It is imperative to carefully select a Bitcoin Wallet because this is where one’s public and private keys reside. In a situation of the wallet getting compromised, all the bitcoins can be lost. One should not make random selections or take opinions from someone who may not have sufficient experience in this field.
There are 2 main questions to ask while choosing a Bitcoin wallet:
- Should one choose an Offline or Online Wallet – or both?
- After considering a specific wallet, which option is the best?
Wallet types are mainly about security and convenience. Online wallets are suitable for daily use but have loopholes in terms of security. Offline wallets are not convenient for regular users but are more secure.
Read More: Hot Wallets vs. Cold Wallets
The Important Criteria for Choosing a Wallet:
Irrespective of a wallet being hardware or software, one should judge a wallet based on the following criteria:
- The wallet should enable one to own and control the private keys;
- It should have robust security features and be able to restore backup keys;
- It should have an active development community for maintenance;
- The User Interface (UI) should enable fast and easy usage;
- It should be compatible with various Operating Systems (OS);
- Wallets should not require KYC facilities since it may attract unexpected attention;
- It should be Hierarchical Deterministic (HD), a wallet that generates new addresses by itself. This reduces the probability of wallets getting hacked.
What are the Questions to Ask while Selecting a Wallet?
There are certain basic questions which should be addressed while selecting a wallet:
- Does it store only Bitcoins or other types of Cryptocurrencies as well?
- In case of a web wallet, does the address begin with HTTPS? (This offers greater security compared to HTTP)
- Is the feature of Multi-signature available?
- How simple is the wallet to operate and is there a backup facility available?
- Is the authentication secure? Does it offer a two-factor authentication? Does it offer an additional level of security like complex characters in the password, or specific questions before a password change?
- In case of a hardware wallet, how are the design, user interface, price and reputation of the manufacturer?
- What is the general perception of the specific wallet?
Relevant research should be conducted before arriving at any conclusion.
Read More: Are Cold Wallets Really Safe?
What is the Exact Purpose of Choosing a Wallet?
Certain purposes for which wallets are to be considered are:
- Daily Transactions
- Long-term selections
- Short term HODL (abbreviation for Hold On for Dear Life, which is slang in the crypto community for Buy & Hold)
- Daily Buy/Sell or Crypto Trading
Hardware wallets satisfy the above requirements especially for one who desires to store their savings for a long-term, but these wallets can be connected to an infected device. Additionally, there are cold wallets which never come in contact directly with the internet. Certain HD Wallets also never use the same public address again.
There are a few software wallets as well that meet the above-mentioned requirements that can also be considered as an option. These could be in the form of Desktop or Mobile and are connected to the internet. They are a useful option for purposes like holding cryptos for a short period like 2-3 months. They offer security features of backup, PIN Code and HD wallets for meeting short-term requirements. But on the downside, there will always be a risk of malware and viruses on the device.
Some mobile and web wallets which satisfy the above-mentioned criteria are:
- Electrum (Android)
They are very handy and can be used by anyone for daily routine requirements.
There are many kinds of wallets which are available in the market but not all are foolproof since the probability of defects or scams is relatively high.
One should assess all the options and verify with their personal requirements to get as many details as possible. If a new wallet enters the market, professional help or online research should be conducted. Additionally, multi-sig functionality in wallets should also be considered since it increases the security of your Bitcoins. All wallets may not yet support this feature.
Users may also consider multiple Bitcoin wallets for multiple purposes. This enables to diversify their risks and bucket the wallets depending on their requirements.
Which wallet are you using, or which one do you prefer? Let us know in the comments section below.
Image Courtesy: BeatingBetting.co.uk on Flickr
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Financial Analyst for JP Morgan Chase | Content Writer for eduCBA | Mentor