Which wallet is the best for me? Check out this Bitcoin wallet overview relating to your specific needs.

Have you every asked yourself which Bitoin wallet is the best for you? There are many different Bitcoin wallets available that serve different purposes. This article outlines which Bitcoin wallet is the best for you given a specific purpose. Hosted wallets, hardware wallets, hybrid wallets, wallet apps and trusted hardware in mobiles are compared. For understanding the functioning of self-managed wallets, the mechanisms of private and public keys are explained briefly. Finally, these wallets are categorized in hot wallets and cold wallets.

The journey starts at a fiat exchange on which cryptocurrencies are bought. The first question is why one should transfer cryptos to a self-managed wallet instead of leaving them on the exchange.

Hosted wallet or custodial wallet: no sovereignty

With a hosted wallet, the private key, through which the coins can be accessed, is secured by a third party. Thus it is necessary to trust someone else to secure ones wallet: Sovereignty over your funds is given to a third party. In line with this, there is the risk of account restriction, theft and scams. On the other side, professional companies may have superior security expertise. As the coins are held at one central third party, instant internal transfers between hosted wallets are feasible. Thus, there is no need to wait for block confirmation.

A hosted wallet (or “custodial wallet”) operated by an exchange works similar to a bank account. The bank where you have deposited your money holds the funds on your behalf. For performing transactions, it is necessary to interact with the bank so the bank triggers the transactions on the customer’s behalf. These mechanisms are already automated, however, the bank is still in control of your money. The reason why people give their money to a bank is because they trust the bank.

If you really want to become independent, you have to be sovereign over your wallet. Therefore you need to control the private key. Before describing (semi) self-sovereign wallets, the functioning of a private key is illustrated.

Hosted wallets in form of exchanges are:

• Coinbase
• Kraken
• Poloniex
• Bitfinex

And custody wallets for cryptos operating similarly to PayPal:

• Crypterium
• Wirex
• Xapo
• Coinsbank

Private and public keys

Consider a room with an infinite number of safes in which funds are allocated. Each safe has a string written on it called Bitcoin address which is publicly visible. Everyone may put something into any safe through a slot. To open a safe, a special key is necessary and who ever owns this key has the access to the safe to take something out. The Bitcoin Blockchain works similarly. The public key corresponds to the safe number and the private key corresponds to the safe keys. So, the term “wallet” is actually misleading because the technical concept resembles much more to keychains.

But what are the technical features behind this system? A private key is a randomly generated 32-byte string like the following:

E9873D79C6D87DC0FB6A5778633389F4453213303DA61F20BD67FC233AA33262

The public key is then derived from the private key satisfying elyptic curve cryptopgraphy with given equations. The private key serves as a scalar that spreads the vector field. The public keys are (x,y) points on an elliptic curve in this vector field. For processing a transaction, it is necessary to verify that the public key is derived from the private key. This is ensured through signatures.

For further information, the derivation of a public key from a private key on the Bitcoin blockchain is explained in the following article: https://en.bitcoin.it/wiki/Private_key

Paper wallet: most basic

A paper wallet is essentially a Bitcoin address and a private key written on a piece of paper as seen in the picture above. This wallet form is the most simplistic since no hardware device or software is necessary. Securization is analogous to securing any physical assset such as gold or diamonds (e.g. in a safe).

On the other hand, Bitcoins are very difficult to spend with a paper wallet as the connection to the Bitcoin blockchain must be established first. This is usually done through an app that either scans the QR code or requires the private key. Then transactions can be made through this app. Another option is to utilize an online service that requires the private key. In both options, it is necessary to trust the respective provider.

A paper wallet is merely recommended for storing your coins. For transactions you need to access the paper wallet thereby transferring the coins to another wallet. For staying in control of your coins and at the same time having comparably easy access to the funds, we recommend a hardware wallet.

Paper wallet providers are

• bitcoinpaperwallet.com
• bitaddress.org

Hardware wallet: best security with comparably well spending functionality

Hardware wallets are very good for securing and spending as compared to paper wallets that serve only the first criteria well. With hardware wallets, transactions are signed directly on the hardware device so the private key does not leave the device — it is never revealed to the internet. As a result, the private key remains safe and is not susceptible to malware. In technical terms, the hardware device entails a chip which stores the private keys in a physically separated environment where transactions can only be send to in order to sign it, but the key can’t leave this environment.

With a hardware wallet, you are in full control over your money. The only downside is the inconvenient access to your funds which is illustrated in the following. For executing transactions, the user needs an interface to access the hardware wallet funds. Hardware wallet manufacturers provide such an interface in form of an app which is mostly for desktop devices. These interfaces are hard to use with smartphones. The process is as follows: First, the hardware wallet needs to be connected with the computer. Then, the PIN needs to be inserted directly at the hardware wallet. If the PIN is correct, then access to the funds through the app is possible. Now the user may send funds. For receiving funds, the receiver must not be active.

Hardware wallet providers:

• Ledger (referral link)
• Trezor (referral link)
• Digital Bitbox
• KeepKey

Hybrid wallet: encrypted private key stored at a third party

A hybrid wallet is basically a Bitcoin wallet stored on a website or app with all the Bitcoin security features run locally on your computer. The user encrypts the private key locally in the browser with a personal password. The browser or app operator then holds an encrypted version of the wallet including the private key. Therefore, a hybrid wallet is a semi self-sovereign wallet.

For establishing the browser wallet, you initially go to the website operator and open the web-app. Then you create your wallet. The private key is encrypted with your password. The encrypted private key is then sent to the server with the company being unable to decrypt it. These data are stored in the cloud which means you can use the wallet on any computer in the world when the necessary app is installed. Although in most cases the keys are handled within an encrypted environment on your computer, there is a risk of theft.

