Navigating Bitcoin Wallets: Free Online Storage vs. Paid Hardware Solutions
Explore the differences between free online Bitcoin wallets and paid hardware options, including security, convenience, and cost implications.
Is it free to use a Bitcoin wallet?
Let us start by saying the use of an ONLINE Bitcoin Wallet should be FREE. If any website is asking to pay a fee in order to use a Bitcoin wallet then you should immediately stay away from such site, because a free bitcoin wallet is free for a reason - a normal decent and honest website should want you to use its services for sending Bitcoin, storing it, and doing other activities with it. That’s how it gets paid - from sending fees, ads or other similar things but not from charging you for storing your coins.
Note: You do pay a fee to transfer funds but not to store them!
In fact many websites would pay you interest to store your Bitcoin with them so if anything is expected is for you to get paid for using an online website to store your Bitcoin and not the opposite.
But that is all based on the assumption you are looking for an online wallet for your Bitcoin use. And indeed that would be free. But what if you want to use an offline wallet?
That would lead us to the next question.
Where or how can I get a Bitcoin wallet?
With Crypto there are mainly 2 options:
Cold Wallets - also known as offline wallets or hardware wallets
Hot Wallets - also known as online wallets
Cold wallets by all means are not free. They require you to purchase a piece of hardware which you would use to store your Crypto coins. You should check in advance if such hardware supports all the types of coins you wish to use.
One of the very famous hardware wallets (as of 2020) is the Ledger Nano S:
The price of Ledger Nano S as of 1st of September 2020 is $59.
A more advanced hardware, called Ledger Nano X is charged $119 - twice that price. So by all means you can see an offline wallet is not free to use for storing your Bitcoin.
Now, once you pay that price you have the wallet for yourself “for life” - but is it worth it? Take a look at this thread for example on Reedit:
Here some on July 2020 complained he had a Ledger Nano X for exactly 1 year and he had an issue with the battery, he tried to charge the device but it didn’t help - he had to contact Ledger support and they were happy to replace it for him, the coins of course were not lost because the coins are protected by a password which he can apply to a new device without a problem (this is also known as seed).
However, imagine the following scenarios which could occur with an offline wallet:
If you forgot your password Ledger won’t make it easier for you. According to Ledger.com “After three incorrect PIN code entries, Ledger hardware wallets reset to factory settings, erasing the private keys from their secure storage.”
If you lose the device itself and it’s quite easy to lose such a small device - then you would have to order a new one, which is costly and could also take time for deliveries, so you would get stuck without your coins until then.
You still need to keep the main password (the seed) offline or online, in somewhere safe, and the same could be said in some way about an online wallet.
This is why an online wallet could be a great alternative for storing and even sending Bitcoin or other Crypto currencies.
The benefit of an online wallet
With an online wallet you do have to rely on a 3rd party storing your Crypto currencies, but you have the benefit of accessing your coins online without having to worry about a hardware that you should keep next to you all the time.
In addition, as mentioned above, an online wallet is not only a free bitcoin storage device but many wallets would pay you an interest rate to keep your coins stored with them, and that’s something that a hardware wallet won’t do.
Now, the biggest risk with a 3rd party that it can simply run away with your coins and leave you empty handed - but generally any company in the world can run away with your money and do the same to you - there were airlines who went bankrupt or simply ran away with people’s money, in the crisis that started in 2008 there were many banks who left depositors without their funds and they had to wait years for compensation and some were not compensated at all (e.g. banks in Cyprus in 2012).
In a way if the Ledger company goes bankrupt or stops supporting its customers for any reason whatsoever - then users who must rely on getting a new device would be stuck without their coins!
Or perhaps - take the following hypothetical scenario - what if Ledger itself would hack into their users’ hardware?
When you rely on 1 piece of hardware you also in some way must rely on the company who created it … it’s a huge mistake to think that a cold wallet, or an offline wallet is safer because it’s being used on a piece of hardware.
In our opinion the opposite is true - choose a wallet provider you can trust because many other people use it as well, so it would have no incentive whatsoever to shut down its business - for instance we love Binance.com - it’s an exchange website but it’s quite solid, it does charges more fees to withdraw some coins but it allows you to receive and exchange so many coins, so you have one single place for all your Crypto needs and on top it pays an interest as well on your coins.
Keep things simple
An online wallet is not necessarily an exchange website but since Crypto is developing rapidly then exchanging Crypto coins is becoming a necessity for almost anyone who’s dealing with Crypto. Free Bitcoin exchange is what most users expect to deal with.
