Bitcoin wallet types, aka Custodial & Self-Custodial, vary in ease of access, Control & Security.
Publically launched in 2009, Bitcoin is the talk of all the towns in this digital age owing to its being the first truly digital form of cash. So the urgency to create bitcoins wallet piqued people’s curiosity. You can find cryptocurrency lovers across all social media channels, from celebrities to tech geeks. Bitcoin eases transactions regardless of time and location restrictions, and user anonymity tightens the security and more valuable benefits. Most probably, bitcoin brings more traffic to all online exchange sites than other thousands of cryptocurrencies that exist today. In fact, Blockchain statistics reveal bitcoin has more than 180 million users worldwide.
P.S. Blockchain is a ledger that stores every transaction happening across the bitcoin network (crypto world).
Many sectors have poured into the Bitcoin payment system for many years. So users can buy and book their services and products with bitcoin. However, the recent shift in bitcoin is related to the web world services themselves. Companies with services like Web Hosting, Web Design & Web Development, Digital Marketing, Social Media Marketing, Content Marketing, etc., are also warming up their payment stack. you should know how to create a bitcoin wallet.
The exciting part is users are also highly inclined to jump into the fashion of buying these services. Be it web-based or brick-and-mortar business services. So one can buy Windows VPS with bitcoin or any other hosting type to any other web service like domain registration with Bitcoins and Bitcoin Cash.
Nevertheless, buying services isn’t the only field. Bitcoin has changed how people see finance. Thus people like investors and mainstream financial institutions are investing in bitcoin. Despite the wild volatility of bitcoin and speculative investment, the great rewards attract investors more. In return, the Bitcoin Market Stats reveals the surge in investment ratio and value of Bitcoin hitting it big.
Anyway, whether people want to buy services or invest in bitcoin, it all starts with a bitcoin wallet. So let’s have a look at the niceties of the Bitcoin wallet.
Table of Contents
- What is a Bitcoin Wallet?
- How does a Digital Wallet work?
- How much does a Bitcoin Wallet cost?
- Why do you need to have a Digital Wallet (Bitcoin wallet)?
- Types of Bitcoin Wallet
- Difference between Custodial & Self-Custodial Bitcoin Wallet
- Difference between a Hot & Cold Wallet
- Difference between Software, Hardware & Paper Wallets
- How to create Bitcoins Wallet based on each type?
- Which bitcoin wallet is best for me?
- Bitcoin Wallets Comparison and tips
What is a Bitcoin wallet?
Bitcoin is a digital currency. Just like fiat currency needs a physical wallet, you need a place (a crypto wallet) to keep bitcoins. first of all, You should learn how to create bitcoin wallet a Bitcoin wallet is a digital wallet with which users can easily buy, sell, hold, and swap bitcoins. Not only bitcoin, but it can also hold many other crypto coins and tokens, for instance, Ethereum, Tether, XRP, etc.
So, in short, a bitcoin wallet is the digital version of your financial accounts (crypto finance/ bitcoin assets).
How does a digital wallet work?
The Bitcoin Wallet generates the address that you will use during the transaction. It doesn’t matter if the transaction is from or to. You need to disclose the address to the person you are sending or receiving the bitcoin. You can use an address only once to keep the security on top.
Also, on the grounds of a bitcoin wallet, holding or storing bitcoin means storing the encryption material.
This encryption information is what relates to encryption, decryption, or authentication of transaction communications. For instance, the access to the Bitcoin public address and the keys to enable transactions.
Bitcoin wallet secures your digital currency with unique private key(s) primarily to ensure that only you or the person you shared the code with can open your Bitcoin wallet.
So a digital wallet comes with two pieces of information – a public and private key – cryptographic key pairs. Remember, the combination of both keys creates a digital signature (that proves ownership and lets you control your assets.).
The first one is the public key (aka, public address) – you can share it with others, and you need it to receive bitcoins – decryption. The second one is the private key – you shouldn’t reveal it publicly – you need it to send bitcoin – encryption.
The private key acts more like the password to your conventional online bank account. So the person with the private key will surely be the owner and can manage the bitcoin transactions.
That being said, one needs to be extra careful while sharing Bitcoin wallet keys with others. Neglecting preventive measures can lead to casualties, as anyone with a key can enter or hack your wallet. Or steal /send the currency to its own wallet.
Further, when you create bitcoins wallet, never lose your key. Otherwise, you will lose access to your cryptocurrency (bitcoin) in the worst cases, especially when you own a self-custody wallet. If it happens, there is no one you can seek help from. For instance, neither assistance can help you get your digital currency back by claiming your ownership and identity nor resetting your password.
