Every single Bitcoin user at some point had to choose a cryptocurrency wallet. Many people go with Bitcoin Qt, as it’s as close to official software as you can get. However, advanced users understand the risks of storing any cryptocurrency assets on a private computer – direct access to internet will put any device in a potential danger zone. This and the general low mobility of your desktop make it such an unattractive choice.
A mobile bitcoin wallet is a good option if you want to pay while on the move. If your smartphone features NFC (near-field communication) you can just tap your it against a reader to pay. But the problem is that your smartphone is even more vulnerable to malware than your desktop. There are a lot more ways of secretly accessing information on your phone compared to a stationary PC – Wi-Fi, Bluetooth, NFC and so on. Besides that, there’s always the possibility of losing your phone or it being stolen. You surely can go into your mobile wallet account and remotely turn off your mobile payment app, thus securing your money, but there’s always the risk of being late.
Online wallets share a lot in common with software ones – a strong level of encryption and the capability of being linked with a mobile or desktop Bitcoin wallet. The biggest problem with online wallets is the direct access from internet. Plus they normally involve third party handling. Your money being managed by a third party – isn’t that the idea behind banks? With that being said, it’s always nice to be able to access your funds wherever you can access Internet.
If you don’t like the idea of a digital bitcoin wallet then you should turn your attention to another popular choices among enthusiasts – offline hardware wallets. They offer cold cryptocurrency storage with a high level of security.
A hot wallet is in some sense a short term storage – for receiving and sending small amounts of money. Everything else is stored in the cold, long term wallet, which is only accessed during a time of need. Another way of looking at this is the hot wallet is being your checking account and the cold wallet is a savings account. Most of your assets are safely stored in a cold wallet offline and some cash for everyday spending lays in the hot wallet. This double layer of protection will ensure safety of your money. Although you may already know, but unlike bank transactions bitcoin transactions cannot be refunded. In a case of theft or loss of the coins you will have no way of getting your money back.
There is nothing wrong with cryptocurrency wallets residing on a computer or mobile device. The problem is that most of the devices are insecure unless the user will take the necessary precautions. In this particular case – using two separate wallets.
On the other side, a bitcoin hardware wallet is usually a smart card device that stores and encrypts your private keys generated by an HD (hierarchical-deterministic) wallet. In a deterministic wallet all of your private keys and addresses are derived from a seed phrase. They generate an unlimited number of keys/addresses allowing you to keep your assets secure from everyone. Only when you connect the wallet via USB you get to manage the coins and sign transactions generated by the online/desktop bitcoin wallet. You can use the wallet even in case of your desktop being infected with malware – the data they transfer is enterprise grade encrypted and closed for unauthorized access.
The hardware wallet can also be lost with no risk to your assets. You can always just purchase a new one and recover your money from seed. The seed can also be used in a compatible desktop wallet. As long as the seed is secure your money are in safety.