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Bitcoin Wallet: How It Works

2023-12-31  BSN Team


Are you a new cryptocurrency enthusiast or maybe a seasoned veteran looking to switch to a new crypto wallet? Whether you are a casual crypto observer, trader, miner, or long-term holder, you always need a secure wallet to hold your coins.

Everyone knows that you can’t hold any cryptocurrency without a wallet. Some people trade smaller amounts of cryptocurrencies and keep their coins on an exchange. Others use online wallets such as or Coinbase. While these platforms certainly can hold your coins, they are not the most secure options available.

What’s the answer, then, you ask? The best option for holding your coins safely and securely is in a “cold-storage” wallet that you control.

This can be a software-based solution or a hardware wallet. The important factor is that the wallet isn’t connected to the internet, is owned and controlled solely by you, and requires authentication, making it a difficult target for hackers.

Let’s take a closer look at some of the best Bitcoin wallets around for you to choose from. You will learn why it is important to secure your bitcoins in what’s known as cold storage and find some of the best options available for keeping your coins safe.

Before diving deep into the cornucopia of crypto wallets out there, let’s answer a few frequently asked questions to make sure you’re up to date on the relevant information. Knowing these facts can help you in your quest to find the best Bitcoin wallet for you.

What are wallet seeds?

What is known as the wallet seed is a unique passphrase that is presented to you on the screen after a new wallet is generated. With this recovery phrase, you can access your wallet anywhere in the world, on any device that supports the software, by typing in the seed. Beware, however, if you lose the seed, your coins will be lost. It is important to write down your wallet seeds and keep them somewhere safe.

What is a mobile wallet?

Mobile wallets are, quite simply, cryptocurrency wallets you can download as an application to your smartphone. There a large number of wallets to choose from, and they are available from several mobile app distribution platforms. Secure Bitcoin wallets can be found on Apple’s App Store (iOS), Google’s Play Store (Android), and F-Droid (Android).

What is a desktop wallet?

A desktop wallet is a cold storage option available for desktop computers on all operating systems. You can find desktop wallets on Windows, macOS, and Linux. The most secure ones are open-source, do not connect to the internet except for network synchronization, and require a wallet seed to access your funds.

What is a hardware wallet?

Hardware wallets are another fantastic option for the highly secure storage of cryptocurrencies. There are several options for hardware wallets available from a variety of different manufacturers, and they are trusted names in crypto-security. Hardware wallets enable you to add a second layer of authentication for access to your Bitcoin wallet, and a password and a wallet seed protect all.

With a little background out of the way, let’s jump into more information and learn about all the different wallets out there and why they are some of the best Bitcoin wallets available.

Security of Your Coins: Hot vs. Cold Storage

It is important to remember that security is a concern if you are holding any amount of cryptocurrencies. You should always make sure to keep your coins in a medium that only you control. If you do store coins on an online medium, make sure you are not storing more there than you could stand to lose.

It’s also vital to know the difference between hot storage and cold storage of cryptocurrencies. Each has its advantages and disadvantages, and knowing those can help you securely store your coins.

Hot Storage

Hot storage is anything that is on an online medium. Platforms such as these are crypto exchanges and websites that feature online wallets.

Exchanges are websites where people can trade any amount of almost any cryptocurrency. An online wallet is created for you when you register for an exchange, and you are free to send coins to that address. The coins you send to this address are the coins you can then trade for other cryptocurrencies. Popular exchanges include Binance and Poloniex.

Online wallets are any platform that offers to store your coins for you online. You typically sign up with an email address and password. Most online wallets offer some extra security features, such as 2FA (two-factor authentication). Popular online wallets include Coinbase,, and Freewallet.

Advantages of Hot Wallets

  • Convenience: You can access any online wallet through a web browser such as Google Chrome, Mozilla Firefox, or Microsoft Edge on any computer or smartphone. All you need to do once you navigate to your online wallet of choice is your email address and password.
  • Ease of use: Most online wallets are friendly to anyone new to the cryptocurrency space. There’s not much technical jargon, and most operations are pretty straightforward. The user interfaces on most of these are simple and easy for anyone to understand.
  • 2FA (Two Factor Authentication): One big benefit offered by several online wallets is the ability to implement 2FA if you so choose. Utilizing 2FA is like adding an extra layer of security to your account. If you enable 2FA, you will have to verify your login with your phone number or secondary email address on top of your other log in details.

Disadvantages of Hot Wallets

  • Not as secure as cold storage: While many online wallets can offer more layers of security than others, the fact is that they are always online. Anything that is constantly connected is vulnerable. There have been many instances of exchanges and online wallets being hacked.
  • There are central points of failure: If you utilize hot wallets for all of your coins, you are placing implicit trust in the service you have chosen. Since these services run on central servers, if the website or servers go down, your coins go down with them. This is one of the huge advantages of only placing coins in wallets you control.

