How to choose a Bitcoin Wallet
We touched upon Wallets in our previous blog a little, but we will focus deeper on them this time.
When you choose a real wallet, you may consider various factors such as size (long wallet, bi-fold wallet, mini wallet), material (leather, cloth, vinyl), color, design, brand, and so on.
What factors should we consider when choosing a Bitcoin wallet?
First of all, let’s refresh our understanding on what a wallet is.
Some people may imagine that Bitcoins are stored in a wallet, just like money is stored in a wallet, but in reality, Bitcoins are not stored in a wallet.
Here is a brief explanation of a Bitcoin wallet. [*1]
A Bitcoin wallet is loosely the equivalent of a physical wallet on the Bitcoin network. The wallet actually contains your private key(s) which allow you to spend the bitcoins allocated to it in the block chain. Each Bitcoin wallet can show you the total balance of all bitcoins it controls and lets you pay a specific amount to a specific person, just like a real wallet. This is different to credit cards where you are charged by the merchant.
It says that a Bitcoin wallet can show the total balance and can be used for payment.
Ease of use is important as is with a real wallet, but if you can get the contents out too easily, you run the risk of it being stolen.
Just as you keep your bills and coins in separate wallets, you may want to separate wallets for storing Bitcoins that you won’t use right away, and wallets that you use frequently for transactions.
Now let’s consider the factors and options for choosing a Bitcoin wallet. [*2]
1. Main purpose of use (trade, storage)
Hot: Online wallets such as Desktop, Mobile, or Web.
Cold: Offline wallets such as Hardware, physical, paper, or brain.
A hot wallet is more convenient if you are constantly moving Bitcoins in and out of your wallet, such as in business transactions. However, this increases the risk of theft, so a cold wallet may be preferable if the purpose is to store Bitcoins stashed safely.
2. Place to use (Home, Company office, Outside)
When choosing a desktop or mobile wallet, the choices are even wider depending on the OS: Windows, Mac, and Linux for desktops, and Android and iOS for mobile devices.
The location to use may include factors of users. e.g. home for individuals (although working remotely may be prominent under the recent Covid-19 situation) or a company office for corporations.
While mobile wallets and web wallets can be used anywhere, they may not be suitable for corporate use in terms of security Desktop wallets need to be used on a specific computer and can be used either at home or at office. You may want to avoid hardware wallets when you are outside because of the risk of losing it physically.
3. User-friendliness (Beginner, Intermediate, Experienced)
When choosing a desktop or mobile wallet, the choices are even wider depending on the OS: Windows, Mac, and Linux for desktops, and Android and iOS for mobile devices.
Web wallets are easy to use because you don’t need to remember your private key and instead manage it with your ID and password. On the contrary, hardware wallets are more complicated than web wallets in terms of setting up the device itself and the managing private keys using recovery phrases. Desktop wallets and mobile wallets vary in difficulty depending on the application used, ranging from applications that are easy to use for beginners to those for advanced users.
4. Criteria (Control, Validation, Transparency, Environment, Privacy, Fees, and so on)
One of the most important things to consider when choosing a wallet is the Criteria. For example, Privacy includes the disposable addresses mentioned in the previous blog. It also includes not associating transactions with an IP address by using TOR as a proxy.
Fees are, unlike bank transfer fees, determined by the sender, and some wallets allow users to change them freely, or suggest fees based on current network conditions, or some allow users to change fees using RBF (Replace By Fee) or CPFP (Child Pays For Parent) for transactions with, so you do not need to spend unnecessarily high fees when the transaction is included in a block.
5. Features (Two-factor authentication, Bech32, Full Node, Hardware Wallet, Legacy Addresses, Lightning, Multisig, SegWit, and so on)
Features are more for Intermediate or experienced users. For example, Bech32 is a special address format made available by the introduction of SegWit (Segregated Witness) proposed in BIP173 (also known as bc address), and SegWit is a technology that is expected to solve the scalability problem proposed in BIP141. Users who want to embrace the new technology can use wallets that have these features, but must be aware that some Bitcoin deposit addresses on exchanges do not support SegWit.
Hardware wallets are described above as a type of wallet, but here we refer to the pairing function of hardware wallets. The pairing function means that you can access the same wallet from multiple devices by setting up a second and third device with the same recovery phrase. Hardware wallets require an application to be set up on the device for each crypto asset, and it is possible to separate the devices for each crypto asset, taking into account the free space on the device. However, since it is easy to set up a new device if you know the recovery phrase, you need to be careful about handling it when the person in charge of using the wallet changes or leaves the company, etc.
*For more information on 4. Criteria and 5. Features, please refer to Choose your wallet
The necessary elements will change depending on where, who, and for what purpose the wallet will be used.
If you have deposited your Bitcoins on an exchange, you do not need to be particularly conscious of how you manage your keys. While that is convenient, you are leaving your private key with a crypto currency exchange and relying on such third parties for security. Regardless of your personal or corporate use, it may be advisable to have more than one wallet for different purposes, for example depositing the minimum amount of assets required for trading when using an exchange, and having another wallet for storing the rest.
References
1. https://bitcoin.org/en/vocabulary#wallet
2. Choose your wallet
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