What Is The Difference Between a Bitcoin Hardware Wallet, Software Wallet and Paper Wallet?

A Bitcoin digital wallet holds Bitcoin addresses to send and receive Bitcoin.  

The Bitcoin ecosystem allows payments to be sent directly between users Bitcoin wallet addresses without passing through a central authority of a bank or payment gateway like PayPal. Bitcoin is a digital cryptocurrency that is stored in a crypto wallet and isn’t manufactured from traditional mint sources in the form of coins that you have in your pocket as dollars or pounds. 

Bitcoin is a digital asset or virtual coin that can be used to pay for things digitally, such as person to person transfers (P2P) paying for goods and services. 

You may also be looking to Bitcoin as a potential investment option for the future, which makes it even more critical you choose the best Bitcoin wallet storage option to protect your Bitcoin. 

We will go through and discuss what are the best Bitcoin wallet options for you, from using a Bitcoin wallet both online and offline, including hardware, software and paper options for the best crypto wallets. 

Bitcoin Storage Types

You might be thinking to yourself, if Bitcoin is a digital or virtual coin, how do you store them? What’s the best Bitcoin wallet I should be using? 

As Bitcoins don’t exist in any physical shape or form, they don’t technically need to be stored in any physical location as they are a digital currency, so therefore need to be stored in a crypto wallet. 

Bitcoin storage is all about the public and private keys that need to be secured safely. These keys are used to access your Bitcoin wallet address and authorize transactions. 

Over the years, there have been many forms of Bitcoin crypto wallets that cater to different requirements and provide different options such as increased security, portability, convenience and accessibility. 

The types of crypto wallets that are currently available to store your Bitcoin are the following: Desktop or Software, Hardware, Mobile or App, Paper, Physical or Web based storage. 

Storage of Bitcoin can be broken down by the following factors: 

  • Protection against accidental losses
  • Verification that your Bitcoin (keys) are real
  • Privacy (Bitcoins most important trait)
  • Protection from hackers or malware trying to steal your Bitcoin
  • Easy ability to transfer your Bitcoin when needed 

What Is A Digital Wallet?

Just as we carry around cash and bank cards in our wallets or purses, Bitcoin is also stored in a wallet or more accurately a digital crypto wallet. The digital wallet can be in many forms, from hardware based, software based or web based. Depending on your preference, you can have access to your digital wallet from your mobile phone, PC or Laptop’s desktop, keeping your private keys and complex Bitcoin wallet address safe and secure. 

The digital wallet will store private and public keys, whilst it interacts with the Bitcoin ecosystem enabling users to send and receive Bitcoin using their Bitcoin wallet address and monitoring their balances. 

If you want to use or invest in Bitcoin, you’ll need to have a crypto wallet and you’ll need to decide what’s the best Bitcoin wallet for you.

Why Use A Digital Wallet?

In the past many people have accidentally lost their Bitcoins because of failed backups, mistyped letters in key-gens, forgotten hard drives, corrupted SSD devices, lost laptops or many other reasons such as losing their Bitcoin wallet address. 

Using a digital wallet will safeguard you from accidental loss of your Bitcoin. 

Having generated a Bitcoin wallet check you have sufficient protection against these mishaps such as data loss or corrupted devices of any kind is a very important part of safeguarding your Bitcoin if you suffer from any loss or destroyed hardware storage device, PC or Laptop. Another perfectly good reason why you need to have the very best Bitcoin wallet. 

Users can lose Bitcoin and other Altcoin tokens as a result of hacking or theft, computer and device failures, loss of Bitcoin wallet address keys and more. A good crypto wallet will help you put backups in place so that if you do suffer an unintended data loss you still have access to your Bitcoin wallet. 

How Do I Use A Bitcoin Wallet?

Unlike your traditional wallet, where you have access to cash or your bank cards, your crypto wallet doesn’t store any currency. Digital currencies don’t get stored in any single location or exist anywhere in physical form like in a bank vault or safety deposit box. All that exists are records of transactions stored in the Bitcoin blockchain. 

Crypto Wallet’s store your public and private keys and interact with the Bitcoin ecosystem so you can monitor your balance, send and receive money from your Bitcoin wallet address. 