Hot wallets can be a good option for a lot of people, but it isn’t advised to store large amounts of coins in them. A good choice is to have a cold storage option available to store the majority of your coins and place only the coins you are trading into exchanges and online wallets.

Cold Storage

Cold storage is the best option available for keeping your coins safe and strictly under your control. Software and hardware wallets exist to keep your coins secure. There are pros and cons of cold storage, but the peace of mind granted with cold storage is worth every bit of it to most long-term holders.

Advantages of Cold Wallets

  • Highly secure: Cold wallets are designed with security first in mind. All major offline wallets require you to use a wallet seed to access your coins, and some even offer the ability to require a PIN code to perform transactions.
  • Offline: Cold wallets are offline and inaccessible to anyone who doesn’t have physical access to your computer. This means that as long as you protect your computer, you should be the only person with access to your coins. Typically, the only time an offline wallet requires internet connectivity is network syncing and sending or receiving transactions.
  • No central point of failure: With hot wallets, you have to hope that the website where you placed your coins goes down because your money can go with it. Cold wallets do not have this problem. If your computer dies, all you have to do is use your wallet seed to recover your Bitcoin wallet and all of your coins.
  • Can integrate with hardware wallets for added security: Similar to using 2FA with online wallets, hardware wallets add a second layer of security to your Bitcoin wallet. Products such as the Trezor, Nano Ledger S, and KeepKey have changed the way you can secure your coins. Many hardware wallets can sync right to your desktop wallet, and then you can set a password to your hardware wallet. Talk about peace of mind!
  • Requires a wallet seed: This is a major point for all cold storage wallets. They require a seed, which is a unique phrase that you should write down and store safely. If you ever lose access to your computer or your wallet, you can simply use your wallet seed on any other computer to recover your coins. This is a big deal for security, too, since someone would have to find the piece of paper with your seed written on it to know it. Definitely a big deterrent for hackers looking to access your coins!

Of course, there are a few disadvantages to cold storage, as well.

Disadvantages of Cold Wallets

  • If you hold different coins, you’ll need different wallets. Unlike hot storage, where you can store bitcoin and various altcoins altogether, certain cold storage wallets won’t accept certain coins. You can’t store Litecoins on Electrum’s Bitcoin client, for example. You’d have to download Electrum’s Litecoin wallet.
  • If you lose your wallet seed, you could lose access to your wallet completely. This is a major point of cold storage wallets; make sure you always keep track of your wallet seed. It’s highly important to write it down on paper, not in a Word doc or Excel sheet, and place it somewhere safe, like in a safe or another secure location. Ensure only you know where it is, as anyone with your wallet seed could access your funds from anywhere.
  • Some cold wallets aren’t as user-friendly as their hot storage counterparts: Several cold wallets require a bit of technical skills to set up and don’t look as flashy as some of the hot storage platforms. Most of them simply store your coins and allow you to send and receive transactions.

Mobile Wallets

Mobile wallets can often be highly secure and very convenient to users of cryptocurrencies. After all, what could be easier than just getting your phone out to do a quick transaction by scanning a QR code?

There are, of course, several pros and cons to mobile wallets, as well. Remember to research mobile wallets and read reviews, too.

Advantages of Mobile Wallets

  • Mobile wallets are available for both major smartphone operating systems: You can find mobile wallet applications on Apple’s iOS and Google’s Android. Just open up the App Store or the Google Play Store, depending on what type of device you have, and you’ll be all set to find a wallet.
  • Several trusted mobile wallets use seeds, too: Several of the popular wallet applications for smartphones utilize wallet seeds for the easy retrieval of funds should you lose access to your phone. The Electrum wallet for Android is one such choice, and you can actually use the same seed from desktop Electrum to access funds on Electrum for Android. Talk about simplicity!
  • Mobile wallets are just super convenient: When you need to do a quick transaction with a friend or merchant, all you have to do is scan a QR code or enter a Bitcoin address. It is super easy. You can also manage your coins from anywhere with mobile wallets, which is simple and makes crypto trading on the go a lot easier.

Disadvantages of Mobile Wallets

  • If you lose your phone, your coins could be lost, too. If you use a mobile wallet that generates a wallet seed upon creation, make sure you write it down and keep it safe. If your phone is lost or damaged, you will need that information to restore your coins on a different device.
  • Be wary of mobile malware: While most internet-savvy users are accustomed to knowing when a download or app could potentially contain malicious software, some folks aren’t. A lot of malware floats around online for mobile devices. Ensure your device doesn’t download applications that aren’t from their app store.