Blockchain.com for instance started its way as a free bitcoin wallet, then it added several other coins to its portfolio such as Ethereum, XLM and more, and it now even offers to pay you an interest rate on your coins, so what started a simple free wallet is now doing much more than that.
So in our opinion - yes, an exchange website can be used as an online wallet, but it must be reliable.
For example, OKEX is an exchange website but as of now it is asking you to store your Crypto and then transfer it to a trading wallet if you wish to exchange it, and vice versa if you wish to deposit/withdraw - this is by all means not comfortable.
What makes things comfortable is going to be the #1 choice for most Crypto users - that is why things must be simple and must be done with ease.
Binance for instance has a one single wallet for you for deposits, withdrawals, and trading as well, no need to move your coins from one wallet to another. Your own wallet is your own wallet, it is yours and no one else’s.
The importance of keeping things simple in some way supersedes the importance of keepings things free of charge. A free service is not the same as an efficient service.
Our opinion on the following services
As of September 2020 there are many free bitcoin wallets available, here is a comparison of the top ones with their advantages and disadvantages:
As you can see, if you want to have a full control over your wallet that comes with a price of getting no perks such as interest rate, or ease of exchange to other currencies if necessary - for example at times when Crypto currencies crashing down you might want to exchange your Bitcoin (or other Crypto currencies) to USDT or USDC or other USD Stable Coins or even EUR or GBP or other stablecoins (which are available for instance on Binance) - reacting fast is important, because usually at such times Bitcoin fees skyrocket and it’s hard to get transactions confirmed fast - so if you have your coins saved in an exchange site such as Binance then you save yourself a lot of troubles by being able to react immediately when necessary.
In our opinion being dynamic is a key success factor that supersedes your control over your wallet!
What about storing your coins in completely 3rd party sites?
Is it free to store Bitcoin in Stake.com for instance? Yes.
Stake.com has a feature called “Vault” where you can save your Crypto coins in their site and use it for storing purposes.
But you’re missing out 2 things:
You won’t receive interest paid on these coins.
You’re going to rely completely on a 3rd party whose main operation is not about storing your coins.
But is it worth it?
Well, if they make a promotion where if you deposit a certain amount you get a certain bonus then perhaps it is worth it, but always check which site you’re dealing with - at this time of writing (September 2020) perhaps a few years down the line Stake.com won’t exist although if we had to bet on it we do believe it would run a long term. Free Bitcoin storage should keep being a vital part of Stake.com, their vault is not a feature they seem to throw away, and it is hazard to guess many users use this feature for such purpose (and then place bets whenever they want to).
Remember that companies like Google started back in the days from nothing, from 2 people, they had no trust, no one knew who they were, and as of today they are a gigantic company and some people trust Google more than they trust their government!
World economy is based on trust, it is, that is a fact!
So that is why we advise to rely on those you trust and feel confident with. In the long run there are many who save their coins with those they feel comfortable with, and it has been years since we’ve heard of any hacks or security breach, which could always occur, but giant companies invest so much on their security that it makes it pointless for hackers to even try getting into their wallets in the first place (e.g. many exchanges save a lot of their balance on cold wallets and use it for backup purposes when needed).
Is Bitcoin really free to use and trade?
Bitcoin is a crypto currency that in general is free to be used and exchanged. There are no restrictions on it, however please be aware that on many occasions Bitcoin fees can go high and if you would want to send $1 you might pay a fee that is higher than that amount itself!
Thus, Bitcoin whilst considered being decentralized is not 100% like that, and there are some centralized groups who control it (e.g. miners) but only to a certain extent.
Free Bitcoin is a term that should apply to a utopian world, where everything is free, and the fees are super low - perhaps Ripple could fall into this category but as of today Ripple found itself all the times in free fall … it did hit over $3.00 to 1 XRP a few years ago but as of now there are no signs of seeing it climbing back to that level.
And perhaps that is the indication of free market and capitalism - the market prefers having some uncertainties and having some unknown territories from Bitcoin itself - that comes with costs which are certainly not free and not stable, but the world itself is not in a stable mode, as of 2020 there are tensions between the UK and Europe in regards to Brexit, the Coronavirus this year has shut down so many countries and so many economies, whilst some even claim it’s a hoax or not as terrible as it seems to be, and people are constantly living in swings of mood, tensions, relaxation etc.
