Bitcoin: Offline vs. Online wallet
For people who have not used cryptocurrencies before, the first thing that you need to familiarize yourself with after choosing bitcoins is the types of wallets available. Just like the physical wallet, the bitcoins wallet allows you to store the currency safely. You can spend the bitcoins by sending them using the randomly generated bitcoin addresses. The wallet can hold unlimited addresses, and each one of them acts as an independent compartment in the Bitcoins wallet.
There are two different types of wallets: the offline and online wallet. Here is an overview of their similarities and differences as discussed in an article published on Coin Manual.
Online Bitcoin Wallet
As the name suggests, this type of wallet is stored online on encrypted servers. One of the benefits of having an online wallet is that you can access it from anywhere in the world provided you are connected to a reliable internet connection. Apart from encryption, the wallet information is protected with a password that you choose.
One of the main reasons why people nowadays prefer online bitcoin wallet is that it is more secure than the offline wallet since all data encryption and decryption is done on your mobile or desktop. Most of the companies that host online bitcoin wallets stores copies of the clients’ wallets offline so if anything were to happen on their servers, they can still retrieve your information.
Offline Bitcoin Wallet
The offline wallets operate just like the contemporary or traditional wallets. All the wallet data or information is stored locally on your personal computer. Unlike the online Bitcoin wallet, you do not need an internet connection to access the wallet and transact.
One of the challenges of using an offline bitcoin wallet is that if malware compromises the app, all the data stored in the wallet will be rendered corrupt. This means that you will not be able to recover your keys/bitcoins if they had not being backed up. It is recommended to store copies of your wallet information in a secure database to be on the safe side. For instance, you can store the information on a USB drive and keep in a safe.
Which one should you choose?
If you would like to access your wallet from anywhere, choose an online wallet. The disadantage however is that the bitcoin is out of your control and in hands of the organization storing it.
Storing your bitcoin offline provides a lot more security. However if you lose it, there is essentially no way to recover it.