When you decide to send someone some Bitcoin, your crypto wallet uses your Bitcoin wallet address for the transaction, instantly transferring your Bitcoin. That transaction will be registered on the Bitcoin ecosystem with your Bitcoin wallet address. 

When someone sends you Bitcoin, they are signing off that they own the Bitcoin being sent to your Bitcoin wallet address. Now, being able to unlock those funds require your private key stored in your crypto wallet to match the public address the Bitcoin is assigned to. 

The average Bitcoin transaction times during June 2019 took 9.47 minutes. 

There are three different types of wallet. A hardware wallet, a software wallet and a paper wallet. 

What Is A Hardware Wallet?

A hardware wallet is exactly what it sounds like. External pieces of hardware, like a USD stick or external hard drive that you can carry around with you, protecting your public and private keys. Private keys in the Bitcoin world is a critical piece of information used to authorize outgoing transactions, on a secure device. The main purpose and benefit of a hardware wallet is to provide isolation between privacy keys and easy to hack PC’s, Laptops and smartphones. 

These devices are secure enough that you can even use them on a PC or Laptop that you don’t trust, such as friends, family members or even work colleagues. 

An added upside with hardware wallets is the extra anonymity they have, without having any personal information attached to them. 

A hardware wallet is a physical device that dynamically creates a unique mnemonic seed or phrase that is used to generate a list of Bitcoin addresses. These devices are very secure because they are not connected to the internet and therefore harder to hack. Also, because these devices do not have an operating system, they cannot contain viruses unlike traditional computers. A four to six-digit pin is normally used to access the device or it is deemed unusable. 

Many hardware wallets can be integrated with software wallets and are also called hybrid wallets. 

What Is A Software Wallet?

Bitcoin software wallets are the desktop versions that you use on your PC or laptop. They store your encrypted private key within your computer’s hard drive. 

Whilst there are a wide variety of software wallets available for Bitcoin, each wallet has different features and functions. By design, desktop wallets are more secure than mobile wallets on your smartphone, as they are harder for thieves to steal but are less secure than your hardware wallet. 

Since software or desktop wallets are always connected to the internet, they are considered “Hot Wallets” thus making them always prone to hacks or malware attacks. 

A software wallet is software downloaded on to your computer or smartphone as a software program. The software program itself generates the initial recovery seed and list of Bitcoin addresses.  This type of wallet can be downloaded onto any operating system including Windows, Linux and Mac OS machines. 

You can also download a digital wallet application from the Apple app store or Google play store onto your smart phone or tablet. Online app stores help you with your wallet choice because you can read the community reviews and rating score. 

Software wallets are more likely to be hacked than hardware wallets but are always available to the user as an added convenience. 

If you have a small amount of Bitcoin, software wallets are a good starting point.

What Is A Paper Wallet?

Paper wallets are an offline way of storing your Bitcoin or known as Cold Storage. The term Paper refers primarily to the method of access that the private and public keys were stored – printed on paper, that were used to facilitate transactions. 

A paper wallet is considered an extremely secure way to keep your Bitcoin safe from hackers and malware attacks. It’s important to remember that the Bitcoin isn’t printed out on paper, like traditional money, it’s just the private and public keys that are stored in a crypto wallet that gets printed out on paper. 

Setting up a paper wallet requires you visit a wallet generator site which will create your keys and QR codes at random. Its best advised when setting up a paper wallet that you unplug or turn off WiFi while the keys are being generated and as an added precaution clear your internet history after the keys have been created. 

Paper wallets use the same seed generation techniques as hardware and software wallets but can be generated both online and offline. Once the recovery seed is generated in the form of a private key, it is written down and stored and a list of Bitcoin addresses are automatically created. This information is then printed and stored in a safe place. 

Many paper wallets only generate one Bitcoin address. It is always best practice to download a paper wallet generator and generate a Bitcoin address offline and with no access to the internet. It is also recommended that you do not reuse a Bitcoin address once you have spent from this address. Simply generate a new Bitcoin address and repeat. 