What about Hardware Wallets?

While we have touched on hardware wallets previously, there are a few points about them you should know before researching the best ones. Hardware wallets, like all other types of cryptocurrency wallets, have their pros and cons, as well. The security afforded by hardware wallets should easily outweigh any disadvantages about them, however.

Advantages of Hardware Wallets

  • Hardware wallets are extremely secure: With a hardware wallet, you get an added layer of security to your cold storage setup. Most desktop wallets will allow you to sync your hardware wallet for seamless integration. Most hardware wallets also require the use of another unique password before you perform any transactions.
  • Hardware wallets offer ultimate peace of mind: When storing coins in a hardware wallet, it has to be physically in your possession for those coins to be spent. This makes it one of the ultimate ways to store your coins because hardware wallets are fully encrypted and accessible only by the owner.
  • Hardware wallets are perfect for storing larger amounts of crypto: If you want to hold a high number of coins long-term, hardware wallets are perhaps the best choice. You can store the coins on the hardware wallet and lock it away until you need it again. This is a great way to protect a large number of coins that you’d rather not store on a computer or online medium.

Disadvantages of Hardware Wallets

  • Hardware wallets can be pricey: While the cost of some models has gone down, hardware wallets can still be a bit of a pricey purchase. If you don’t have a lot of money to spend and would rather go the free route, a desktop wallet would be the best bet for long-term storage of coins. This isn’t as much of a problem now, however, because several devices have seen drastically reduced prices in the last few years.
  • Hardware wallets can be confusing for newbies to crypto: While hardware wallets are highly secure, all of their features can be almost anti-features for someone just starting out with holding cryptocurrencies. Some of the technical skills required for setup and the lack of user-friendliness might deter some folks from using hardware wallets.

What Are the Best Options For Each Type?

So now you know all about the different types of wallets, along with the difference in hot and cold storage options.

What do you do now?

Anyone wondering what the best Bitcoin wallet is needs to evaluate their crypto plans.

Are you trading small amounts of crypto to have fun and learn about them? An online wallet might be a good option for you. What if you’re someone who loves crypto and plans to hold larger amounts long-term? In that case, a cold storage solution is definitely for you.

Decide your goal for your coins, and you can decide on what type of wallet you need easily.

With all of that in mind, let’s dive into some of the best wallets available for each type. Once you have the facts about each one, you can make an educated decision on what would be the best Bitcoin wallet for you.

Online Wallets

There are several online wallets that are trusted in the crypto community and provide safe storage for holders and traders everywhere. The important thing to remember with these is to protect your login details and never share them with anyone!

With that in mind, here are some of the best online hot storage options.

  • Binance is a popular crypto exchange where you can obtain Bitcoin and hundreds of altcoins. It is used for trading both short-term and long-term and allows for the storage of not only bitcoins but any altcoins you have obtained on the site.
  • Coinbase is a popular online wallet. It offers its users the ability to purchase Bitcoin and other coins with fiat currency (debit cards, credit cards) and store those coins safely on the web platform. Coinbase also offers various forms of two-factor authentication to further protect your account, such as SMS phone verification or secondary email.
  • is another one of the trusted and original online wallets. This platform allows you to store Bitcoin, Bitcoin Cash, and Ethereum. It also has 2FA features and even a passphrase feature for enhanced security. It is definitely lauded as one of the more secure options of any online wallet.

Mobile Wallets

Mobile wallets sure can come in handy, being accessible to you at any time in the form of an application on your iPhone or Android device. There are a number of mobile wallet applications available on the App Store and Google Play Store, but some are more trusted and secure than others.

It is important to research and read about lesser-known mobile wallets, as some malicious actors could still use smartphone apps to spread malware. Always make sure you only install trusted applications to your device.

The best options for mobile wallets currently include:

  • Electrum (Android): While Electrum isn’t available for the iPhone, it is probably the best option for Bitcoin wallets on Android. Packing in all the same security features as the desktop version of Electrum, it offers security and convenience all in one package. You can use the same wallet seed you obtained for your desktop wallet to access that same wallet on your mobile with Electrum. This is very easy for anyone who wants to access their main wallet on the go.
  • BRD Wallet (Android and iOS): BRD is arguably the best wallet available on Apple’s App Store, and it is available for Android as well. The app is open-source, allowing anyone to read and verify the source code. It gives wallet owners full control of their private keys as well, making this wallet an effective cold storage effort for your smartphone.
  • Edge Wallet (Android and iOS): Edge features a familiar interface for long-time users of online wallets. It requires a login to use, and it backs up all your wallet data for you. This makes things a breeze for anyone who doesn’t care to do manual backups. Edge is also cross-platform, enabling you to log in and access your coins from any Apple or Android smartphone or tablet. Just download the app, and you’re off to the races.

