Choosing a Bitcoin Wallet

What Is a Bitcoin Wallet?

A Bitcoin wallet is a device or software used to securely send, receive, and store bitcoin. There are many different types of wallets, but all wallets perform two main functions:

• Storing the user’s public and/or private keys. A public key is used to receive payments while a private key is used to send payments.
• Facilitating the creation and signing of transactions, i.e. the receiving and sending of bitcoin.

This article will analyze several topics for consideration when choosing a wallet. For an introduction to the use and function of bitcoin wallets, read this Introduction to Bitcoin Wallets.

Use Cases for Bitcoin Wallets

There exist hundreds of different Bitcoin wallets, which are used by different people for different purposes. No wallet is perfect, and some should not be used at all. However, among the reliable wallets, each will have varying levels of convenience, privacy, efficiency. The best wallet for each user depends on their use cases for Bitcoin.

When downloading a software wallet or buying a hardware wallet, it is important to make sure you are using the correct website. Phishing scams frequently impersonate Bitcoin wallet websites in an attempt to trick users and steal their bitcoin.

➤ Learn more about how to avoid bitcoin scams.

Long Term Self-Custody

Many users prefer to buy and hold bitcoin for a long time, looking to take advantage of Bitcoin’s extraordinary performance as an investment and savings tool. These users are often called hodlers.

Hodlers are not looking to move their bitcoin often, so convenience and ease of use are lower priorities. Instead, they value security and robustness against a wide variety of attacks, even attacks which may not seem realistic at present, but which may be realistic in the future.

Long term savers often opt for cold storage solutions such as hardware wallets. Cold storage solutions are more secure than hot wallets because they never connect to the internet, and are thus less vulnerable to hacking and malware.

Bitcoin Hardware Wallets

• ColdCard. The ColdCard is one of the best hardware wallets on the market. By using PSBTs, ColdCard can remain totally cold at all times. ColdCard is also a Bitcoin-only wallet, reducing its attack surface and increasing security.
• Trezor. Satoshi Labs produces the Trezor Model T and Model One. Both are well-reviewed hardware wallets, but they lack PSBT support and the ability to operate fully cold.
• Ledger. Like Trezors, the Ledger Nano S and the Ledger Nano X support Bitcoin storage, but lack the ability to operate fully cold.

Watch-Only Wallets

Because hardware wallets are meant to remain cold and do not usually have large screens, many Bitcoin users pair a hardware wallet with a watch-only software wallet, which they can use on a phone or computer. Watch-only wallets only have the public keys associated with a wallet, so they can generate receive addresses and craft transactions, but they cannot sign transactions or spend any bitcoin. This allows users to keep their private keys cold and secure while enjoying the convenience of software wallets.

Some watch-only wallets also act as multisig coordinators. These wallets help construct multisig wallets from multiple other hardware or software wallets.

• Specter Desktop. Specter is a high quality watch-only wallet and multisig coordinator. It can connect directly to a Bitcoin Core node to maintain privacy.
• Sparrow Wallet. Sparrow provides detailed coin control and privacy information, which helps users avoid common privacy pitfalls. Sparrow supports PSBTs and PayJoin, and can connect to a Bitcoin Core Node.
• Caravan. Caravan is an open source multisig coordinator distributed by Unchained Capital. It allows users to create and backup multisig wallets.

Spending Bitcoin

Some Bitcoin users prefer to spend their bitcoin more frequently. Users who plan to send and receive on a day-to-day basis will likely prefer software wallets for their superior convenience, accessibility, and ease of use.

Software wallets can be used on mobile devices or desktop computers, depending on the specific wallet. Having a Bitcoin wallet on a phone or computer makes it easier to access, but these wallets are almost always hot, meaning they are connected to the internet. Downloading malware on the same computer that hosts your wallet can put you at risk of losing your bitcoin.

Choosing a Software Wallet

When selecting a software wallet, there are several factors to consider.

• Bitcoin and Lightning. Some mobile or desktop wallets only support Bitcoin or the Lightning Network. If you are looking to spend bitcoin frequently, a Lightning wallet might be the best choice.
• Recovery Methods. Wallets differ on how they allow users to backup and recover their wallets. Pick a wallet with a simple, reliable recovery method.
• Custodial Wallets. Not all software wallets ensure that only you can access your bitcoin. Some share your private keys with third parties, which presents significant risks if the third party is malicious or compromised.
• Reputation and Experience. There are hundreds of software wallets available, and not all of them are trustworthy. It is important to pick a reputable wallet which has been well-tested and reviewed. Using a wallet which has existed for multiple years is also a good security practice.
• SegWit Support. Wallets which support Native SegWit will save you the most on fees when you send bitcoin. A wallet supports Native SegWit if they generate addresses beginning with ‘bc1’.

Mobile Bitcoin Wallets

• BlueWallet. BlueWallet supports both Bitcoin and Lightning wallets. It also provides a clean user interface and simple recovery methods.
• Muun. Muun supports Bitcoin and Lightning and abstracts much of the complexity away from a Bitcoin wallet.
• Breez. Breez is a Lightning-only wallet, so you cannot use it to receive regular Bitcoin payments. However, it provides an easy way to use the Lightning Network.

➤ Learn more about how to use Blue Wallet on your mobile device.

Desktop Bitcoin Wallets

• Wasabi. Wasabi is a privacy-focused wallet which includes a CoinJoin implementation and full coin control.
• Bitcoin Core. Bitcoin Core, the reference implementation of Bitcoin itself, includes a wallet. The Bitcoin Core wallet was the first Bitcoin wallet. It offers all of the basic functionality of a wallet, including PSBT support.
• Electrum. Electrum is a reputable wallet with a long history. It allows full coin control, cold signing, and functions as a full Lightning Node.

Bitcoin Wallet Features

Bitcoin wallets can be judged and rated based on a variety of factors, and there is no definitive answer on the best wallet.

Security

Security is likely the most important feature of any wallet. As a general rule, cold storage solutions like hardware wallets and airgapped computers are considered more secure than hot wallets, but all software can have bugs.

The more people who review the code and the longer a wallet has persisted, the more likely it is a safe, high quality project.

Privacy

Some wallets focus specifically on protecting a user’s privacy. Privacy-focused wallets typically support coin control, allow users to connect the wallet to their own full node, or include a full node within the wallet itself. Some privacy wallets, such as Wasabi, also include CoinJoin implementations, a powerful privacy technique meant to break chain analysis heuristics.

Wallets which do not allow users to connect their own full nodes are not good for privacy, as they send a user’s public keys and transaction history to the centralized third parties who distribute the software. Privacy-conscious users should always attempt to use wallets which query their own node.

Although unlikely, using a wallet which queries a third party’s node exposes you to the possibility of being lied to about your bitcoin balances and transactions.

Fees

For users who spend bitcoin frequently, fees can be a significant factor in selecting a wallet. Bitcoin wallets which support Native SegWit are currently the best option for minimizing fees, with Wrapped SegWit wallets being slightly more expensive and Legacy wallets being the most expensive.

The Lightning Network provides by far the cheapest means of transacting bitcoin. Lightning wallets allow users to transact instantly and for nearly zero fees. For users who want to send and receive bitcoin frequently or in small amounts, Lightning wallets may be the best option.

Interoperability

The Bitcoin community has established a standard method for ensuring interoperability between wallets. Partially Signed Bitcoin Transactions (PSBTs) allow one wallet to create a transaction without any signatures and hand that transaction off to another wallet, which adds the signatures. All else being equal, wallets with PSBT support are superior to those lacking such support.