Bitcoin is a symbol that represents that free world, the world is free to decide where it wants to go, in March 2020 when there was a feeling the Coronavirus is going to kill so many the markets went down, Bitcoin cut itself in half from $10,000 to $5,000 in a matter of day or so! That was a free Bitcoin fall! But then when things relaxed the markets went back high and Bitcoin jumped to $12,000 between August and September 2020:
Bitcoin Chart from TradingView.com taken on 13th of September 2020
Why is the focus only on Bitcoin? What about Altcoins?
To be honest, the world seems to revolve around Bitcoin, offering Free Bitcoin Services and more, whilst other Altcoins even Ethereum seems to get much less exposure in the markets. But why?
Bitcoin is the very first Crypto currency that started the world of Crypto Currency. Before it was adopted by many there were previous attempts to create such currencies such as:
E-gold aka e-gold.com
These attempts failed simply because these were provided by private companies who got into the trouble of money laundering, breaking US laws and other issues that simply caused these attempts to fail.
Bitcoin was and is anonymous, no one really knows who Satoshi Nakamoto is, whether he is a real person or not - but the fact it claimed to be originated from Japan helped this grow because Japan is not so strict like the US and the Asian market seems to lead the world in many aspects, where the US sometimes trails behind because of heavy regulation and/or other reasons.
Nakamoto wanted to make a free currency, a Free Bitcoin that is available for anyone, being decentralized, far from any regulation or the hands of any government - that is how Bitcoin turned to be what it is in 2020.
Now Altcoins are completely different - Altcoins represent a creation of additional Crypto Currencies who do the same thing thart Bitcoin does but their creators try to add value to these to make them worth even more than Bitcoin.
Ripple - as mentioned - provides a very good solution for a transfer of funds in the speed of light for a very minimum fee.
Ethereum - provides the ability to use Smart Contracts and store many new currencies on its Blockchain (e.g. Tether aka USDT is using the ETH blockchain alongside other blockchains).
As a reminder you can get Free Ripple and Free Ethereum in these sites:
Altcoins such as Ripple and ETH seem to provide a better alternative to Bitcoin which in some way is slow, and could cost much more (definitely more than Ripple in fees), but it takes the world a long time to disregard something as Bitcoin.
Perhaps in the future Ripple would replace the SWIFT system and perhaps Ethereum could surpass Bitcoin with its volume of transactions (which on a side note - it is important to mention if you wish to follow these indicators use CoinMarketCap.com).
However the US Dollar is suffering from so many difficulties since the recession of 2008-2009, during these times with the Coronavirus the fed is printing a lot of dollars in order to support the economy - investors could easily prefer other currencies but we see the US dollar is not disappearing and is not going anywhere. It is here to stay for the time being.
And so Bitcoin is going to do the same thing - it has flaws, it is far from being perfect, it is not free of mistakes (e.g. high fees, slow transactions) but it is here to stay - the world relies on trust and Bitcoin so far has provided trust that other Altcoins cannot provide. Ethereum perhaps might do that but it would take time. Ripple seems to be focused on ease of transactions and not about the value of its XRP token, so value, volume and key factors depend a lot on their creators and how investors perceive these tokens.
Should I invest in Crypto in 2020 or onward?
No one could tell for sure if the Bitcoin price is going to get to $20,000 or $5,000 in 2021, or whether it would go up or down … the same applies to the Altcoins.
If you wish to invest in Crypto i.e. take your hard earned cash and exchange it into Crypto - then you are taking a gamble.
Perhaps you could consider getting a 8% interest rate per year which is much more reasonable and sound investment - for this you can read our article here:
Please keep in mind there are no free meals and every investment comes with a certain degree of risk. Some new Altcoins might produce new investment opportunities such as Crypto.com which as of now seems to produce nice results with its coin and its website as well, their team seems to work extremely hard pushing this product further and further.
However, no one could tell for sure which altcoin would survive and which altcoin would fail. Ethereum might not be with us in 2030 and perhaps Bitcoin could be worth $200 in 2030, or $200,000 - no one really knows.
Some believe Crypto is a big bubble and some believe it is the future.
As always - the key to success is diversification - diversify your portfolio - invest 10% of your cash in Crypto, if it makes nice yields and you are happy with the results - cash it out and then decide again if you wish to further invest or not.
In another words don’t put all your eggs in 1 basket, unless you are truly passionate about this, there were some people in 2010 who sold their houses and bought Bitcoin with it - today they’ve become multi-millionaires - but in our opinion for the average Joe it is best to diversify and don’t take large bets like this.
So what is the bottom line? How should I do this?
In our opinion if you wish to invest in Crypto use online wallets, not cold wallets. And remember to use free bitcoin wallets, not ones ones that charging you a fee for storing your Crypto!
