If you’re curious about investing in cryptocurrency, you might have heard about Bitcoin wallets. The same way you protect the physical money in your wallet or store it in a bank, you can also keep digital assets in a wallet.
While a Bitcoin wallet has the same purpose as its analogue counterpart, it doesn’t technically store the digital coins but merely allows you access to them.
It’s an immensely useful, versatile, and essential tool for investing in cryptocurrency. But is it necessary to have a Bitcoin wallet, and how do you know which type of wallet should you choose?
Different Types of Bitcoin Wallets
Before we get into whether it’s necessary to use a Bitcoin wallet in the first place, let’s see what options are available. In general, there are two main types of crypto wallets – hot and cold wallets. But they can be further divided into categories.
Another term used for hot wallets is software wallets. Their main features are that they need to be connected to the internet to work and they run on specific programs that allow access.
One of the most popular options is the desktop wallet. Users install purchased software on their computer and can only access their funds via the software they’re using. When it comes to desktop wallets, anti-virus protection is essential.
Investors who prefer using their smartphones and tablets can choose mobile Bitcoin wallets. All you have to do is download a Bitcoin wallet application of your choosing on your mobile device and sign in to your account. This type of hot wallet is excellent for people who like shopping with Bitcoin.
A web-based Bitcoin wallet is probably the most popular choice, especially among crypto beginners. It relies on cloud storage rather than a device and requires a stable and safe internet connection. The winning feature of online Bitcoin wallets is the sheer convenience and easy access from anywhere.
The defining feature of cold wallets is that they’re fully offline. Your private key is stored on a hardware device that resembles a flash drive.
The primary purpose of hardware crypto wallets is to store all data safely and avoid any security breaches. These wallets are the most difficult to hack, but they’re not ideal for everyday transactions. Plus, they’re the most expensive option.
Finally, even though paper wallets are not the go-to choice for many, they’re still a valid option. Some investors feel their digital assets are safest if the private key is printed on a piece of paper.
You can use a paper Bitcoin wallet to move funds to your desktop wallet. However, to do that, you’ll also need to enter the private key manually.
Are Bitcoin Wallets Necessary?
In short, no. To invest in Bitcoin, you aren’t required to create or purchase a Bitcoin wallet. But that might make you wonder where it will be stored.
Investors have the option of leaving their coins in the same place that they bought them. An exchange or brokerage platform typically offers this service, and they’re a secure option indeed.
In fact, this too is a type of wallet, often referred to as a custodial wallet. Essentially, you leave your digital money with a third party and trust them to take care of it.
However, a more popular option is to get your private Bitcoin wallet and have full control of its private keys. Most crypto purists are strong proponents of non-custodial Bitcoin wallets. However, having complete control means you’re in charge of protecting your funds too.
With Bitcoin, the learning curve can be steep. Still, taking your money from the exchanges and storing them in a Bitcoin wallet of your choice is a rite of passage in a way.
Which wallet you’ll choose is entirely based on your investing needs. Online and mobile wallets are practical and efficient but require security measures.
On the other hand, seasoned Bitcoin investors will not take risks and likely use a hardware wallet as well.
Winning at Bitcoin With the Right Wallet
In terms of choosing a Bitcoin wallet, it might take a while before you find the right solution. The good news is that you can have more than one wallet at a time. To minimise the potential for hacking and to diversify your investment, it’s recommended.
With a crypto wallet, you can manage your money in one safe place, send and receive funds, browse decentralised apps, and shop at stores that accept Bitcoin. Undoubtedly, investing in Bitcoin is much easier with a Bitcoin wallet.