Different types of Bitcoin Wallets

04/07/2023 | Categories: Bitcoin Guides | Published by: csmiami | Last updated: 04/07/2023

As some of our most veteran readers may remember, there was a time in which sometimes I would get into writing something more Bitcoin/crypto-focused rather than iGaming oriented. Life has been a bit hard with its ups and downs, leaving little time for such things; but worry not, because here we are again!

It’s likely that all of you have used Bitcoin or any similar crypto before coming here, but do you know the main differences between the different wallet types? Let’s first address the different wallets available:

Web wallets
Software wallets (cold and hot)
Hardware wallets

Now, this may seem like a very simple categorization, but the truth is that so far, only these 3 are possible, although there are sometimes a few mixes, which we will see.

Web Wallets

Usually the most comfortable and user-friendly wallet; but by far the least secure one. There is an old saying in crypto that goes by “Not your keys, not your coins”. This usually applies to people using exchanges, casinos, or other web services as wallets; and when they close your account or disappear, there is literally nothing you can do to rescue your funds. However, web wallets are not only those that consist of a wallet inside a service; but are a service on their own.

One of the most popular solutions, at least back in the day, was the web wallet of Blockchain.com (formerly Blockchain.info). You’d register there like in any other service and could manage your coins from there. You could also get the private keys to the addresses where your coins were in; but everything is web-based, and as such, the different ways a hacker could end up robbing you are… high.

They did have their advantages too; you could sign up from any device and access your coins without needing to compromise your recovery phrase, seed, or private key; you didn’t need a wallet file to check on another computer, and you could have the phone and desktop wallet synced; since everything was on the net.

Software Wallets

This one could be by far the biggest category for wallets. Unlike web wallets; software wallets are run locally. There are dozens of different types of them, but they all work in similar ways: you install (or have a portable file) that runs the wallet software; and with that, you load a wallet file. From that wallet, you can directly operate, sign and verify (in most cases) and export your keys, should you want to do that.

The most popular solutions for software Bitcoin wallets right now would be either Electrum; a lightweight client that allows you to use 2FA inside the wallet, connect hardware wallets and a few other tricks, and the Bitcoin Core wallet. Bitcoin Core can be run as a node too, meaning that you download the whole Bitcoin blockchain into your computer, and you share that copy of the blockchain with the network so that other nodes can verify they are following the right chain (of course it’s more technical, but let’s just leave it there). This, however, is not compulsory and you can run this wallet “pruned”, meaning it will only save X GB of transactions locally. It’s important to know that even if you are running a pruned version, you will still have to download and verify the whole chain, so when using this wallet for the first time, some patience is required.

Now, before we have mentioned that inside the software wallets, we can find both cold and hot wallets. We will not dive too deep into it in this article, but I will of course point the main difference between them out. Cold wallets are not connected to the network, whereas hot wallets are. The way both work and are installed can vary greatly, so I may get into it in another article; so stay tuned for it!

Hardware Wallets

And finally; the “safest” solution. Hardware wallets are safer than web wallets; there is no doubt about that. But, are they safer than software wallets? Well, people tend to have different opinions on this one matter. Personally, I am inclined to always recommend a mix of both hardware and software wallets. This is possible, and a few of you may remember an old article of mine talking about the Trezor One hardware wallet. Back when Bitcoin was at 8.000€… Time does really fly!

Basically, on hardware wallets, you have a physical device that stores the keys to your wallet. You access the wallet using either dedicated software, or an open-source compatible solution (electrum for the win), and even if this may depend on your model, you have to verify your operations using the hardware device instead of only the computer or phone you are using. This does greatly improve your safety; even more, if the wallet has a screen so that you can double-check the address you are sending to.

But there is one very important thing that has to be taken into account. A wallet or mix of wallets is only as safe as your operational security is. It is a good idea to use a hardware wallet; only don’t scream out to the world that you are using one and what model it is. It can be a good idea to have a paper wallet hidden somewhere; just don’t casually talk about it at a bar while having some beers. End of the day, you are responsible for your own coins (and that is why some people may prefer custodial wallets).