In addition, we go against the mainstream opinion and think getting interest % in exchanges is worth it. Yes, why not get interest rate % paid on your hard earned money? In most countries nowadays (2020) you won’t get more than 1% or 2% per annum on your savings, so why not do the same for 8%?
In addition, we think that cold wallets are just as risky as online wallets. The Ledger company might not survive the next few years because people and investors around the world realize a 8% APY is better than a cold wallet, it just is.
And once people would realize large exchanges are not going to disappear, just like Google is not going to disappear in one day - then they would feel more comfortable doing it.
Ledger might become the next “Netscape” - having a great product but with such a costly device and so many risks involved - your cold wallet might remain frozen without the ability to get proper support.
If Ledger loses customers - then how would they be able to pay their staff to provide customer support to users who want to change their hardware or complain about hardware faults and issues?
In our view using a cold wallet is far more dangerous than relying on hot wallets. And for us exchange websites such as Binance.com or Crypto.com or others such as Coinbase, Kraken are here to stay for a while (although Kraken would be our last choice followed by Coinbase, we just don’t like these sites and the way they handle their business).
A truly free bitcoin wallet is one provided by exchanges - they act like banks, they store your Crypto and protect it - yes, they are centralized, and yes - they are private companies, but Google, Facebook, Twitter are also private companies and yet they are trusted by millions of people around the world. This is no different.
What you should worry about then?
Whilst we don’t expect those big exchange websites to disappear the trouble with getting paid interest rate is that you have to report those earnings in most countries (not all though), and there could be some heavy pressure from governments on sites to do this. As of now the governments are still far behind, just like most investors still prefer Bitcoin over most Altcoins, however there could be a stage where exchanges would simply have to start KYC their customers or even make them sign tax forms where their users would have to disclose their Tax ID in order to be allowed to withdraw their Crypto Currencies from these sites.
We definitely think at some point sooner or later, this would happen, it might not happen in 2020 or 2021 for that matter, but it is a matter of time before it does, and whilst it is not a bad thing - you should be aware of it, so as long as you follow the rules of your country and you report whatever you need to report - then you should not be in a situation where you would have trouble using exchanges with large sum of money involved.
However please be aware there could be further draconian measures imposed on exchanges.
The exchanges who pay interest are not only acting as banks - they literally replace them … why would a US investor keep $50,000 in his US bank account for peanuts in interest if he could do the same in USDT which is the equivalent of the US Dollar and get 8% paid on his investment?
Thus, you should be aware as of now, September 2020 - we are still located in a large unknown territory, and we do not expect things to remain like this in the long term. There definitely would be changes and you should expect changes to be imposed.
The good thing about all this is that with all this regulation that in our view is just around the corner - you could see that exchanges are not going to disappear - on the contrary, they are going to replace the banks, and they are going to grow and become bigger and bigger, whilst the banks could be at risk of being dissolved because more and more investors realize the yields are not coming from banks but from Crypto - except for the stock market itself but the average Joe likes something solid and stocks are far from being solid as they act in a very irrational way, the EUR/USD goes down when the European economy is stable and it goes up when the ECB announces they will print money - Crypto is also not 100% easy to predict but there is a lot more rational behind the way Crypto behaves and not behind the stock market.
So all in all - we could summarize the following recommendations as the ones we regard as the “bottom line” for potential Crypto investors or any users who wish to use Crypto with ease without too many difficulties:
By all means use hot wallets, we do not like cold wallets and cold wallets are not 100% in your control - if the Ledger company collapses and your wallet won’t work (e.g. would need a replacement) - you would be in big trouble.
The use of exchanges for storing your Crypto is ok and even worth it as long as you use reliable sites you trust. The reason being is because such sites pay you an interest rate for storing your coins with them so why don’t you get paid interest instead of getting none using a cold/hot wallet?
Hot wallets - a free bitcoin wallet should be free, any online website charging you a fee to store your Crypto is crooked and you should stay away from it.
Cold wallets - if you insist on using a cold wallet please keep in mind the cost of the wallet is not going to be the final cost “for life”, and the real costs are the protection of your funds, and since Crypto is quite adopted by many then hot wallets seem to be doing a better job keeping things simple and free with Bitcoin and Altcoins.
If you wish to invest - always diversify, don’t put your eggs in 1 basket, unless you feel this is the opportunity of a lifetime but then remember that such opportunity could be too good to be true or indeed change your life from one side to the other.
Good luck making the right choices.
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