Digital wallets are also decentralized and cryptographically secured. So it eventually becomes more unlikely to retrieve what you lost. Statistics show people losing access to their accounts or forgetting about the coins causes 20% of all existing tokens to be lost.
How much a bitcoin wallet costs?
A bitcoin wallet will cost you nothing if you go with free bitcoin wallets. You can simply install the software and start using the wallet to send and receive bitcoins.
Or it can cost you a few dollars to more (in hundred dollars) when you create bitcoins wallet by purchasing from a company or exchange. Lastly, the hardware wallet is costly and can have varied prices depending on the devices in use.
More precisely, it can cost up to $100 or between $100 to $200.
Another thing to bear in mind is that when you store bitcoin in the wallet, it doesn’t cost a penny. As for the wallet, it is the software or online payment tool that can handle cryptocurrency transactions. However, when you proceed with the transaction, it will cost you. Why? The costs are what the platform that hosts your wallet or owns the exchange charges you. The charges vary depending on the service provider/ exchange and the amount (bitcoin assets) under the transaction.
After the bitcoin wallet cost, now let’s get a shot about why you need one.
Why do you need to have a digital wallet (Bitcoin wallet)?
Just like people save cash in the bank, one can save bitcoins in the wallet. However, people, specifically investors, like to keep their bitcoin assets on the exchange. Remember, Bitcoins on the exchange aren’t as safe as in a wallet. In this case, you don’t have control of the keys. One of the crypto world’s saying is, “Your keys, your bitcoin. Not your keys, not your bitcoin.”
So, a bitcoin wallet is a must-have if you want to control your digital money on your own accord and like to store and secure your bitcoins.
More precisely, your bitcoins are only safe if you keep them in your digital bank.
Furthermore, a bitcoin wallet will be the right move to access your cryptocurrency with your private keys and an interface that accesses a Blockchain.
Types of bitcoin wallet
The ins and outs of the digital wallet are probably difficult to understand for average users. Primarily due to having different types. So let’s make creating bitcoins wallet a bit easier.
First of all, bitcoin wallets are of various types, each varying in access, custody, convenience, and security. So we have discussed every kind alongside how to set up the particular wallet.
The two categorial types are custodial (hosted wallets) and self-custodial (non-custodial) bitcoin wallets.
Difference between Custodial Bitcoin Wallet and Self-Custodial Bitcoin Wallet
A self-custodial wallet also called a non-custodial wallet, lets the users have complete control of their bitcoin (crypto assets). This control means two things:
- If they need to withdraw or transact bigger sums of bitcoins, they can do it without permission to process. Or they don’t need to pay extra charges for doing so.
- Also, only they can access their digital funds, not the provider making it self-custody.
So self-custodial wallet users can directly access the blockchains. Moreover, they can control their crypto’s security, keys and passwords.
That means you simply get the software that creates the wallet and let you store bitcoin (digital currency). For the rest, you don’t rely on the third-party/ service provider.
Bitcoin has decentralized systems at its core, so the self-custodial finance option has come true. In addition to buying, selling, sending, and receiving bitcoin, many advanced crypto activities are easily accessible, including yield farming, staking, lending, borrowing, etc.
On the other hand, a custodial wallet, also called a hosted wallet, means a third party has custody of your wallet. Meaning keeping your crypto for you. That means your service provider/ wallet provider – in most cases, the exchange – will store the keys for you. Users can themselves operate their wallets or trust the custodian to do it on their behalf.
So in the custodial wallet case, the users have less personal responsibility. As we mentioned above, losing the password or key is more like a nightmare in the crypto world. Here it is all easy. For instance, no headaches with passwords and private key management.
However, here the user lacks control over his digital assets and advanced crypto services. Also, custodial wallets aren’t as secure as self-custody wallets. It is because custodian such as exchanges stores data online, and data intruders and hackers are wiser than ever.
Another Bitcoin Wallet classification is called the hot and cold wallet.
The distinction between a hot and cold wallet
Hot wallets are the ones that work with an internet connection, for instance, browser extension, mobile app, or desktop app. So they offer easy setup and access and are best for quick transactions. You can access them with your mobile devices, so they are called pocket wallets. Another important fact about them is the security risks. Them being connected to the internet lessens their security as potential regulations and hackers are on the lookout for loopholes. Service providers erect extra layers of security, password though. However, one should not store large bitcoin amounts in hot wallets.
Next comes the Cold Wallet, which isn’t connected to the internet, for instance, offline computer storage facilities like USB drives, DVDs, and CDs. Even their Private keys are generated offline, so cold wallets are considered more secure and best for keeping huge digital assets. However, they cannot support the actions of buying or sending bitcoins in minutes following their inconvenience in access. In order to transact, one needs to move the asset to a hot wallet (connecting to the internet) and then proceed with the transaction.
