Everything in the blockchain space starts with a wallet. The wallet is the most important instrument for making any kind of transactions in cryptocurrency space, and is also the original starting point of the industry. In the beginning, when the Bitcoin blockchain network was launched, miners received their rewards for block validation on the wallets they were provided. It was only much later when the industry evolved and users started understanding the investment potential of cryptocurrencies that a wide variety of wallets were developed and offer for users with a diverse range of options and functions.
Though the cryptocurrency wallet is the most important instrument in blockchain space, it is also the most vulnerable and is the priority target for any kind of hacker. There are essentially two types of wallets available on the market – the cold wallet and the hot wallet. The cold wallet is a digital repository that contains the assets in a manner that is disconnected from the internet. Such an approach is ideal for storing large amounts of cryptocurrencies with no instant access via private keys that are held in the custody of the user. However, the given approach is also inconvenient for quick and frequent access to the assets. The hot wallet, on the other hand, is perpetually contained in online mode and is therefore susceptible to attack from a hacker that managed to access the supporting infrastructure of the host exchange, or gains access to the private keys. Hot wallets may be less secure, but they are ideal for quick and frequent access to the assets stored on them.
In addition to the aforementioned categorization, wallets can also be separated into custodial and non-custodial types. The former means that users do not have access to their private keys and they are contained and serviced by the hosting platform, such as an exchange. The given approach is ideal for ensuring password recovery in case of loss at the expense of user privacy. The non-custodial approach is best suited for higher security, as it means that users retain their private keys and can control their personal information better without the interference of an intermediary.
There are a large number of Bitcoin wallets on the market, all of which offer a rather similar set of functionality that is characteristic for the market. Among the main features users should look for when selecting a Bitcoin wallet are:
- High degree of security;
- Convenience of access;
- Support for the Bitcoin network;
- Versatility in terms of connection and cross-chain support;
- Convenient interface;
- Buy and sell options.
These, among others, are the key criteria for selecting a wallet that can store Bitcoin and other cryptocurrencies. Most wallets have long evolved from mere repositories into entire ecosystems of products and services that provide users with a wide range of amenities, such as access to Web3 services, decentralized finance, gaming, NFT storage, and many others.
If one has some Bitcoins to store, the best option would be to store them well and securely. Considering the slew of hacks and the abundance of scammers on the market, a cold wallet is the ideal solution for Bitcoin storage. However, traders who rely on their wallets for large volumes of trade will have little choice but to resort to a custodial storage on an exchange.