Once printed, the software generating the paper wallet is closed and the wallet memory is erased from disk. Therefore, the only way that anyone can spend money from this paper wallet is by copying the wallet recovery seed phrase list from the printed paper and restoring them in another application. 

This paper wallet is the safest Bitcoin wallet and is the best choice if using seldomly once or twice a year. Paper wallets are also the simplest to generate but if lost, are near impossible as many do not have a recovery seed. 

A Few Things To Consider When Using A Digital Wallet

Digital wallets are the equivalent to your online banking service. Bitcoin wallets hold value with the representation of cash. Nobody can spend your Bitcoin without access to the private key. Private keys are encrypted and stored within the wallet application for added security and protection. 

If a hacker gains access to your computer or smart phone and opens your digital wallet, they have immediate access to you Bitcoin and can spend them. 

It is critical that you always use a password on all your digital wallets. 

One other fact that users don’t comprehend is that the recovery seed words and phrases are interchangeable between different types of digital wallets. For example, if I have the seed from a hardware wallet, I can easily re-enter this seed into a software wallet and vice versa.  

The same goes for paper wallets. Gaining access to the recovery seed is the exact same concept as gaining access to your private key.  

All dynamically generated recovery seeds must be backed up immediately and stored in a secret location. Typing the words individually and uploading them to your Dropbox folder is not a wise idea. 

What Are The Top 3 Bitcoin Hardware Wallets?

Trezor One

Trezor one is a small hardware wallet that holds multiple cryptocurrencies including Bitcoin, Ethereum, Litecoin and Dash.  It has an intuitive and convenient interface and is very easy to use. Trezor supports all computer operation systems and works on Android smart phones. Windows phones and iOS are not yet supported. 

You can manager your Trezor One wallet through the web-wallet interface using a micro-B USB cable connected to your computer. The interface syncs with your device and prompts you every step of the way. 

USD is the default currency but there are 32 in total to choose from. 

Trezor provide a recovery seed card that you safely store and locate if you ever lose your device or it malfunctions. A micro-B USB cable is also included in the packaging with a fabric key holder and additional promotional stickers.

You can read more on the official Trezor website

Ledger Nano S

Ledger Nano S manages 23 coins and ERC-20 directly from your computer with the inhouse ‘Ledger Live’ software. 

It allows you to install 3 to 20 applications to manage your cryptocurrencies depending on your device size. 

The housing of the Nano S device itself is plastic with a stainless-steel outer case. It also boasts a secure ST31H320 and STM32F042 chip for added peace of mind. 

Ledger also introduce the concept of staking that allows you to be rewarded for participating in the network community. They compare staking to earning interest on your Bitcoin. 

Several recovery seed cards are included within the packaging with a micro-B USB cable and metal circular keyring. 

The Ledger Nano X is an alternative model which has 2 modes of connectivity with USB and Bluetooth. 

You can read more on the official Ledger website

Secalot

Secalot is a less known hardware wallet but boasts a list of differences to its competitors. 

It encourages the use of its smartphone app for browsing transactions and communicates with the Secalot device over a secure SSL/TLS encrypted channel using the https protocol. 

For added security, the private keys never leave the device and stay encrypted. 

Secalot promotes itself as a hybrid wallet and illustrates detailed examples on its website on how to successfully integrate with Electrum.

You can read more on the official Secalot website

What Are The Top 3 Bitcoin Software Wallets?

Electrum

Electrum is the classic type of cold storage. Cold storage is the concept of keeping your keys offline, whilst only going online with a watch only wallet. 

The Electrum recovery seed phrase has 132 bits of entropy that offers the same level of security as a Bitcoin private key that has the length of 256 bits. 

The Electrum servers are decentralized through a secure network giving your wallet 100% uptime. The Electrum servers also index the Bitcoin blockchain to provide fast, instant up-to-the-second results. 

Electrum also allows hardware wallet integration through third party plugins. 

Electrum is extremely easy to install. Electrum can be downloaded and set up in an average of a few minutes. Electrum also allows you to import keys from other clients through its easy-to-use install wizard. 