Desktop Wallets

Desktop wallets are still one of the safest ways to store your coins. When choosing a desktop wallet, take into account your operating system. Most major desktop wallets will work with the three major types of operating systems. These include Windows, macOS, and Linux.

Most desktop wallets will provide you with a wallet seed upon generation of your wallet, so be sure to write it down and put it somewhere that only you know the location of! The seed is the most important part of your wallet and will always help you restore access to your coins should you lose access to your computer.

There are countless options available for all three major platforms, but the best of the lot are these:

  • Electrum (Windows, macOS, Linux): Electrum is one of the oldest and most trusted wallets in the game. Some people in the community go as far as to say that it is the best Bitcoin wallet, hands down. Electrum is open-source, can generate multiple wallets upon generation, and is only accessible via your wallet seed. It also supports multi-signature transactions and can integrate with almost any hardware wallet. You can even access your desktop Electrum coins using the same seed from an Android device running the Electrum mobile application.
  • Bitcoin Core (Windows, macOS, Linux): Bitcoin Core is the original player in the game. It’s a fully open-source wallet that also serves as a Bitcoin node. It syncs the entire blockchain to your computer, allowing you to process and verify payments fully. It offers privacy and the ability to sync through any server of your choosing. You can broadcast transactions through privacy software like Tor with Bitcoin Core, as well.
  • Exodus Wallet (Windows, macOS, Linux): Exodus is a wallet that allows you to store Bitcoin and several altcoins, such as Litecoin, Dash, Ethereum, and Dogecoin. It boasts a beautiful and easy-to-navigate user interface. It even offers the ability to trade currencies from right within the wallet. As an added bonus, there is also an Exodus Mobile application for Android and iOS that allows you to access your Exodus coins on the go.

Hardware Wallets

Hardware wallets are the ultimate way to store your coins safely. Many hardware wallets can seamlessly integrate with your desktop wallet, allowing them to act as a sort of two-factor authentication tool. They also require a unique passphrase, and it usually has to be entered before a transaction can be made. All of these features make hardware wallets the safest way to hold any amount of cryptocurrency.

There are several great options for hardware wallets out there. The best of all of them include:

  • Ledger Nano X: Ledger is a well-known and trusted name in the hardware wallets space, and its Nano X is easily the best device it has ever released. It is one of the first hardware wallets to feature Bluetooth connectivity. This allows it to communicate with a computer or smartphone without needing the help of a USB cord. It is also praised for its ability to store multiple types of cryptocurrencies.
  • KeepKey: The KeepKey is one of the best hardware wallets around. It features many security measures. It uses a backup wallet seed and a PIN code for added verification measures. It can also integrate with popular desktop wallets, like Electrum.
  • Trezor: The Trezor hardware wallet is the original player in the scene. Built by SatoshiLabs, this device pioneered what hardware wallets have become. With an OLED screen, it features several randomly generated backup PIN codes and a recovery seed to keep coins stored on it safe and secure. It is compatible with desktop wallets and even certain Android wallets.

So now you’re armed with knowledge of all the different types of Bitcoin wallets, the pros and cons of each type, as well as some of the best offerings for each type of wallet. You’re ready to jump into the world of cryptocurrency with your wallet of choice and start trading, mining, or just holding coins for the fun of it.

You know the security features of each type of wallet, and you know some steps on how to store your coins and keep them safe properly. If you are still stuck on the fence about which wallet is best for you and are still asking what the best Bitcoin wallet is, one answer sticks out in particular to a lot of people.

What is The Best Bitcoin Wallet?

In short, the best wallet available is Electrum.

It is a trusted wallet, has been around for years, and is known all across the cryptocurrency scene as being the most secure and convenient option. Not only is it protected by your password and seed, but it is also readily accessible on your Windows, Mac, or Linux computer, along with your Android smartphone or tablet.

As you’ve learned, there are countless options available for storing coins. The fact that the Electrum wallet can integrate with hardware wallets easily, can be accessed from anywhere, and allows you to own your coins fully makes it the best wallet around. Its code is open-sourced and available for audit by developers the world over.

It is trusted, private, secure, and easy to use. This makes it one of the most approachable and easy-to-trust wallets around. With it, and any wallet like it, you can completely own your coins, easily transfer and receive them, and have the peace of mind of knowing they are only accessible to you.

2023-12-31  BSN Team