A Bitcoin address or a cryptocurrency address, in general, is a unique string of alphanumeric characters that serves as a virtual location for the cryptocurrency you own. In order to make any kind of operation on the Bitcoin blockchain, the first and most important thing you need is a Bitcoin address.
In this article, we will look at what Bitcoin wallets are and how you can use them to get yourself a Bitcoin address and be a part of the coin’s ecosystem.
What Is a Bitcoin Wallet Address?
You can think of Bitcoin (BTC) addresses as bank account numbers that let you receive currency in your account. But on the technical side, Bitcoin addresses are very different things, as Bitcoin wallets do not actually store your Bitcoin. Instead, they generate and store a master file containing the digital credentials (public keys, private keys, and wallet addresses) that you need in order to access your Bitcoin and make transactions.
All Bitcoin wallets have a corresponding Bitcoin wallet address. The wallet address is a hashed version of the wallet’s public key, one that is easier and safer to share with others. The wallet address identifies all the transactions coming in and out of that wallet.
Keep in mind that any Bitcoin wallet can be used to generate an unlimited number of new addresses, just like having different accounts in the same bank.
What Are Crypto Wallets?
Crypto wallets are third-party clients on the blockchain that let you access and manage your funds. The wallet is just an interface connecting you to the blockchain, but it’s still you who has control over your funds.
So far, we know that a wallet doesn’t store your digital currency directly. Rather, it is a protocol that generates and stores a master file containing the digital credentials you need to access and interact with your cryptocurrency holdings. These include your private key, public key and your wallet addresses.
Even though their main purpose is the same, there are different kinds of crypto wallets with different features. The best wallet for you depends on your preferences, your digital portfolio and how you want to manage it.
What Are the Main Cryptocurrency Wallet Types?
There are three main types of cryptocurrency wallets: software wallets, hardware wallets, and paper wallets. These wallets vary significantly in terms of characteristics, functionalities, and security levels.
You might also encounter hot and cold wallet categorisation. Bitcoin wallets that are connected to the internet are known as hot wallets, while those that aren’t connected to the internet are cold wallets or offline wallets.
Hot wallets keep users’ digital credentials online, and thus, they are more prone to online attacks, scams, or hacks. This is why cold storage is considered much safer than hot storage. However, the paper wallets where you write down your private key and other credentials on a piece of paper are the safest options since you don’t include any third party to safeguard your assets. Still, it’s your responsibility to keep that key safe.
Here is a comprehensive summary of all the wallet types you can use to create a Bitcoin address.
Web wallets are hot wallets that keep private keys and other credentials on online servers and serve as intermediaries that send and store cryptocurrency on your behalf. They allow you to interact with the Bitcoin blockchain through web browsers.
Most of the web wallets are hosted by third parties, such as cryptocurrency exchanges like Coinbase or Gemini, which allow you to trade and invest your crypto assets easily. The main advantage of a web wallet is that you can access your funds anywhere, from any device, just as easily as checking your emails.
However, you should know that there are major security concerns associated with web wallets, as they store users’ private keys and personal information on online servers, leaving them vulnerable to hackers, scams, and cyber attacks. To minimise these risks, it is important to make use of security tools, such as multi-factor authentication, anti-phishing features, and withdrawal access management.
To address these concerns, some web wallets became multi-sig wallets or wallets that require multiple private keys to grant users access to the funds.
Desktop wallets operate locally on software that you download to your computer, such as Exodus, Jaxx, or Electrum. They are also non-custodial, giving you full control over your keys that are kept in a wallet.dat file on your computer.
As you might have guessed, for security reasons, you should use password protection tools when accessing those files and always ensure that your computer is clean of malware or viruses.
Mobile wallets, like Bitcoin Wallet, Hive Android, or Mycelium, operate on applications downloaded to your mobile devices. Some of these are app versions of exchange services or other wallet providers. You may have to check whether the wallet provider offers an app for your Android or iOS smartphone. One of the conveniences of mobile wallets is that you can use QR codes instead of copy-pasting long strings of wallet addresses.
There is a trade-off between hardware wallets and software wallets in terms of convenience, practicality, and security. As we have discussed, software wallets or hot wallets, in general, are vulnerable to malicious attacks due to their online services and centralised third-party providers. The solution to these problems is to keep your virtual assets in a cold (offline) hardware wallet.
Hardware wallets are convenient if you want to keep your cryptocurrency over a long period (HODL). They are typically small, physical, electronic devices that you only connect to the internet when you want to deposit, withdraw or trade cryptocurrencies. They use a random number generator to generate a public key and a corresponding private key and often enable you to set up a security PIN and a recovery phrase in case you forget your PIN.
Many well-known hardware wallet companies, such as Trezor and KeepKey, come with a desktop application so you can easily manage your cryptocurrencies. What’s more, some can also be connected to decentralised exchanges (DEXs) to let you trade and invest your crypto holdings conveniently.
Overall, hardware wallets are a little harder to use than software wallets. But they compensate for this inconvenience by being the safest way to store your virtual assets since they are immune to malware, viruses, and cyberattacks.
As the name suggests, a paper wallet is a piece of paper where you keep your Bitcoin wallet address and corresponding private and public keys. You could keep it in the alphanumeric address format, but a QR code is much more convenient to use.
Paper wallets are extremely secure compared to their software counterparts. However, there are physical risks associated with them, such as the flimsiness of the paper. Moreover, you can’t transfer only a fraction of your holdings from a paper wallet. They only allow you to transfer the entirety of your balance. To make a partial transaction, you need to transfer your assets to a different kind of wallet first.
To get a paper wallet, you need to go to a paper wallet generator such as bitaddress. From there, you can generate the necessary credentials you need and print them easily by following the instructions.
A Few Words Before You Go…
A Bitcoin address is the encrypted and shortened version of your Bitcoin wallet’s public address. You need a wallet address and a private key to make transactions and keep your assets safe. If you want to hold other cryptocurrencies such as Ethereum (ETH) or Bitcoin Cash (BCH), you will need an Ethereum address and a Bitcoin Cash address, respectively.
Luckily, if your wallet service supports the coins you want to hold, it takes care of the address generation process, so you don’t have to worry about it. The only thing you need to worry about is your assets’ security, but this can be easily taken care of if you choose a well-developed wallet service, keep your devices clean from malware and viruses, and keep your private key strictly to yourself.