Almost 10% of Bitcoin transactions are on Electrum. It’s a lightweight desktop wallet that supports multiple operating systems like Windows, Linux and Mac OS. It can also be easily integrated with hardware wallets such as Trezor and Ledger. 

You can download the software wallet from the Electrum website

Exodus

Exodus is a hybrid wallet. Exodus boasts the use of 100+ cryptocurrencies for its beautiful slick user interface design for both the mobile and the desktop wallet. 

Exodus allows you to exchange assets between Trezor and Exodus. 

Exodus has an exchange feature built in to allow you to exchange you Bitcoin for other altcoins. It also gives you real time value and other wallet statistics to help you maintain your secure assets. 

Exodus wallet is a very popular choice for Bitcoin software wallets and has the best Bitcoin wallet app. No registration is required and it also supports Windows, Linux and Mac OS. 

You can download the software wallet from the Exodus website

Trust Wallet

Trust wallet has just become the official cryptocurrency wallet of Binance, the world’s largest cryptocurrency exchange. 

Trust wallet has a Web3 browser that allows you to interact with decentralized applications directly from the app. A decentralised application is also called a DApp. 

you can download the software wallet from the Trust Wallet website

Bitcoin Core - Bonus!

Bitcoin Core is considered as another one of the best Bitcoin software wallets that runs the BTC ecosystem. It also has the added feature of serving as Bitcoin node that fully verifies payments with the help of the Bitcoin wallet. 

You can download the software wallet from the Bitcoin Core website

What Are The Top 3 Bitcoin Paper Wallets?

BitcoinPaperWallet.com

Simply move your mouse around the address generation screen and create a random number to generate your private and public key. QR codes are also generated for both your public and private keys. 

This paper wallet is designed to be folded into three different sections showing the public key on the outside and hiding the private key on the inside. 

After printing the page using any ink or laser jet printer, you simply close the page or generate another. 

Paper wallets are excellent for one-off addresses including donation Bitcoin addresses.

You can generate a paper wallet within the BitcoinPaperWallet website

WalletGenerator.net

WalletGenerator.net is very similar to the above except that if prints and folds into 6 separate sections. 

It also alerts you to download and use the offline ZIP file version from GitHub to avoid any preying eyes online. 

You can generate a paper wallet within the WalletGenerator website

BitAddress.org

Another simple paper wallet site that generates a random number to generate Bitcoin public and private keys. 

Bitaddress.org and Walletgenerator.net both make use of the JavaScript engine within your web browser, helping to eliminate the keys being sent over the internet and come with a random sequence that generates the keys. 

You can generate a paper wallet with the BitAddress website

Paper Wallets Were Popular In The Early Years Of Bitcoin (BTC)

Bitcoin paper wallets hold very few advantages today, with the advances in cold storage solutions. 

Paper wallets gained popularity during mid 2011. They provided a great way to keep private keys offline and made it simple to transfer Bitcoin to anyone and everyone. 

Being printed and the then deleted after creation, they were thought to be the most secure way of storing your Bitcoin. 

Paper wallets often prove to be too difficult to manage especially with Bitcoin beginners and casual users who lacked the knowledge of how to successfully and correctly use paper wallets. 

Hardware wallets are more convenient in 2020 as they have become more powerful with integrated software wallets and security like a paper wallet, incorporating the best of all three types of crypto wallet. 

The real problem with paper wallets is that they are difficult for newbies to use and very inconvenient to use correctly. You always need to have your public and private keys of your Bitcoin wallet address written down on two pieces of paper, which you also have to keep separately, making it easy to misplace or get lost and not very efficient when trying to back up to multiple locations. 

What Are The Positive And Negatives Of A Digital Wallet?

Digital wallets have a lot of positives, mainly keeping your Bitcoin safe from hackers and malware attacks. Physical hardware wallets like the Ledger or Trezor are recommended because they provide you with security, portability and usability. 

Hardware wallets have been designed to protect you from all suspicious activity, protecting your private keys from hackers, malware, viruses and phishing, making them the most secure ways and one of the best Bitcoin wallet options. 

Hardware portability is also a valuable benefit of these digital wallets, allowing you to connect to any Windows, Linux or Mac OS PC or Laptop as an external device, meaning your Bitcoin is available to you at anytime, anywhere in the world. 

