Types of Bitcoin wallets

Bitcoin is an anonymous payment network, introduced in 2009. Within these years, Bitcoins rose in popularity extremely. Value of Bitcoin is constantly jumping up and sinking down. First Bitcoins were sold for nearly $0.3 and now due to increased attention to this cryptocurrency value of 1 BTC grew rapidly and even reached $1000.

Bitcoins are now used to pay for a lot of services just as real money. Many services started to accept Bitcoins as a payment method: Reddit, Baidu, Humble Bundle, Foodler, etc. Similar to real money, you need to have wallet to store Bitcoins. The difference is that in Bitcoin wallet you store not actual Bitcoins, but private keys.

In cryptography user generates 2 keys: public and private. Private key is used to decode information which is encrypted in the public key. So public key can be widespread freely, while private keys are to be stored in the secure place (wallet). Public keys can be used to accept Bitcoins, so users can send you funds, while private key can be used in case you wish to pay with your Bitcoins or transfer your funds.

To store Bitcoins you can use one of the next 3 types of wallets: online wallets, mobile wallets and software (or full-featured) wallets.

Online wallets are dedicated to store your digital keys on the Web. It means that Bitcoin wallet is stored not on your computer, but on some faraway server of service provider. There are different online wallet providers. And depending on the provider, features of Bitcoin wallet can vary. Some online wallets are created with minimum features, while others can be used as a full-featured Bitcoin wallet.

The main advantage of online wallet is that it enables you to enter your wallet in any place of the world. Online wallets are very easy to start using and have simple interface.

Disadvantage of this kind of wallet is security. When you trust your wallet with private keys to online service, there can be 2 cases you should be afraid of: the whole database of the service gets hacked and you as well as all the other users can say “Goodbye” to your funds, or one of the personnel or this service can get hold of your account.

To safeguard Bitcoins stored online a so-called hybrid wallet was created. In this wallet you can encrypt your private keys in your browser before sending them to the server. So there are only encrypted keys are stored, and no one can get hold of your information.

The second type is mobile wallet. It is almost the same as online wallet, but it is supported by mobile device. Due to the fact that you cannot run full Bitcoin client on mobile device, Simplified Payment Verification (SPV) is used here. So security of storing Bitcoins in mobile wallet comes in question.

Whatsoever, mobile wallets are very useful if you wish to make payments when you are in the street and away from any computer. The main advantage is convenience, of course. It is possible to pay in stores at POS locations (of course, in case merchant supports such kind of payment). However mobile wallets are not full Bitcoin clients.

Desktop wallets are installed on your computer. These are full-featured Bitcoin clients, with the the highest security level and the widest variety of features. Once you install this wallet on your computer you need to update it by downloading all blockchains which were created from the very beginning. This can cause some difficulties in using desktop client, as it takes time to download gigabytes of blockchains. Of course, it is recommended to have powerful hardware if you wish to run desktop client.

Currently desktop wallets are the most secure way of storing private keys. Some of them even allow users to have a paper wallet in which private keys can be stored. This feature is dedicated to store private keys on the paper or any other offline storage to prevent private keys from being hacked by a person or virus.

Once you understand that you need to create Bitcoin wallet, it is better to decide first how would you use it? There are plenty of Bitcoin wallet providers offering different features. So spend some time to learn more on this question and choose wisely. All in all it is more appropriate to store Bitcoins in desktop wallet with the highest level of security and have mobile wallet in order to spend some Bitcoins when you are out in the street.