Desktop wallet: what is it and how does it work?

Anyone who owns cryptocurrencies like Bitcoin or other digital assets will sooner or later face the question: where can I store my coins securely? While online wallets offer a quick and convenient solution, many users value greater control and enhanced security. This is where the desktop wallet comes in – software installed directly on your own computer.

But how secure are desktop wallets compared to other wallets? What advantages and disadvantages do they offer, and what should you consider when looking for the best desktop wallet for your needs? You'll find out all this and more in our guide.

• A desktop wallet is software for managing cryptocurrencies.

• There are various types of desktop wallets, including hot and cold wallets, full-node and light wallets, as well as multi-currency and single-currency wallets.

• After installation, the wallet generates a key pair used for transactions, while a seed backup is used for recovery.

• Comparatively, desktop wallets offer more security than mobile wallets but require regular backups and protection against malware.

What are desktop wallets?

A desktop wallet is software installed on a computer for managing cryptocurrencies. It stores private keys directly on users’ devices, allowing greater control over your own coins compared to online wallets.

Unlike hardware wallets or web-based solutions, a desktop wallet doesn’t require external storage or cloud services. Instead, transactions are managed directly through the software. Depending on the wallet, it may be necessary to download the entire blockchain or just a simplified version.

What types of desktop wallets are there?

Desktop wallets can be divided into several categories depending on how they’re structured and the functions they offer. The main distinctions involve the connection to the network, supported cryptocurrencies and security features.

Here is an overview of the main types of desktop wallets:

• Hot wallets are permanently connected to the internet and allow quick transactions but are more vulnerable to theft through malware or phishing attacks.

• Cold wallets, on the other hand, stay offline until needed for a transaction, offering higher security but being less convenient to use.

• Full-node wallets like Bitcoin Core download the complete blockchain and validate transactions independently, which enables maximum decentralisation and security but requires a lot of storage space and computing power.

• Light wallets (SPV wallets) like Electrum are more resource-efficient as they use only part of the blockchain – they’re also faster and easier to use but require a connection to external nodes.

• Multi-currency wallets support several cryptocurrencies at once, making them versatile and allowing users to manage various coins in a single wallet (especially convenient for investors with a broad portfolio).

• Single-currency wallets are optimised specifically for one cryptocurrency, often offering advanced features and better integration into the respective network, but they’re less flexible.

How does a desktop wallet work?

If you want to manage your digital assets independently, it helps to understand how a desktop wallet is built and functions. Only then can you assess whether this wallet type suits your needs.

This is how a wallet works:

• A wallet is a digital tool for receiving, storing and sending coins and tokens.

• The foundation is a key pair: a public key (wallet address) and a private key (access and signature).

• The private key secures access to the digital assets.

• Depending on the wallet type, either the user or a service provider manages the private key.

• Access to the wallet is usually through an app, a browser or an installable programme.

• When creating a wallet, a new key pair is automatically generated.

• Transactions are signed using the private key.

• Whoever possesses the private key controls the coins and tokens it contains.

• The secure storage of the private key is crucial – especially with self-managed wallets.

With a desktop wallet, you also receive a seed phrase which you should store securely – it allows you to restore your wallet. Most desktop wallets work on Windows, macOS and Linux. During setup, you usually set a password to prevent unauthorised access. The public key acts as a receiving address, and transactions are signed with the private key. Depending on the wallet type, you either use a full copy of the blockchain (full-node) or access it via external servers (light wallet).

Use with hardware wallets

Some desktop wallets like Electrum or BitAddress offer the ability to connect with a hardware wallet such as Ledger. This keeps the private keys stored on a separate USB device, which significantly increases security. A desktop wallet combines flexibility with control but also requires a certain level of technical understanding and security awareness to manage cryptocurrencies safely.

Security and desktop wallets

The security of a desktop wallet largely depends on proper handling and the user’s protective measures. Since private keys are stored directly on the computer, there’s a risk that the wallet could be infected by malware or compromised by hackers. Nevertheless, a desktop wallet offers greater security compared to online solutions, as the keys aren’t stored on external servers.

Protective measures for secure use

To ensure the most secure use of a desktop wallet, you should observe the following:

• Antivirus and firewall: an up-to-date security system prevents malware from attacking the computer

• Carry out operating system updates: only use wallets for Linux, Windows or macOS on current systems to avoid vulnerabilities

• Cold storage for larger amounts: those wanting to secure large amounts of cryptocurrency should use a hardware wallet like Ledger in combination with a desktop wallet

• Avoid custodial wallets: a custodial wallet stores the keys centrally, meaning the user loses control over their crypto coins, as only the provider has access to the private keys and ultimately decides on coin availability

Although a desktop wallet can offer high security, the risk of theft remains, especially if the computer is infected with malware. A combination of desktop wallet and hardware wallet represents the most secure solution.