The only downside to hardware crypto wallets is the cost. Whilst the other digital wallets are free, a hardware wallet is not free, so you must decide how much you want to pay to securely protect your Bitcoin. 

Software wallets also provide come convenient benefits such as being free and easy to set up and the accessibility of having your Bitcoin wallet online directly on your smartphone or PC or laptop. 

A major disadvantage with software or desktop wallets is that they are not secure enough to store large amounts of Bitcoin as they are prone to hackers and malware attacks. 

Finally, that leaves us with paper wallets; unlike online wallets, paper wallets are completely offline, giving us the bonus of hackers or malware not being able to access it. Being a physical form of Bitcoin storage means they need extra care to protect the paper which has your private key. Paper wallets need to be stored in a vault or safety deposit box. This extra care sometimes makes it difficult as its quite easy to misplace these pieces of paper. 

How Secure Are Bitcoin Wallets?

Like most things, the level of security depends on the type of crypto wallet you decide to use, and how cautious you decide to be. 

Online wallets such as software or desktop wallets can expose you to hackers, malware, viruses and phishing, who can attempt to steal your Bitcoin. 

Whereas offline or cold storage wallets like the Trezor or Ledger can’t be hacked as they are not connected to the internet or an online network and will provide you with a greater level of protection. 

Remember to back up your entire Bitcoin wallet often and having a history of regular backups, may be the only way that you’ll be able to recover your Bitcoin in the event of a computer failure. 

Update software regularly to make sure you always have the latest security enhancements, making sure you keep your wallet, PC and Laptop updated as well. 

Finally, the more added layers of security protection the better protected you will be from any malicious attack, trying to access your Bitcoin. 

Are Bitcoin Digital Wallets Safe?

Like in the real world, you need to keep your wallet safe and secure. It’s always good practice to only keep small amounts of Bitcoin on your software or desktop wallet or mobile app for everyday funds or transfers, larger amounts of Bitcoin should always be protected by using a cold storage method like a hardware wallet. 

Hardware wallets are extremely safe and secure, maybe even the best Bitcoin wallet option as they are usually offline and not able to be hacked. Large investors of Bitcoin keep their hardware wallets safe and secure in safe deposit boxes. 

Offline wallets or cold storage will always provide the maximum level of protection for your Bitcoin. It means storing a hardware wallet in a secured location that is not connected to the internet, like in a vault or safety deposit box at your bank. When you use this method to protect your Bitcoin it can provide excellent protection against computer vulnerabilities such as hackers, malware, viruses and phishing. 

Always use cold storage or offline storage combined with backups and encryption. 

Hardware wallets like the Trezor and Ledger are the best Bitcoin wallet as they balance between maximum security and ease of use. These devices have been specifically designed to be a crypto wallet and nothing else, making them secure against computer vulnerabilities and online hackers. They have the functionality to be backed up which means you can recover your Bitcoin (BTC) if you lose your hardware wallet. 

What Is A Bitcoin Wallet App?

Your smartphone, whether it’s an Apple or an Android, is your most valuable tool. It never leaves your side, so why not use it to keep track on your Bitcoin. 

Mobile wallets or apps for your smartphone provide portability and convenience, ideal for when you are making face to face transactions. These mobile apps are available on both Android and iOS platforms. 

Wallet apps are designed to make quick seamless transactions using QR codes. These wallets allow you to have full control of your Bitcoin. 

With the touch of a few buttons and a swipe here and there, you can always keep an eye on your Bitcoin balance with a Bitcoin wallet app. 

Conclusion

I personally found the Trezor One wallet the best hardware to use and recommend it for time buyers. I feel its secure and tamperproof with a pin code only I can remember. 

Electrum is my software wallet of choice because of its ease of set up and the ability to easily integrate it with the Trezor One hardware wallet. 

Each paper wallet is too alike to differentiate, and all seem a perfect fit for one-off addresses. I strongly suggest you send a small amount of Bitcoin to them first before publicising your Bitcoin address to the world. I would never generate a paper wallet online or whilst browsing any paper wallet generating website. 

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