How to store bitcoin

Just like in the real world, where you need a place to store your cash, like a wallet, in the digital world, you also need a place to store your digital currency. The only way to do this in the digital realm is through the use of a digital wallet.

When opening a digital wallet you will be provided with a public key, which acts like your bank account number. You share this public key with others when you want to receive Bitcoin. It’s safe to share publicly because it only allows people to send Bitcoin to you, not take it away.

On the other hand, your wallet also holds a private key, which is more like your password or PIN code. Usually, this key is compose usually of 12 key phrases. This key is crucial because it’s what you use to sign and authorize any transaction you want to make with your Bitcoin. It’s essential to keep your private key secret because anyone with access to it can control your Bitcoin. There are various types of Bitcoin wallets, each with its own format and characteristics.

1. Types of Bitcoin wallets based on convenience and security:

These are mainly categorize in two types of wallets, custodial vs. Non-Custodial Wallets. Custodial wallets are managed by a third party, like a cryptocurrency exchange, where you do not control over the private keys. On the other hand, non-custodial wallets lets you have full control over the wallet’s keys. Under this last category there are two subcategories, known as Hot and Cold wallets.

1.1 Hot Wallets

These are like digital wallets on your phone or computer. They’re connected to the internet, so they’re handy for everyday use. here are some of the most popular ones:

	Desktop	Mobile	Browser extension
Unisat	×	√	√
Xverse	×	√	√
Mycelium	√	√	×
Electrum	√	√	×
Exodus	√	√	√
Trust Wallet	√	√	√
OKX	√	√	√
Sparrow	√	×	×

Pros: Super convenient for buying, selling, or using Bitcoin often.
Cons: Because they’re online, they can be more vulnerable to hackers.

1.2 Cold Wallets

These are like secure storage for your Bitcoin that isn’t connected to the internet, making them safer from online threats.

• Hardware Wallets: Special devices that store your Bitcoin offline (like Ledger or Trezor). Think of them like a secure USB drive.
• Paper Wallets: Pieces of paper with your Bitcoin information printed on them. You create and print these yourself (using tools like Bitaddress.org).

Pros: Very secure because they’re not online.
Cons: Not as convenient for everyday transactions. If you lose the hardware or paper, you might lose your Bitcoin too.

2. Types of Bitcoin wallets based on technology upgrades:

This type of bitcoin wallet categories are less popular, nevertheless more and more important to understand do to the technological advances in the Bitcoin ecosystem.

2.1 Legacy Wallets (P2PKH)

These wallets start with ‘1’ and use the original Bitcoin address format. They are simple and easy to use but come with higher transaction fees and larger transaction sizes compared to newer formats.

Pros: Broad compatibility with all Bitcoin services.
Cons: Higher fees and less efficient use of block space.

2.2 SegWit Wallets (P2SH)

These wallets start with ‘3’. SegWit (Segregated Witness) was introduced to reduce transaction sizes, allowing more transactions to fit into a block. This results in lower fees and faster transaction processing.

Pros: Lower fees, faster transactions, and improved scalability.
Cons: Not all Bitcoin services support them, though compatibility is generally high.

2.3 Native SegWit (Bech32) Wallets

They begin with “bc1”. This is an enhancement over the original SegWit wallets. Bech32 addresses are entirely lowercase to avoid confusion and errors in transcription. These addresses are even more efficient in using block space.

Pros: Even lower fees than SegWit, better error detection, and fully optimized for the block space.
Cons: Some older platforms may not support Bech32 addresses.

2.4 Taproot wallets :

These wallets begin with “bc1”. Taproot is the latest major upgrade to the Bitcoin protocol, enhancing privacy, efficiency, and supporting more complex transactions like those needed for smart contracts. It builds on the benefits of SegWit and Bech32 by further optimizing the weight of transactions.

Pros: Enhanced privacy and efficiency, supports complex transaction types.
Cons: Still gaining adoption, so not all services support it yet.