Mobile or Online Wallets can be thought of like a checking account while Hardware Wallets and Paper Wallets can be thought of like a savings account.
Four Types of Wallets
1. Online Wallets or Mobile Wallets or sometimes refereed to as Hot Wallets
-Wallets that can be accessed on the web from any internet connected device. Online Wallets store your private keys online. These Wallets can only be accessed with a Wallet ID and a user-set password.
Hot Wallets refer to Bitcoin Wallets used on internet connected devices like phones, computers, or tablets. Because Hot Wallets run on internet connected devices there is always a risk of theft. You shouldn’t store any significant amount of bitcoins in a Hot Wallet.
If only used with small amounts, Hot Wallets could be used for your everyday Bitcoin needs. One may, for example, want to keep $200 worth of bitcoins in a Hot wallet for spending, with $10,000 locked away in cold storage.
2. Hardware Wallets
-Physical devices designed to secure bitcoins. Hardware Wallets are small computers or smart-cards built with the sole purpose of generating Bitcoin private keys offline. Hardware Wallets securely sign transactions. USB stick style Software can make it easy to load Bitcoin into Hardware Wallets without having to install any other software or apps.
3. Software Wallets
-Wallet applications downloaded to your phone, computer or tablet. Software Wallets make it easy to securely spend and receive bitcoins from and to a Hardware Wallet. Desktop Wallets are Software Wallets that are downloaded and installed on your computer.
Available on Mac OS X, Windows, and Linux.
4. Paper Wallets
-Bitcoin private keys printed from an offline computer. Paper Wallets were the standard method of cold storage before Hardware Wallets were built.
Paper Wallets are private keys printed out on a piece of paper. Paper Wallets are secure cold storage created/printed from a secured offline computer.
The main problem with paper wallets is it can be inconvenient to create and print a new wallet each time you send funds, but it is secure.
Each Wallet handles data requests differently.
A Wallet that downloads the whole blockchain is a more secure Wallet.
Most Bitcoin Wallets today automatically create a new address for each transaction, otherwise it is done manualy with each new transaction.
This new address is desired as a security measure.
Different Wallets should be selected depending on how much money is being stored or being transferred.
Secure Wallets like Paper Wallets or Hardware Wallets can be used as “savings” Wallets.
Mobile Wallets, Web Wallets, and Desktop Wallets should be treated like your everyday spending wallet.
Create multiple backups of your Wallets. Backups should be kept in separate physical locations in the case of fire or water damage.
Paper Wallets can be laminated or written in metal for extra protection.
Cold storage is achieved when Bitcoin private keys are created and stored offline. Private keys stored offline are more secure since there is no risk that a hacker or malware could steal your coins.
There are three ways to create cold storage:
1. Paper Wallets
2. Hardware Wallets
3. Software Wallets
These are run on offline computers.
Think of cold storage as your savings account. Use it to securely store bitcoins that you don’t plan to spend.
Some services that offer “Bitcoin Wallets”, may also control your private keys.
A Wallet where you control your private keys is the most desired. This is the only way to have FULL control of your funds and not have to rely on third parties for security.
Although often called Bitcoin Wallets, some services aren’t true Bitcoin Wallets.
There could be a chance that customer's private keys are held by these third party services, meaning users don’t really have control of their money.
“If you don’t control the keys, you don’t control the coins”.Code:https://en.bitcoin.it/wiki/Private_key
Services may in fact use good security practices, as most do these days and there’s a good chance your bitcoins are safe.
But by storing large amounts of bitcoins with a third party, you are always taking on additional risk.
