Hardware vs. Software vs. Paper Wallets: How to keep your Bitcoin safe

Whether you’ve just bought some Bitcoin, or you’re just planning to do that, it’s crucial to think of a place where you can safely store them. Most exchanges will provide you with a temporary wallet, but you probably shouldn’t rely on it for too long. Storing cryptocurrencies online is one of the least safe options – what if the website is hacked and you lose access to your money?

That’s why it’s important to look for a safe crypto wallet to store your Bitcoin. But what exactly is a Bitcoin wallet and how does it work? As Bitcoin is a virtual currency, you cannot keep it in a regular wallet or a safe. However, what you can keep to prove your ownership of the funds is the private key – which is nothing but an array of characters that give you access to your currency address. Think of it like keeping a written track of a password or PIN, but with some extra levels of security.

There are three main types of crypto wallets to choose from: software, hardware, and paper wallets. In this article, we’re going to look at each of them, discuss advantages and disadvantages, and hopefully help you make the right choice.

Software wallets are the cheapest (actually, most of them are free to download and use) and most widely used type of crypto wallet. They are available in three different forms: desktop clients, mobile apps, and web-based wallets.

A desktop client is a software you can download to your computer, and run it in offline mode for extra security. With desktop clients, you can have complete control over your funds and not worry about keeping your money on a website that could be hacked. On the other hand, this type of wallet is susceptible to computer malware, or any kind of software or hardware failure. To put it simply, if your computer crashes while you’re running the client, your Bitcoins will disappear into the void.

The opposite of a desktop client is the web-based wallet. It’s probably the easiest and most convenient option for most people – you register an account on a website, run through some verification procedures, and you’re ready to deposit your Bitcoins. However, online wallets are not as safe as desktop ones. The reason is simple: your private keys or your ‘passwords’ are stored in the website’s database rather than on your device. If the website is hacked, or if the owners themselves want to have a peek at your data, you can’t really do much about it.

Mobile Bitcoin wallets are great for people on the go, who need to have access to their wallet on their portable devices. There are two types of mobile wallets – ones that store your coins on the actual mobile device (much like a desktop client), and ones that are just there to facilitate the access to your online wallet. And they do have the same advantages and disadvantages as their desktop counterparts – there really isn’t much science behind this.

Next come the hardware wallets, which are still considered the safest method of storing your Bitcoins. Although it is extremely safe, it’s more of a hassle to access your coins from it, so we would only recommend investing in a hardware wallet if you want to put your money on ice. Yes, we said invest, as hardware wallets do cost a bit of money – between $50 and $100 at the time of writing. They come in different shapes – some look like USB memory sticks (particularly the Ledger Nano S), others resemble a tiny remote control (Trezor), and some are card-shaped (CoolWallet), which makes it convenient to carry it in a card holder, or your actual wallet.

Hardware wallets will require you set up one or more PIN codes, and sometimes passphrases bound to the PIN (think of it as the security questions to your account passwords.) In addition to that, the wallet will generate a unique combination of words or numbers when you turn it on (the so-called ‘seed’) which can be used to recover your wallet in case the hardware is destroyed or stolen. Make sure you write down the seed when the wallet displays it – you won’t get a second chance!

Lastly, we have paper wallets. Paper wallets are the best of both worlds – they store your wallet information remotely, away from the Internet, like hardware wallets, and are free, like software ones! Here’s how they work: you use a website to generate a unique set of public and private keys, as well as a QR code for easy access to your wallet. All of this data is sent directly to your home printer, and printed on paper. No hackers, malware, hardware crashes, or viruses can affect your wallet anymore. However, something as trivial as water could cause you lose your Bitcoins forever. So be extra careful, and store the paper wallet away from water and prying eyes.

These are the three types of Bitcoins wallets you can get at the moment. As you can see, each of them has its own advantages and disadvantages, but none is 100% safe. Your best bet would be to split your Bitcoins and keep multiple wallets. This way, if one is compromised and cannot be recovered in any way, at least the rest will be safe. Keep an eye on Cloudminers for more guides on how to safely store your Bitcoin!


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