Due to the design of a hybrid wallet, any transaction is processed with the operator’s IP address. Subsequently, third parties that watch your IP address cannot track your Bitcoin spending when you use a hybrid wallet.

Hybrid wallet providers are:

• Edge Wallet (app-based)
• Strongcoin (browser-based)
• Bitwala (browser-based)
• Blockchain.com (browser-based)

Wallet app and browser extensions: sovereign but directly connected with the internet and therefore susceptible to hacks

A wallet app ist essentially an app run on a computer or smartphone with which Bitcoins can be directly accessed. The private key is stored locally on the device. As a result, you are in full control over your money. However, if your computer or smartphone gets lost or stolen, the Bitcoins can easily be retrieved by the one possessing the device. The only option to prevent this is to restore the wallet from a backup before the thief has accessed your Bitcoin. Computer based wallet apps often require a personal password for accessing funds.

Wallet app providers and browser extensions:

• Bitcoin Wallet (mobile app)
• BRD wallet (mobile app)
• Coin.space (mobile app)
• Coinomi (mobile app)
• Electrum wallet (desktop software)
• GreenAddress (mobile app)
• MetaMask (browser add-on)
• Mycelium (mobile app)
• Samourai (mobile app)
• Simple Bitcoin Wallet (app-based)

Trusted hardware in mobiles: your mobile operating as a hardware wallet

Some smartphones entail a dedicated hardware that can be used as hardware wallet when combined with an app. More precisely, the Trusted Execution Environment embedded in smartphones enables such a use. A trusted hardware in mobiles combines the ease of a phone wallet app and the security of a hardware wallet. As with the hardware wallet, trusted hardware in mobiles entail a chip which stores the private keys in a physically separated environment where transactions can only be send to in order to sign it, but the key can’t leave this environment.

Trusted hardware in mobiles providers:

• Ledger Trustlet
• Rivetz

Backup of the seed for restoring your wallet

Most wallets generate all private keys from a seed with 12–24 human readable words. For a backup, merely this seed needs to be stored on a piece of paper in a safe place. This is analogous to securing physical assets such as gold with the advantage of smaller size. For having the optimum security level, it is recommended to safe the seed according to the standards. Thus, it should not be further encrypted which would make it even more difficult to restore it. On the other side, it should not be less secured as it would then be vulnerable to attacks.

The difference between cold wallets and hot wallets

The above mentioned specific wallets are now categorized into cold wallets and hot wallets.

For cold wallets, there is a low risk of the private key being exposed to the internet, as the transaction signing process happens in a physically from the internet seperated environment. Cold wallets are sometimes also called cold storage. The key storage and signature process occurs on a device that is connected with the internet. Paper wallets and hardware wallets are cold wallets. However, paperwallets are only cold wallets until they are used for a transaction. Then they are compromised. Furthermore, paper wallets should be generated on a computer that never access the internet after paper wallet generation for being classified as secure paper wallets. On a ledger, coins may only be accessed when the ledger is connected to the laptop on which a coin manager such as ledger live is running.

In a hot wallet, the keys are stored on the device where the app is installed, which is typically constantly or at least regularly connected to the internet. It may be accessed instantly on demand. Hosted wallets, hybrid wallets and wallet apps are examples of hot wallets. In general, it is recommended to store only small amounts of cryptocurrency on a hot wallet. You could compare hot wallets to you physical (pocket) wallet. And you would not run around with thousands of dollars in your pocket. The security of the hot wallet depends on the specific wallet (see above) and the software provider.

Most people holding cryptocurrencies have both, a hot and a cold wallet since these wallets serve different purposes. A hot wallet is comparable to a checking account whereas a cold wallet is similar to a savings account. A hotwallet is like a wallet (or purse) which you carry around in your pocket and a cold storage is more like a safe at home where you store the huge amounts of cash/gold. In general, only small amounts of cryptocurrencies are held on a hot wallet for purchasing things. The rest is kept on a cold wallet.

Connect your wallet with BlockKeeper

After the creation of a wallet, further problems come up such as how to track spendings and how to keep an overview on different wallets. BlockKeeper provides off-chain context documentation and portfolio overviews on a secure and private documentation layer for activities on all major blockchains. In BlockKeeper, the highest privacy standards are ensured through a zero knowledge architecture combined with a great user experience. Check out the BlockKeeper website: https://blockkeeper.io

BlockKeeper allows to manage all your cryptofunds through simple mounting of the public key. Very often wallets provide a xpub which is a meta public key from which all possible public keys can be derived. With BlockKeeper, you merely need to insert your xpub and BlockKeeper will automatically calculate alle public key and associated addresses used on the blockchains for receiving and sending transactions.

Here you can find the xPubs in your HD-Wallets:

• Electrum 2.x: Wallet > Master Public Keys
• Mycelium: Accounts > Select account > Select Export from Menu > Show Public<
• myTREZOR: Basic settings > Show xpubs
• Blockchain.info: Settings > Addresses > Show xpub > Continue
• Copay.io: Settings > Advanced > Wallet Information > EXTENDED PUBLIC KEYS
• Ledger: Chrome Extension > Select Account > Account Settings > Extended public key > Export
• Airbitz: Transactions screen > 3 dots > Export > Wallet Public Seed (xpub) > View or Save<
• Bitcoin Wallet (Android): 3 dots > Settings > Diagnostics > Show xpub > Share to clipboard, email

BlockKeeper only works with wallets where a public key is directly linked to the user’s account which is always the case when the private key is controlled.

Take your time for selecting the right wallet, do your research and stay safe when hodling and spending your crypto!

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BlockKeeper provides a user-friendly open source interface which simplifies crypto asset management and off-chain context documentation. The app ensures highest privacy standards through a zero knowledge architecture combined with a great user experience.