I couldn't find a link that I thought was ideal so I asked Perplexity.ai and corrected some errors myself. Hope this helps. Only use this as an initial guide, best to do your own research to verify this info.
Bitcoin Security Levels: From Least to Most Secure
Here's a guide outlining the various levels of Bitcoin security, ordered from worst to best. Each level generally increases in complexity, control, and safety. There are other security factors with most setups like the importance of backing up seed words securely on paper or metal, the optional use of a passphrase on Single Signature setups and the option to run your own full Bitcoin node that are not included here.
1. Custodial Wallets
* Description: Your Bitcoin is held by a third-party exchange or service.
* Example: Coinbase
* Risks: Subject to exchange hacks, insolvency, or regulatory issues.
* Use case: Used a lot by beginners (unfortunately) and traders, high risk for long-term storage.
2. Single Signature Software Wallets
* Description: Wallets installed on a device (desktop or mobile).
* Example: Nunchuck
* Risks: Keys are somewhat exposed to the internet. If the device is compromised and has no added security ie PIN number or 2FA funds can be stolen.
* Benefits: User has control but relies heavily on device security.
3. Single Signature USB Hardware Wallets
* Description: Hardware devices that connect to laptop/desktop via USB, storing keys securely on the dedicated device.
* Example: Trezor
* Risks: Very low risk of attack via the USB.
* Benefit: Significantly reduces attack surface compared to software wallets.
4. Single Signature Air-Gapped Hardware Wallets
* Description: Hardware wallets that sign transactions without ever connecting directly to a computer (air-gapped). Signatures are transferred via microSD card or QR code.
* Example: ColdCard (also has USB option)
* Risks: Very rare physical attacks (all previous options have this risk too)
* Benefits: High security for solo holders, minimizes online attack vectors.
5. Multi-Signature (Multi-sig) Setups
* Description: Wallets requiring multiple private keys (e.g., 2-of-3). Keys are stored on multiple different devices/ methods.
* Risks: Complexity increases; risk of losing keys if not properly backed up. Only for advanced users.
* Benefit: Protects against single key compromise and supply chain attacks; no single point of failure.
6. Geographically Distributed Multi-Sig
* Description: Multi-sig keys are stored in different physical locations, often across countries.
* Risks: More complex and effort to set up and manage. Only for advanced users.
* Advantages: Highest level of security—distributes risk across multiple jurisdictions, protecting against physical threats, government interference, or natural disasters.