bitcoin walletAs you probably know by now, your wallet will be the place where you will store your bitcoins. Its main purpose will be to store the private keys of your Bitcoin addresses as well as taking record of all the transactions you will conduct. But in a more practical sense, you will use it to send, receive and store your bitcoins.

You don’t need to have only one wallet, you could see it more like a bank account and have one for spending or trading and one for saving or even one for traveling, one for home and one for long term savings, depending on your personal situation.

However there are different kind of wallets and they have their uses and purposes, so it’s very important that you know how each one of these operate so you can decide what’s better for your particular situation.

Remember that the bitcoins that you might have will be stored in a particular wallet, and if for any reason you loose it (let’s say you have it in your hard drive on your laptop), and for example your laptop falls from a cliff and the hard drive gets damage and becomes unrecoverable, your Bitcoins will be lost FOREVER, there will be no way of getting them back. So I believe it’s of high importance to decide where and how you will store your hard earned bitcoins and also strategies to back up them:

Bitcoin Desktop Wallets

(Armory, Hive (OS X), MultiBit (Windows, OS X and Linux), DarkWallet). These are some of the most popular Desktop wallets. As their name implies, these are wallets that are basically a piece of software that you download to your computer and keep it there.

With this software you can create bitcoin addresses to send and receive bitcoins and also store them.

They have the great advantage of being in your own computer, and thus they are very secure, the limitation is that if something happens to your hard drive, your computer gets lost, etc. You will lose them forever.

Also if you are, for example traveling, and you need bitcoin that is stored at your computer back home it will be impossible to retrieve them at the moment you need them.

However because of it’s safety and easy of use, the Desktop Wallet option is one of the most popular among bitcoin users.

Bitcoin Mobile Wallets

Here you can find the likes of Mycelium, Blockchain and Xapo. These wallets are pieces of software to be installed on your smartphone. As you might have already guessed, they are great to move around with bitcoin and even use the benefit of (NFC) Near Field Communication, which allows you to pay or get paid simply by tapping on the phone without the need of entering any information. However the obvious disadvantage of mobile wallets lies in its portability. If the smart phone is lost the bitcoin will be lost too.

Bitcoin Online Wallets

Here you can find Coinbase, Blockchain and Xapo. These wallets are held on the Internet by some third party. They have the great advantage of being always available and not being dependant of any single device in your control. You can access them from anywhere you can find an Internet connection and if your wallet provider is a reputable one they can be very secure.

Other benefit is that you can use them to duplicate (or backup) your addresses from mobile or desktop wallets.

However the great disadvantage of these wallets is that you involve a third party: the wallet provider. Someone else will be in control of your funds and somehow you will be disabling the whole purpose of bitcoin, bringing yourself back to centralization

Physical Wallets or Paper Wallets

As the name implies, these wallets are physical representation of your bitcoin addresses, they are a printed piece of paper with two QR codes, the first containing your Bitcoin address and the second one to encrypt your private key.

They have the great advantage of not depending on any online service or computer, thus they are immune to hacking. However they become a target for physical theft. In case a robber know this piece of paper is of any value, they could take it from you and relieve you from your bitcoins. They are not useful for receiving or sending bitcoin and must be seen more of a long-term storage solution for your bitcoin.

Hardware Wallets

These wallets are pieces of software stored on a physical device (like a USB pen drive) with some added security features; like password protections and some encryption. You can store your bitcoins in one of these devices with a little more safety than a normal USB pen drive. Some of them will even allow you to send and receive bitcoins securely by connecting them to an online device.

You must remember that no matter what wallet type you decide to use, they are all attached to your private key (password), you will need to enter this password to access your bitcoin, and currently there is no password recovery in Bitcoin, so if your password is lost your bitcoin will be lost too. It’s also very important to choose strong passwords to encrypt your wallet and reduce the possibility of hacking.

It’s a good practice to backup your wallets and make a printable version to keep with your valuable things. A desktop wallet can also be stored in a physical drive like a USB pen drive and be kept away from your Internet connected personal computer.