Like a wallet holding paper money in the real world, a Bitcoin wallet is intended to be a safe and secure place to store your cryptocurrency. There are certain wallets that only support BTC, but many are designed to support multiple tokens at the same time.
Overview for Fast-Readers
- Bitcoin users have to store their tokens somewhere
- Some choose to take total charge of their Bitcoin by having sole access to private keys on an offline cold wallet or by just writing them down on a piece of paper
- There are risks associated with storing one’s Bitcoin on any wallet, but hardware wallets are generally considered safe for long-term cold storage
What is a Bitcoin Wallet used for?
When a crypto user makes their first Bitcoin or token purchase for the first time, changing fiat currency for crypto, there are several ways to store their coins. Some may choose to keep them accessible through a cryptocurrency exchange like Coinbase, Kraken, or Binance.
Though some exchanges have been working to ensure users have access to their private keys, some still do not — hence the common expression in the crypto space, “not your keys, not your coins.” Users who rely on an exchange to trade or cash out their crypto sometimes have to deal with site outages and hackers.
Another option for storing tokens is to simply write down the private keys on a sheet of paper and put it in a safe place. Alternatively, some people have private keys engraved on a piece of metal.
Bitcoin wallets are in essence a middle ground between these two options, allowing users to hold their own coins through an app on their phone, table, or notebook connected to the Internet or a device specially designed to store crypto offline.
Different Types of Bitcoin Wallets
Hardware wallets hold both a user’s crypto wallet and their private keys in “cold storage” — i.e. without being connected to the Internet. Some of the biggest ones on the market include hardware manufacturers Ledger and Trezor.
Hot wallets — that is, wallets that are connected to the Internet — are generally free on mobile devices, but may take a small fee for any transaction. There are many different wallets to choose from, but Electrum, Jaxx, and Exodus are some of the bigger brands. Similarly, there are desktop wallets for PCs.
Unlike mobile wallet apps, which are specific to each device, web wallets let crypto users access their tokens from any location.
There are risks associated with hot wallets, cold wallets, and storing one’s assets on an exchange. Many crypto users prefer to write down or print their private keys on a simple sheet of paper and store it in a safe deposit box or the like. Unfortunately, if this is the only copy of someone’s private keys and it’s lost, then the crypto is likely lost forever.
How to get a Bitcoin Wallet
Physical wallets like Ledger must be ordered directly from the company or through a third-party seller for delivery or pickup. However, users can set up an account for mobile and web wallets without too much difficulty.
For example, web wallet DXone requires the following to set up a Bitcoin wallet:
- Create an account using a name, email address, and password
- Set the answers to three security questions
- Verify the account using a mobile authenticator
- Once the information is verified, a user can send and receive Bitcoin
What are the fees for Bitcoin wallets?
There is a difference between fees charged by the network on which the crypto transaction is conducted and fees taken by a wallet manufacturer. Network fees go towards miners — the ones who process transactions for the crypto users trading tokens.
For example, Ethereum ERC-20 token holders can specify how quickly they want their transaction processed by paying slightly higher “gas” fees. Some wallets like DXOne have a fixed fee to withdraw Bitcoin: 0.0005 BTC.
Is a Bitcoin Wallet safe?
Each type of wallet comes with risks associated with the hardware or software. While hardware wallets in which private keys are kept offline in cold storage are considered by many to be safer for HODLing long term, the companies behind them are not infallible.
In 2020, hardware wallet manufacturer Ledger suffered a major breach resulting in hackers obtaining personal data for thousands of its customers. While this hack did not put users’ holdings directly at risk, many reported being targeted by phishing attacks intended to trick users into giving up their seed phrases for access to the wallets.
Hot wallets aren’t exempt either. More than one Electrum wallet user has claimed that hackers have siphoned off their crypto holdings after tricking users into providing information through phishing attacks.
For beginners unfamiliar with the crypto space, it’s best to assess individual needs and what they want out of their wallets. Web wallets and mobile wallets are generally an easy way to buy one’s first coins.