What are the pros and cons of desktop wallets?

A desktop wallet offers many advantages but also some disadvantages that you should consider before use.

Advantages of desktop wallets

• Support for various operating systems: many desktop wallets are available for Linux, Windows and macOS

• Combination with hardware wallets possible: wallets like Electrum allow connection with a Ledger hardware wallet, offering added security

• Beginner-friendly: some wallets offer intuitive operation, so even beginners can easily manage crypto coins

Disadvantages of desktop wallets

• No absolute security: without a hardware wallet, there's a risk that a hacker could access the desktop wallet

• No protection in case of hardware failure: if the computer is damaged and there’s no seed backup, the cryptocurrencies are lost

• Not as mobile as an online wallet: a desktop wallet can only be used from the computer, limiting flexibility

Despite the disadvantages, a desktop wallet is one of the best options for users wanting to combine security with ease of use. Especially when combined with a Ledger hardware wallet, it’s one of the most secure solutions for managing cryptocurrencies.

Possible uses of desktop wallets

Whether as secure storage or for daily use – a desktop wallet is suitable for various applications in the crypto space.

Long-term storage of cryptocurrencies

For users wanting to hold Bitcoin or other cryptocurrencies long-term, a desktop wallet with seed backup is a good choice. In combination with a hardware wallet like Ledger, it provides one of the most secure storage solutions.

Use for daily transactions

A beginner-friendly desktop wallet allows regular transactions. Wallets like Electrum offer intuitive operation suitable for both beginners and experienced users.

Management of multiple cryptocurrencies

Many wallets support not only Bitcoin but also a variety of other coins. A multi-currency desktop wallet is particularly useful for users with a diversified portfolio.

What is the difference between a mobile wallet and a desktop wallet?

The key difference between a mobile wallet and a desktop wallet lies in their usage and security: you install a mobile wallet as an app on a smartphone, making you very flexible as you can manage cryptocurrencies from anywhere. In contrast, you create a desktop wallet on a computer, which stores the private keys locally. This generally makes it more secure, as it is less vulnerable to attacks on mobile devices.

While a mobile wallet is particularly convenient for everyday use – such as quick payments or access to decentralised applications (DApps) – a desktop wallet is better suited for the long-term storage of coins. Comparatively, desktop solutions often prove superior in terms of security, especially when combined with a hardware wallet like Trezor.

Another difference lies in the user experience. A mobile wallet is usually beginner-friendly and optimised for quick transactions, while a desktop wallet often offers more features, such as advanced authentication methods or the ability to use full-node wallets.

Did you know? While a desktop wallet is installed locally on your computer, an online wallet runs via a browser or cloud-based application. The key difference is control: with a desktop wallet, no third parties are involved. An online wallet, on the other hand, is usually custodial – an external service provider manages the private key. This offers convenience but comes with a higher security risk, as central servers can be targeted by attacks.

Conclusion: is a desktop wallet worth it for cryptocurrencies?

Whether a desktop wallet is the best choice for managing cryptocurrencies depends on your individual needs. If you value high security and want to secure your coins long-term, a desktop wallet is a good choice. Especially in combination with a hardware wallet like Trezor, it offers one of the most secure methods for storing Bitcoin and other digital assets.

However, a comparison of desktop wallets shows that not every wallet is the same. While some wallets are particularly beginner-friendly, others offer advanced features for experienced users. Those looking for the best desktop wallet should consider factors like seed backup, operating system compatibility and the ability to integrate with hardware wallets. Despite many advantages, there are also disadvantages: a desktop wallet can only be used on a fixed device and may be affected by malware or hardware failure. That’s why regular backups and security measures are essential.

Ultimately, a desktop wallet is especially worthwhile for users who want to retain control over their keys and seek a secure alternative to online or custodial wallets. If you need a well-protected and reliable solution for managing your cryptocurrencies, a desktop wallet is a sensible decision.

Further topics on cryptocurrency

Are you interested in a more comprehensive overview of cryptocurrencies? At the Bitpanda Academy you’ll find a wide range of guides and tutorials offering deeper insights into topics like blockchain networks, crypto trading and much more.

• Non-custodial wallet

• Software wallet