One more classification of digital wallets is the software, hardware, and paper, and it is the further division of the hot and cold wallets.
Difference between Software, Hardware & Paper Wallets
Paper Wallets are physical documents, and it means writing or typing the public/private keys on paper. So making them offline storage and undergo the self-custodial and cold wallet category. Being one of the oldest wallets, nowadays, they include QR codes so wallets on mobile devices can scan them. Literally, being on paper, these wallets need more care, like being stored in safe places and avoiding water. Otherwise, they can be easily damaged or lost.
As the name suggests, software wallets include applications and are installed on mobile devices and desktop/ laptop computers. Here users can access their cryptocurrency with their personal devices, making it apt for the quickest access. This wallet falls under the hot wallets category and needs backups and robust security for bitcoins safety. It can be custodial or non-custodial. Plus, the software wallet can also be free or might cost you a few dollars.
Lastly, the hardware wallet uses secure physical devices like USB drives to store the private keys to bitcoin (crypto). These devices are specifically made to store crypto offline, so this wallet has the most outstanding security among other virtual wallets. No internet and computer hacking issues. Moreover, when purchasing from authentic manufacturers, added security layers like PIN code and two-factor authentication (2FA) and performance of the hardware wallet devices, the ability to store various cryptocurrencies are value-added benefits. Users need to connect their devices to the computer/ internet for transactions.
Therefore, also, it is best for the long-term storage of digital assets (bulk amounts). However, of course, their access isn’t as easy as others. Their offline characteristic makes them cold wallets, and their full control signifies them being non-custodial wallets.
How to create Bitcoins Wallet based on each type?
Setting up a Software Wallet
Software wallets are of different types – Web wallets, Mobile wallets, Desktop wallets, and Browser extension wallets – all connected to the internet. Further, they can be both custodial and non-custodial.
So you need to decide which you need and prefer as the procedure can be slightly or significantly different. For the most part, you need to choose a wallet/ platform, download the software and install it or create an account with the exchange. Then transfer your crypto to your wallet.
Web wallet: Some well-admired Web wallets include Coinbase, Blockchain.info, BTC.com, Rahakott, and BitGo. Select the exchange/ platform and download the wallet app. Now create your account and save your private key.
Mobile wallet: Currently, the trusted apps are Mycellium, Bread (BRD) wallet, Bitcoin wallet, Electrum, and Samourai. Decide on the wallet app and download and install it according to the instructions. Then, scan your card information and accept the user agreement policies (read thoroughly before accepting). And remember to back up your private keys (physically as well) so that even if your device is lost, you don’t lose your bitcoin.
Desktop wallet: Presently famous wallets are Exodus, Bitcoin Core, Armory, Electrum, Wasabi, and Green Address. You need to navigate to the respective website of your chosen wallet or Github. Then, download and install the software according to instructions and back up your private keys and passphrase.
Setting up a Hardware Wallet
- To begin with, you need to buy the hardware wallet from an authentic brand. Currently, famous and trusted ones are Ledger (Ledger Nano X & Ledger Nano S Plus), Trezor (Trezor Model T), and SafePal S1.
- Secondly, you must install the software to make your wallet ready. So you need a computer with an internet connection and plug in your device. If you get on-screen instructions, simply follow them. Or, for the most part, browse the official company website of the brand from which you bought the device, as it utilizes only brand-specific software. Now follow the directions and set up your wallet.
Many options can be available depending on the brand and hence software for the device. For instance, creating a new wallet/ importing the wallet, setting PIN code, recovery phrase (recovery seeds), naming the device, etc.
Your device choice will also decide if you can buy crypto using fiat currencies, buy crypto on an exchange, or directly buy crypto from the hardware wallet.
- Finally, your wallet setup will be completed. Now you can transfer your holdings to your wallet or send and receive bitcoin.
Setting up a Bitcoin Paper Wallet
Here you still need a computer with an internet connection as you need open source software to produce your paper wallets. Next, you need to navigate to the wallet generator website to generate the keys. Currently, the top three best wallet generator websites are “bitaddress.org,” “bitcoinpaperwallet.com,” and “walletgenerator.net.”
However, to start setting up the paper wallet, you need to follow some steps and be as secure as possible. Here is how to do it.
- Secure your computer and clean out all the viruses and malicious software.
- Secondly, set up an offline printer and test it.
You can generate a wallet both by being online and offline. However, as users are more concerned about security, so it is best to go with offline options.
