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CHOOSE YOUR BITCOIN WALLET

Select a wallet to store your bitcoin so you can start transacting on the
network.


LET'S HELP YOU FIND A BITCOIN WALLET.

Answer the following questions to create a list of wallets that meet your needs.

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WHAT IS A CRYPTOCURRENCY WALLET?

A bitcoin wallet is an application that functions as a wallet for your
cryptocurrency. It is called a wallet because it is used similarly to a wallet
you put cash and cards in. Instead of holding these physical items, it stores
the passkeys you use to sign for your cryptocurrency transactions and provides
the interface that lets you access your crypto.



Modern cryptocurrency wallets make the blockchain accessible to everyone. When
cryptocurrency was first introduced, sending cryptocurrency was a manual task
that required entering long keys. Today, the software does most of it for you.




The first wallet was that of Bitcoin's developer, Satoshi Nakamoto. The second
wallet belonged to Hal Finney, who corresponded with Nakamoto and reportedly was
the first to run the Bitcoin client software wallet. Nakamoto sent him 10
bitcoins as a test, and the cryptocurrency craze began.12





KEY TAKEAWAYS:

 * A bitcoin wallet is a device or program that stores your cryptocurrency keys
   and allows you to access your coins.
 * Wallets contain an address and the private keys needed to sign cryptocurrency
   transactions. Anyone who knows the private key can control the coins
   associated with that address.
 * There are several different types of wallets, each with its own features and
   levels of security.
 * Many cryptocurrency wallets can be used to store keys for different
   cryptocurrencies.



Investopedia / Nez Riaz


UNDERSTANDING CRYPTOCURRENCY WALLETS

Cryptocurrency wallets are software applications on computers or mobile devices
such as phones or tablets. They use an internet connection to access the
blockchain network for the cryptocurrency you're using.



Cryptocurrencies are not "stored" anywhere—they are bits of data in a database,
scattered all over it; the wallet finds all of the bits associated with your
public address and sums up the amount for you in the app's interface.



Sending and receiving cryptocurrency is very easy using these applications. You
can send or receive cryptocurrency from your bitcoin wallet using various
methods. Typically, you enter the recipient's wallet address, choose an amount
to send, sign the transaction using your private key, add an amount to pay the
transaction fee, and send it.



Many wallets have integrated QR codes and near-field scanner technology that
allows you to scan a code, select an amount, enter your key, select the
transaction fee, and click send.

Receiving is even easier—the sender enters your address and goes through the
same routine. You accept the payment, and the transaction is done.




CRYPTOCURRENCY WALLET TYPES

There are two main types of wallets: custodial and noncustodial. Custodial
wallets (also called online wallets) are hosted by a third party that stores
your keys for you. This could be a company that provides enterprise-level data
security systems businesses use to preserve and secure data. Some cryptocurrency
exchanges offer custodial wallets for their customers. Noncustodial wallets are
wallets in which you take responsibility for securing your keys. This is the
type that most cryptocurrency wallets on devices are.



There are two subcategories of wallets: hot and cold. A hot wallet has a
connection to the internet or to a device that has a connection, and a cold
wallet has no connection. Lastly, there are three subcategories of
wallets—software, hardware, and paper. Each of these types is considered either
a hot or cold wallet.



So, you can have a noncustodial software hot wallet, a noncustodial hardware
cold or hot wallet, or a custodial hardware cold wallet. These are the most
common types, but you may also encounter other combinations.



Some wallets may be best for storing and managing your cryptocurrency, such as
one of Investopedia's best Bitcoin wallet. Research all crypto wallet options
before deciding which is best for you.


SOFTWARE WALLETS

Software wallets include applications for desktops and mobile devices. These
wallets are installed on a desktop or laptop computer and can access your
cryptocurrency, make transactions, display your balance, and much more. Some
software wallets also include additional functionality, such as exchange
integration if you're using a wallet designed by a cryptocurrency exchange.



Many mobile wallets can facilitate quick payments in physical stores
through near-field communication (NFC) or by scanning a QR code. Mobile wallets
tend to be compatible with iOS or Android devices. Trezor, Electrum, and
Mycelium are examples of wallets that you can use. Software wallets are
generally hot wallets.



You use private keys to access your cryptocurrency. It's important to control
access to your private keys, because anyone who has them can access your coins.


