Slowly but surely, cryptocurrency, and Bitcoin in particular, is seeing increased levels of adoption among investors, miners and even those who choose to buy Bitcoin to us as a regular currency. Whatever the means by which Bitcoin is acquired, and whatever purpose it is ultimately put to, there is one thing every Bitcoin owner needs, and that is a Bitcoin wallet.
Type the phrase into Google and you will see a head-spinning variety of different Bitcoin wallets available. Essentially, however, there are two steps to making the right choice. The first is to decide whether you need a Bitcoin wallet that is online or offline. Then, with the choice narrowed down, it is a case of asking yourself a set of questions about the shortlisted wallets.
Online or offline?
Bitcoin wallets come in two categories. Hot wallets are web-based pieces of software. You can run a hot wallet from your smartphone or desktop, and access your Bitcoin wallet anytime and from any place, as long as you have an internet connection. Hot wallets are the perfect solution if you need frequent access to your Bitcoin stash, or if you need to share access to the wallet with someone else.
A cold wallet is one that is offline. This takes the form of either a piece of hardware, not dissimilar to a USB stick, or a paper wallet. There is a general perception that cold wallets are safer, but the drawback is that they are less convenient.
The security question is debatable. From a hacking perspective, a cold wallet is, of course, secure, as nobody can hack into it if it is sitting in the drawer of your bedside table. However, hardware can get lost, stolen or damaged, and only you can decide whether this is a larger or smaller risk than using a reputable online Bitcoin wallet.
The other point to keep in mind is confidentiality. With online wallets, the transparency of the blockchain means that transactions are in the public eye. Ordinarily this is not a problem, but if you are likely to be moving multiple millions around, it will be noticed and the gossips will be in full flow in the cryptocurrency community.
Narrowing down the choice
The interesting thing to note is that even in the above case that caused so much Reddit discussion, the funds were held in a hot wallet, demonstrating that not everyone takes the view that these should only be used for small quantities of Bitcoin. In most cases, a hot wallet has all the convenience, and as long as you take a few basic precautions will be as secure as, or even more secure than, a cold wallet.
Here are some of the key considerations when evaluating the numerous Bitcoin wallets you will encounter online:
Security – any reputable online wallet will take security as its number one priority. Check for SSL encryption (the web address should start https, not http). Also, the wallet should have two-factor authentication, which is when you are required to enter a username, password and some other piece of information known only to you.
Flexibility – is the wallet just for Bitcoin or can it hold other currencies? Of course, this is only relevant if you are planning on investing in multiple types of cryptocurrency.
Multiple access – do you want others to be able to access the wallet, for example other family members or perhaps a co-investor? In this case you will need it to have multiple signature functionality.
User friendliness – is the wallet simple to use, specifically on your chosen platform (desktop, Android iOS, etc)
Finally, check out the online community to see what users on Reddit and similar forums have to say before making your final choice.