How to Choose the Best Bitcoin Wallet
There are hundreds of Bitcoin wallets out there all offering the basic services of sending, receiving, and storing your coins. But, how do you determine the best one for you? Here are some of the factors you need to consider when selecting a bitcoin wallet.
Who Should Access the Private Keys?
This is a question of who can control your bitcoins. Technically, you do not have control of your Bitcoins if you do not have access to the private keys.
Custodial wallets hold on the private keys of users’ wallets. They are responsible for safeguarding the users’ bitcoins in those wallets. Therefore, custodial wallets leave you with less responsibility to protect the funds in your wallet. They are also simple to use, especially for beginners.
Most of them are also cheaper, often freely available on the internet. Additionally, such wallets give you a chance to reset your wallet’s password to regain access to digital assets.
Custodial wallets also win when it comes to convenience in terms of portability. You can access the wallet anytime anywhere as long as you have a gadget such as a phone or a PC and an internet connection.
However, custodial wallets are the least secure. You may lose your bitcoins to mismanagement by the wallet provider. Additionally, custodial wallet providers are the targets of many scammers since they deal with a lot of crypto funds from many users.
Non-custodial wallets are the opposite of custodial wallets when it comes to token custody. These wallets do not allow any third party to control the private keys, giving users full custody of their Bitcoin assets.
Non-custodial wallets are much safer since funds cannot be stolen in case of exchange hacks. The process of creating such services is also easy. Unlike custodial wallets, you will not require to perform KYC or AML processes to begin using the non-custodial wallet.
One of the disadvantages of non-custodial wallets is that it is impossible to recover your bitcoin assets if you lose your private keys and the recovery phrases. Additionally, they can prove more technical to operate than custodial wallets.
Comparing these two types of wallets based on convenience and security, custodial wallets are more convenient while no-custodial wallets are more secure.
Security or Convenience, Which One Comes First?
The debate on cold wallets vs. hot wallets often revolves around security and convenience.
Colds wallets are offline wallets. They store private keys offline without connecting to the internet. They are considered highly secure since they are immutable to hacking. Since these wallets are ever offline, no one can access them to steal funds.
Cold wallets come in various forms including paper wallets and hardware wallets.
Hardware wallets are physical devices that resemble a USB stick, which store and sign transactions offline. They perform in-device transactions, meaning you can connect them to any computer, including a public computer, and perform a transaction safely.
While these wallets offer the highest level of security, they are less convenient. You have to carry them around at all times if you are to use your bitcoins anytime anywhere. They are not suitable for day-to-day transactions.
Additionally, you can lose all your bitcoins if you lose your private keys and seed phrases. These wallets are non-custodial, meaning you are the only person with access to your private keys. Therefore, no one can help you recover your funds if you happen to lose your private keys.
Also, hardware wallets are more expensive as you have to buy physical gadgets. Some wallets can cost over $200.
Unlike cold wallets, hot wallets store private keys online. Hot wallets can be connected to a web service, a wallet installed on a computer connected to the internet, or a wallet installed on a mobile phone.
Hot wallets are the most popular wallets. However, they are the least secure. They are vulnerable to online attacks since they are connected to the internet.
Desktop wallets are one type of hot wallet. They are installed on personal computers or laptops. These wallets can be vulnerable to malware and computer viruses. Popular examples are Electrum and Exodus wallets.
Another category of hot wallets is mobile wallets. These are software wallets that are installed on a mobile phone. They are significantly smaller and simpler. They perfectly serve as on-the-go wallets for daily usage. Examples are Electrum, Exodus, and MyCelium.
Finally, we have web wallets under the category of hot wallets. They include browser plugins, website wallets, and exchange wallets. They are the most secure, yet least convenient. Coinbase and Binance are popular examples.
Cold wallets are more suitable for the storage of a small number of Bitcoins. It suits users who need convenience for day-to-day transactions. On the other hand, Cold wallets should be preferred by users storing a larger amount of Bitcoins and hence consider security a high priority.
Other factors you can consider when choosing a wallet are:
- The number of coins supported
- Additional security features such as two-factor authentication
- Multi-signature features
- Wallet Back-up
- The reputation of the wallet provider
- Wallet Fees
Once you have considered all the necessary factors, you can choose the wallet that best fits your need. The choice may vary from one user to another.