5. Bitcoin wallets - hot vs cold
Since Bitcoins exist only in the virtual space, you can't store them in any physical way. Instead, what you store are the keys – public and private (secret). There's always a risk that someone might get hold of your secret key and steal all your coins.
Private keys are so important that we can categorize Bitcoin wallets based on how and where they store them. There are two types of wallets:
1) Hot wallets: These are any wallets connected to the internet. They are fast and convenient, but also riskier. A hacker can break into your computer remotely – for example, use clipboard malware to replace a wallet address you've copied with their own.
Subtypes of hot wallets:
Desktop: It's a program that you download and install on your computer, just like any other software. The key is then stored on your computer. Examples: Electrum, Atomic, Jaxx Liberty.
Mobile: Native mobile apps are very handy when you need to transfer crypto quickly. For example, you can pay in 1 click using a QR code. But if someone steals your phone, they can also get access to your crypto. Example: Edge, Coinomi.
Web: These are web apps hosted and administered by third parties. Your secret key is stored on a server, so you don't have any control over it. The server can get hacked, or even the company itself can disappear with your money. This is the riskiest type of wallets. Examples: Blockchain.com, Freewallet.
2) Cold wallets:These are wallets without a connection to the internet, so they are protected from hackers.
Subtypes of cold wallets:
Hardware wallets: small electronic devices that cost between $50 and $100. The most popular are Trezor and Ledger Nano. This is the most secure type of wallets.
Paper wallets: You can use a service like BitcoinPaperWallet to generate Bitcoin addresses (with QR codes) and then print them. To use such a wallet, you'll need to scan the QR code. Instead of regular paper, you can buy special waterproof paper with holographic stickers for even better protection.
Which type of wallet you should choose partly depends on how much crypto you have. If you'll only keep a very small amount in the wallet, you can also use a web service. But if your Bitcoin holdings are considerable, you should choose at least a desktop wallet and preferably a hardware device. You have to be in full control of your secret key. There's even a popular saying: 'Not your keys, not your crypto.'