys controlling bitcoin can also be printed for long-term storage. These are known as paper wallets even though other materials (wood, metal, etc.) can be used. Paper wallets offer a low-tech but highly secure means of storing bitcoin long term. Offline storage is also often referred to as cold storage.
5. HARDWARE WALLET
Hardware wallets are devices that operate a secure self-contained bitcoin wallet on special-purpose hardware. They are operated via USB with a desktop web browser or via near-field-communication (NFC) on a mobile device. By handling all bitcoin-related operations on the specialized hardware, these wallets are considered very secure and suitable for storing large amounts of bitcoin.
TYPES OF BITCOIN WALLETS BY THEIR DEGREE OF AUTONOMY
Another way to categorize bitcoin wallets is by their degree of autonomy and how they interact with the bitcoin network:
1. FULL-NODE CLIENT
A full client, or “full node,” is a client that stores the entire history of bitcoin transactions (every transaction by every user, ever), manages users’ wallets, and can initiate transactions directly on the bitcoin network. A full node handles all aspects of the protocol and can independently validate the entire blockchain and any transaction. A full-node client consumes substantial computer resources (e.g., more than 125 GB of disk, 2 GB of RAM) but offers complete autonomy and independent transaction verification.
2. LIGHTWEIGHT CLIENT
A lightweight client, also known as a simple-payment-verification (SPV) client, connects to bitcoin full nodes (mentioned previously) for access to the bitcoin transaction information, but stores the user wallet locally and independently creates, validates, and transmits transactions. Lightweight clients interact directly with the bitcoin network, without an intermediary.
3. THIRD-PARTY API CLIENT
A third-party API client is one that interacts with bitcoin through a third-party system of application programming interfaces (APIs), rather than by connecting to the bitcoin network directly. The wallet may be stored by the user or by third-party servers, but all transactions go through a third party.
Combining these categorizations, many bitcoin wallets fall into a few groups, with the three most common being a desktop full client, mobile lightweight wallet, and web third-party wallet. The lines between different categories are often blurry, as many wallets run on multiple platforms and can interact with the network in different ways.
ARE BITCOIN WALLETS SAFE?
That depends on the version and format you have chosen, and how you use them.
The safest option is a hardware wallet which you keep offline, in a secure place. That way there is no risk that your account can be hacked, your keys stolen and your bitcoin whisked away. But, if you lose the wallet, your bitcoin are gone, unless you have created a clone and/or kept reliable backups of the keys.
The least secure option is an online wallet since the keys are held by a third party. It also happens to be the easiest to set up and use, presenting you with an all-too-familiar choice: convenience vs safety.
Many serious bitcoin investors use a hybrid approach: they hold a core, long-term amount of bitcoin offline while having a “spending balance” for liquidity in a mobile account. Your choice will depend on your bitcoin strategy, and your willingness to get “technical.”
Whatever option you go for, please be careful. Back up everything, and only tell your nearest and dearest where your backups are stored.
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