Bitcoin Wallet consists basically of two numbers associated with each other in a mathematical (cryptographic): a private key and a public address. The address is used as the recognition address to where and to whom you wish to send Bitcoin (Entry Routing), and the key is used as a stamp of actions (exit permit). What actually determines who is the owner of a particular Bitcoin is who holds the private key. If you lose your wallet that is not backed up (more correctly the key) then no one can extract the Bitcoin that were at that address/online wallet.
What are the different types of Online Wallets?
Because Bitcoin is just mathematics (numbers), there are many ways to manage it, so there are many types of Bitcoin wallets. Let’s start with the simplest division: Web-Based Wallet vs. Cold Storage Wallet.
Web-Based Wallet is like cash – This wallet is comfortable to use. Web-Based Wallet is actually connected to the Internet and ready for immediate use. On the other hand, it is less safe from harm because all that which is easy to take out is easy to steal.
Cold Storage Online wallet is like a bank vault – this wallet is secure. A cold Storage Wallet “freezes” the key in a place not connected to the Internet at all (so viruses and various digital thieves cannot reach it). On the other hand, it is less convenient to use because in order to use it you need to transfer the wallet or the Bitcoins in it to an internet connection point. That which is hard to pull out is much more difficult to steal.
The prevailing recommendation is case you hold a significant amount of Bitcoins, you may want to keep most of the savings in a Cold Storage wallet and go about with some easy to use “cash” in a Web-Based Wallet .
Types of Online Wallets
If convenience is important to you the recommended online wallet to go for is a Hybrid Wallet, if the main importance for you is security is recommended to go for a local wallet. A local Wallet can be found in three main ways – Desktop, Mobile and Web-Based Wallets.
Local Bitcoin Wallet is such that the key is local on your mobile or on the computer’s Desktop physically. It is relatively safe operating in this manner because the only known way this wallet has physical access to the key, but on the other hand is dangerous because if you lose your phone or your computer goes kaput you can say good bay to your Bitcoins. To solve this problem, you can back up the encrypted key somewhere else, like a Memory stick, or a file on your computer.
Local Mobile: Bitcoin Wallet, Mycelium
Local Desktop : Bitcoin-Qt, Electrum, MultiBit, Armory
Hybrid Wallet is encrypted so that is a copy of your wallet on a hosting website, so you can use the same wallet on every computer and phone. Although the wallet is stored on a third party, such intended security is that the storing site cannot access the your wallet because it is encrypted with a password (this is like a safe deposit box when the bank does not have a copy of the key to the safe). It is convenient, but it is considered (at least in theory) less Secure because you need to rely on a site that he really do not know the password. To solve this issue, the site owner can use an open source site which anyone can (including professionals and hackers ) see the code of the software and make sure that the wallet and key are safely encrypted .
Hybrid (phone and computer): Blockchain.info website (open source), Android / iPhone
Clod Storage Wallets
There are several types of Cold Storage wallets, but overall principle is that it’s not the app that sends Bitcoins, but it is a system to maintain the cryptographic key securely. The address should not be secure, and it is even recommended to use it publicly, so you can continue to receive and send payments directly to that address (there is no need for a key to receive Bitcoins).
Paper Bitcoin Wallet
Paper wallet is the most popular cold storage wallet and perhaps the simplest . Overall it’s about printing the key (and the corresponding address) on paper. The paper can stored anywhere: With you father, under the mattress, or even in the bank. You can print it multiple times to so you will not be afraid to lose the one copy you made.
Pros: Very simple
Disadvantages: You can lose the paper, paper can burn up and paper doesn’t go very well with wear, etc.
The Brain Wallet
Brain Bitcoin Waller is a cool Cold Storage Wallet, and perhaps the most powerful . It is a password (very strong!) you choose in your mind and using a known algorithm it is translated to the cryptographic key. No matter how it works, as long as the key is not physical but exists virtually in your head as a very strong password but easy to remember.
Pros: Key non-physical at all. One can go through checkpoints, airports, etc. with no way for the wallet to be ceased by anyone. Even if you found yourself ransacked and naked on a desert island with a computer connected to the internet it can still be used.
Disadvantages: you can forget it
Disconnected Computer (Stand Alone Computer)
Disconnected Computer is the most comfortable wallet, but the most complicated. This is a computer that keeps the key as a “hot” wallet, only that it disconnected from the Internet, and instead of performing actions from the wallet directly, you physically transfer the wanted actions (not the key) with a memory stick to another computer connected to the Internet.
Advantages: convenient cold wallet. Only requires action on a separate computer to make and deliver the action using a memory stick.
Disadvantages: a tad complicated, and requires a separate computer that is all just a Bitcoin wallet.