If you are going to invest in Bitcoin, whether you want to use it as a currency or are simply speculating on the possibility of its value rising yet further, you will need a wallet. But what are the differences between the various types?

Cryptocurrency transactions are confirmed by the exchange of Bitcoin addresses, which are public encryption keys. These are validated by private encryption keys, which are stored in your wallet. Blockchain Expert India Some exchanges will offer wallets with your account. These can be fine if you’re just dabbling in the market – so long as you are sure the exchange is secure and trustworthy. However, for any serious Bitcoin user, having your own wallet is essential.

The main reason to do this is security. The nature of Bitcoin means that it is a ripe target for hackers hoping to steal from exchanges or users. Exchanges can – or should – have more resources to devote to security than the average user, but they are also more attractive targets.

The lack of regulation of cryptocurrencies means that if your coins are stolen from an exchange there is unlikely to be much recourse. In contrast, if money is stolen from your bank then – assuming you didn’t give the thief access – you would get your money back.

In the current situation, it makes sense to take responsibility for looking after your own Bitcoins. And as a further security measure, it is worth having more than one wallet.

There are four – arguably five – types of Bitcoin wallet.

1) A web wallet stores your keys on the server of a company that provides the wallet service. This is how an exchange provides a wallet. The advantage is that you can access your funds from any computer with an internet connection. The disadvantage, as discussed above, is that these services are targets for hackers. There have even been cases of services simply disappearing – taking their customers’ coins with them. Notable services include Coinbase and Blockchain.

2) A mobile wallet stores the information on your smartphone. This has the benefit of being able to take your wallet with you – just as you can with a real wallet. The disadvantage here is that if you lose your device then someone might be able to gain access to your information. Also, because the Blockchain ledger is several gigabytes in size, most mobile wallets use a simplified version of the technology, which means you might not be able to use your coins in every situation. Notable apps include Airbitz and Bitcoin Wallet.

3) A desktop wallet stores your keys on your desktop or laptop computer. This is more secure than a mobile or web wallet but still carry’s some risk of hacking because the device is connected to the internet. Also, if your computer fails and the information on it cannot be recovered, then your wallet is lost. Notable options include: Electrum and Bitcoin Core.

4) Finally, there are hardware wallets, which are similar to USB sticks and the most secure way to store Bitcoin. Often they have a screen and physical buttons to add additional layers of security. The downside here is that they are expensive – some models can be around $100 – and, of course, they can be lost. Notable models include KeepKey and TREZOR.

5) A fifth option is a paper wallet. It’s possible to print out both the public and private keys and store them in your actual wallet. This is safe so long as nobody gets hold of the paper.

Most serious Bitcoin investors will have multiple wallets. They will keep the bulk of their coins in a hardware wallet and have small amounts available in web and/or mobile wallets for when they need them.