If you’re new to the crypto world, we’re sure you are aware of the level of complexity behind all the associated tech and even behind various market situations. One interesting subject of discussion is represented by cryptocurrency wallets, of which there are many.
In this guide, we are going to cover all the aspects that you should be aware of to pick the best cryptocurrency wallet for you. To make this informed decision, it’s important first to understand what are crypto wallets, how they work, and what are the main types of crypto wallets.
What is a crypto wallet?
To put it as simple as possible, a crypto wallet is a piece of software designed to allow its users to store, send, and receive digital currency safely. A crypto wallet basically stores a series of private and public keys, and directly interacts with various blockchains to allow users to send, receive, store, and monitor their cryptocurrencies.
How do crypto wallets work?
A public key is a wallet’s address, similar to a bank account number that can be used by other people to send coins to your wallet. A private key, on the other hand, can be regarded as a digital signature or a PIN code. It is used to access the wallet and to manage the funds associated with it. Private keys are strings of randomly generated letters and digits in a format supported by a specific wallet. Before we move on further, it’s important that you always ensure that you won’t forget or lose your private key, since without it your balance will be gone.
Because a wallet stores both private and public keys, their owner can send or receive coins. A simple explanation is as follows: a person signs off ownership of any given digital currency when he or she sends you the coins, but, for you to actually be able to spend the funds, the private key stored in your wallet must match the public address that the currency is assigned to. If the keys match, your balance will increase and the senders will decrease.
Are crypto wallets secure?
First and foremost, it’s important to note that all types of cryptocurrency wallets are designed to be secure. However, it’s just as important to fathom that the level of security differs from wallet to wallet. In fact, the level of security highly depends on the type of wallet you choose; whether if the said wallet is “hot” or “cold,” or if it is a desktop, mobile, online, paper, or hardware wallet.
The terms “hot” and “cold,” are used to describe crypto wallets that are connected or aren’t connect to the Internet respectively. For example, hot wallets are always connected to the Internet. This makes them inherently less secure than cold wallets. The upside is that hot wallets are usually very fast, very accessible, and usually user-friendly.
Since cold wallets are not directly connected to the Internet, they offer much better anti-theft protection. These wallets are almost entirely hacker-proof and, just as long as you don’t lose them or don’t destroy them, your funds will be extremely safe. These are the preferred options for storing large amounts of cryptocurrency.
Types of cryptocurrency wallets
The type of wallet usually determines the level of security and if its right for you or not. There are five general types of crypto wallets, each one with its own pros and cons. Of course, we recommend you take the time to carry out a thorough research session to decide which one is best.
These wallets are software programs that can be downloaded and installed on any computer and laptop, just like any app. Depending on the provider, they can have support for Windows, MacOS, and Linux. For an added layer of security, most desktop wallets provide you with a mnemonic phrase upon installation which has to be memorized if one wants to re-install the wallet on the specific device.
Most cryptocurrencies have their desktop wallets, and usually, these types of wallets are very feature-packed and user-friendly. Their main weakness is actually related to your computer; more specifically, to whether your computer is connected to the Internet or not. Simply put, if your computer is hacked, your funds may be in danger.
Mobile wallets are fairly similar to desktop wallets but designed to run on our mobile devices, with a few added features (such as QR code scanner). They represent the large majority of crypto wallets out there, not surprising considering how important mobile devices are nowadays. Usually, all major cryptocurrencies have mobile wallets for iOS and Android.
Since some mobile platforms are arguably less secure than their desktop counterparts, this means that mobile wallets can also be vulnerable to attacks, threats, and malware.
Online wallets are cloud-based wallets which can be accessed via any modern web-browser. Their main strength is their accessibility, as they can be accessed from both desktop and mobile devices. For example, most cryptocurrency exchanges have their built-in online wallets. As one can expect, security is not that great since your private keys are stored in the cloud, and even more disconcerting; the servers are controlled by third-party services.
Hardware wallets allow their users to store private keys on a separate offline, USB-like device. The only way they come in contact with the Internet is when you need to send some money. There are various options on the market, most of which have LED screens, which means that with a bit of practice and patience, they can be used without ever requiring a computer. Some of the most popular hardware wallets are the Ledger Nano S and Trezor, both of which offer support for more than 100 cryptocurrencies and lots of nifty features.
Hardware wallets are the most secure type of wallets. They make transactions online, but the keys are always stored offline. Just as long as you don’t lose or destroy the device, your funds will always be protected. The main drawback of hardware wallets is arguably their price. There’s also the issue of user accessibility, as most hardware wallets are not as friendly as software wallets.
Paper wallets are what made hardware wallets possible today. Paper wallets are usually created via a dedicated server, and they require users to print their private keys and public addresses on a piece of paper. When you want to transfer coins, you need to first move the funds from your paper wallet to your software wallet.
They are very secure and very cheap, but they are not perfect, as they require a bit of know-how to make them work. There’s also the fact that paper isn’t usually very durable, hence, if you lose your private keys listed on the specific paper, you can say goodbye to your funds.
At the end of the day, choosing a cryptocurrency wallet is all about taste and necessity. It’s a very personal choice which might prove very difficult to make without the proper information. To help you as much as possible on this regard, here are a couple of questions you should be asking yourself before choosing a crypto wallet?
How much do I value security? Am I going to hold a large investment on it? How many currencies am I planning on using at once? Is accessibility important or do I usually access the wallet from home?
Answering these questions should more or less tell you what type of wallet you require. Good luck!