HARDWARE WALLETS

Hardware wallets are the most popular type of wallet because you can store your
private keys and remove them from your device. These devices might resemble a
USB drive, and modern hardware wallets have several features.



You can make a cryptocurrency transaction on your computer or device by plugging
in the hardware wallet. Most of them can sign cryptocurrency transactions
automatically without requiring you to enter the key, circumventing a hacker's
ability to log your keypresses or record your screen.



These devices often cost between $100 to $200. Ledger and Trezor are both
well-known hardware wallets. Hardware wallets are generally considered cold
wallets because they don't have an active connection until they are plugged in.



Some new hardware wallets come with the ability to connect to your device
through Bluetooth. Use these with caution because Bluetooth is a wireless signal
that can be accessed by unwanted parties when it is turned on.


PAPER WALLETS

Early crypto users would write or type their keys on paper, which they
called paper wallets. These evolved to include the keys and QR codes so wallets
on mobile devices could scan them. However, paper wallets are easily damaged or
lost, so many crypto owners do not use them anymore.



However, there is nothing wrong with using a paper wallet if you take measures
to store it properly in a safe or deposit box and check on it once in a while to
ensure it hasn't deteriorated.




CRYPTO WALLET SECURITY

Wallet safety is essential, as cryptocurrencies are high-value targets
for hackers. Some safeguards include encrypting the wallet with a strong
password, using two-factor authentication for exchanges, and storing any large
amounts you have offline.



There have been many cases of malware disguised as wallets, so it is advisable
to research carefully before deciding which one to use.


SEED WORDS

Most modern wallets generate a twelve-word mnemonic seed phrase. An example
phrase could be "airport bedroom impression sample reception protection road
shirt..." which seems random but is created and linked to your keys by your
wallet. You can use the phrase to restore the wallet if the device is lost or
damaged. These words should be carefully stored in a safe place because anyone
who finds them will be able to access your cryptocurrency.




CRYPTOCURRENCY EXCHANGES

Cryptocurrency exchanges have started offering custodial key storage for their
users. However, you should use this service cautiously. Cryptocurrency exchanges
are highly prized targets for cybercriminals.



Additionally, if the cryptocurrency exchange goes out of business, there may be
no guarantees that you'll get your cryptocurrency back. For example, Coinbase, a
popular exchange, announced in its quarterly report to the Securities and
Exchange Commission in May 2022 that:3



> ...because custodially held crypto assets may be considered to be the property
> of a bankruptcy estate, in the event of a bankruptcy, the crypto assets we
> hold in custody on behalf of our customers could be subject to bankruptcy
> proceedings and such customers could be treated as our general unsecured
> creditors.



General unsecured creditors are lower in priority on the list of creditors in a
bankruptcy proceeding. Therefore, if there are not enough assets to liquidate
and meet financial requirements for higher priority creditors, it is possible to
lose your crypto assets if your custodial wallet company declares bankruptcy.



The best cryptocurrency key security measures involve removing your keys from
your wallet, placing them in a form of cold storage, and securing them in a
vault, safe, or deposit box. The more steps it takes for you to access your
cryptocurrency keys, the harder it is for a criminal to access them. This way,
you ensure you don't lose your keys. It also ensures that someone you have
entrusted with your keys doesn't lose them or deny you access to them.




WHICH CRYPTO WALLET IS BEST?

There are various wallets you can choose from with many options. It's best to
read as many reviews as possible to find one that fits your needs while ensuring
your keys are secure.




WHAT IS BEST SECURITY WALLET FOR CRYPTO?

The safest crypto wallet has no connection on its own or to a device with
internet access. It also should not deny you access to your crypto because
a custodian has financial issues. Many so-called "safe" wallets have wireless
connection technology that determined cybercriminals can access.




WHAT IS A CRYPTO WALLET FOR BEGINNERS?

Crypto wallets store your private crypto keys and provide access to the
blockchain or crypto-related services.




THE BOTTOM LINE

Cryptocurrency wallets are an important part of your cryptocurrency toolbox.
Various types are available, so it's best to research and find the one that
meets your needs and provides a high level of security to protect your digital
assets.




The comments, opinions, and analyses expressed on Investopedia are for
informational purposes only. Read our warranty and liability disclaimer for more
info.


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