- Download the website zip file (“bitaddress.org” has the download link at the bottom of the page). If easy, you can also scan the zip file prior to extraction. (You can add the wallet generator’s website to archives as well.
- Now, go offline (disconnect the internet) so your computer and printer have no online connection. Disabling the add-ons & extensions is also recommended.
- Afterwards, go to the list of extracted zip files and click the ‘bitaddress.org.html’ file.
- Open it from your internet browser, maybe Chrome or Firefox – remember you are offline. (If you have archived the website, click on the web archive file to generate the key offline.)
- You can see the screen that will generate the address.
A client-side generator generates random keys.
- Move the mouse around the screen, or you can type random characters to add randomness/ uniqueness while generating the random private key. (In the box on the left hand, you can see the amount of randomness.)
- When it reaches 100%, it will automatically generate the wallet (single wallet).
- From the options in the Green Bar above, click on the paper wallet. (Or you can create Bulk Wallet, Brain Wallet, Vanity Wallet, or Split Wallet)
- You can tick mark the desired boxes to add customization to your paper wallet – Hide Art, Addresses to generate, and BIP38 Encrypt (if you like to add an extra layer of security with a passphrase).
- Now click on the print button to print the key on paper. (To store in different yet safe places, you can print many copies of your key.)
Downloaded files are deletable after use. So delete all the downloaded files (also, empty your computer’s recycle bin). Also no need to save the website copy or address in a pdf file. Further, clear the printer’s cache.
The best way is to reboot your computer before returning to the internet’s re-connecting and browsing. In short, removing all traces that can be tracked back.
Setting up a non-custodial wallet (self-custodial)
Download the app from the respective and Create your account. Save (write down) your private key, and you can start using the wallet.
Now you know how to create bitcoins wallet and wallet types. You probably be wondering:
Which bitcoin wallet is best for me?
Your needs and preferences (in some scenarios we mentioned above) will decide which wallet is best for you to begin with. Then, you can simply decide on what option balances security with accessibility.
Furthermore, there isn’t any rule of thumb that you can have only one bitcoin wallet or you need to stick to one type. So if needed, you can have multiple Bitcoin wallets just like you might use more traditional bank accounts. For example, dividing your money based on security and needs in different back accounts. You can also do the same here.
However, wallet options no doubt can be overwhelming. Want to make it easier for you?
Here we share a comparison of the wallets and some tips you need to be mindful of when considering getting a bitcoin wallet.
Bitcoin Wallets Comparison
Remember, a hot wallet is connected to the internet. So its vulnerability to online attacks can be a headache. However, it is far more convenient and faster to use crypto/ Bitcoin using a hot wallet.
In contrast, a cold wallet isn’t connected to the internet. So it leaves no room for online security vulnerability. However, it is obviously far less convenient, referring to the need and use of the internet in daily life.
Similarly, the self-custodial wallet gives you more control over buying/ selling/ sending/ receiving bitcoins (crypto) and other advanced options. However, you need to bear the responsibility of securing your bitcoin and remembering and safeguarding your password. So if you ever forget your keys, you can lose your bitcoin assets while no help to retrieve them for you.
In contrast, custodial offers less control but shares the burden of saving the keys and password on your behalf. But the crypto world has heard and glimpsed many hacking and losing bitcoin stories and incidents related to custodial wallets.
A hardware wallet is the securest yet might cost you up to $100 or $200. In contrast, paper wallets are lower-cost and the best alternative to hardware wallets if one prefers rock-solid security and long-term storage of bitcoins.
If you are new to bitcoin or the crypto world, it is better to go with a custodial wallet. So you can have password protection or help to reset passwords. Over time you can learn more about the security and keys and can switch to the self-custodial if you want.
Have more than one bitcoin wallet. For instance, you can stock your bulk bitcoin holdings in secured wallets (cold wallets, hardware wallets). And keep your ongoing yet small holdings in wallets with easy access (hot wallets, web wallets).
Carefully research wallet generators or exchanges before starting using. Most cryptocurrency exchanges aren’t insured. In the case of hacking, users can lose their crypto assets. So it is better to choose a secure wallet or an authentic exchange.
Also, even if you choose to go with an exchange, don’t keep all of your holdings in one place.
As an emerging asset class, Bitcoin has outshined many virtual currencies. You can buy services, buy and sell bitcoins, and even invest in them and get lucrative returns. You can get a virtual wallet and set it up to store and get started with the bitcoins. We have discussed how to create bitcoins wallet in detail in the above discussion. You can choose a bitcoin wallet depending on your bitcoin usage, holdings, and security concerns.
If you can’t find information about your desired bitcoin wallet, share your query, and we will be right back with the solution.