The rapidly growing cryptocurrency market offers a lot of opportunities and convenience especially as far as transactions and safe storage of digital currencies are concerned. Fortunately, there are many cryptocurrency wallets designed to provide the ultimate experience.
However, there are multiple factors to consider when choosing the right crypto wallet for your particular needs. This guide will provide you with all the information you need, while also highlighting some of the best cryptocurrency wallets in the market.
Table of Content
- What Is A Cryptocurrency Wallet?
- What Is A Private Key And What Is Its Role In A Cryptocurrency Wallet?
- Distinguishing Between Custodial And Non-Custodial Wallets
- The Different Types Of Cryptocurrency Wallets
- The Best Crypto Wallets To Choose From
- How Do You Get a Cryptocurrency Wallet?
What Is A Cryptocurrency Wallet?
A cryptocurrency wallet is a digital program that sometimes exists in a physical device, and it is designed to provide safe storage of digital assets such as cryptocurrencies. A cryptocurrency wallet should have certain characteristics such as the ability to connect to blockchain networks. It can also be used to send or receive cryptocurrencies.
To understand the concept of a cryptocurrency wallet, let us look at a Bitcoin wallet. This type of wallet is a program that enables you to receive and send Bitcoin. As such, a Bitcoin wallet interacts with Bitcoin’s ledger which is known as the blockchain. For your convenience, you can get Bitcoin wallets for your desktop, your mobile phone, and even as a piece of hardware.
To understand how the Bitcoin wallet works, we can compare this to how your email works. So, for example, if you wanted to receive or send emails, you would need some sort of program to do this such as Outlook or Gmail. In order to receive Bitcoin, you would require a unique personal address, just like emails and in the crypto world, this unique address is referred to as your Bitcoin address. The important part is that you can share this address with anyone who wants to send you Bitcoin, in the same way as you would share your email address. This is an example of a Bitcoin address and interestingly, it always starts with a ‘1’ or a ‘3’/ – 1CovtJHYHtKPgfedUEiubF63b76KYHbvrL
Now that you have your Bitcoin address, all you need is a password. With your personal email account, you can choose your own password, however, with a Bitcoin wallet, the password is randomly chosen for you. In the crypto world, this password is called your private key and as the name suggests, you should never share this information with anyone.
To put into perspective the importance of keeping your private key safe, it is highly recommended to keep this information offline. If someone knows your private key, they can fully access your cryptos that are being held in the wallet. This means that you should not save this data in a file on your computer. It is best to keep it in a safe place and to either save it to a flash drive that is not connected to the internet or to write it down and keep it in a safe place. So let us look at private keys in more detail.
What Is A Private Key And What Is Its Role In A Cryptocurrency Wallet?
As we said, every cryptocurrency wallet generates a private key which is the password and recovery phrase that allows users to access their digital assets. Acting as a password, the private key is a very long string of letters and numbers so you can view it as the secret combination that enables your wallet to communicate with the Bitcoin network should you wish to send Bitcoin to another destination.
A private key is useful especially if the user loses his/her device on which the digital wallet is installed, or the hardware wallet holding cryptocurrencies. They can buy a new hardware wallet or install it on a new device, and the recovery phase will help regain access to their crypto. This is why it is important to safely store the private key in a place that only you can access.
Distinguishing Between Custodial And Non-Custodial Wallets
Not all cryptocurrency wallets allow users to have custody of their private keys. The ones that do are known as custodial wallets, while those that do not are known as non-custodial wallets. The latter especially refers to crypto wallets found in crypto exchanges and companies that offer crypto custody. The advantage of a custodial wallet is that it allows the user to have full control of their digital assets. The downside is that transactions can be a bit more expensive, and when you want to sell any assets through an exchange, you will need to transfer the assets to the exchange first.
Non-custodial wallets, especially those in crypto exchanges, enable easy trades within an exchange. Unfortunately, users do not have full custody because the exchange has access to their private keys. This means exchanges have some level of control over custodial accounts and can freeze them if required to do so by the authorities. The custodial approach is similar to traditional banking where the banks have custody of the account holders’ funds.
Interestingly, in the Bitcoin community, there is a saying – “Not your keys, not your Bitcoin”. This reflects the dangers of a custodial wallet, yet it is important to note that there are many people out there that would simply prefer not to be in charge of their own funds and as such, they are more likely to select custodial wallets over non-custodial wallets.
The Different Types Of Cryptocurrency Wallets
Cryptocurrency wallets fall under different categories depending on factors such as their connectivity to the internet, or whether they are available as browser extensions, mobile, and desktop apps
These are wallets stored on devices that are not directly connected to the internet. They are considered the most secure type of crypto wallets because hackers cannot access them remotely and are thus preferable especially to individuals who wish to HODL (hold on for dear life) crypto over the long term.
These are wallets that are connected to the internet, making it quick and easy for users to access crypto exchanges or to conduct transactions to other wallets. The fact that they are connected to the internet makes them more susceptible to hackers if proper security measures are not implemented. Interestingly, despite their risks, hot wallets are the most popular type of wallet.
Imagine if you could have a crypto wallet on a piece of paper. There are websites through which you can create a printable page that contains a wallet address and a private key in which you can store your Bitcoin and other cryptocurrencies. However, paper wallets can easily be lost, misplaced, or damaged, in which case your crypto would be lost. Crypto stored in such wallets might also be at risk if someone else gained access to it.
These are cryptocurrency storage devices that often resemble USB disks. They are built to securely hold digital assets, as well as private keys. They are also categorized as cold wallets since they are not connected to the internet. Users with such wallets require an internet-connected computer when transferring funds to and from their hardware wallets. One of the big benefits of hardware wallets is that they are specifically built in order to protect your private key. This is even the case if the device you are connected to is compromised by malware so you can even have peace of mind that you can use a hardware wallet on a public computer, however you should still exercise caution as hackers are constantly finding innovative ways to scam people.
Mobile wallets are the type that can be installed as an app on the user’s mobile device. They offer a lot of convenience since users travel anywhere with their smartphones; hence they can access their cryptocurrencies wherever they are. However, since mobile phones are often connected to the internet and the private keys are usually stored in the same device, this makes them less secure. Smartphones can be easily lost, damaged, or stolen, further adding to the risk.
In case you still want to hold cryptocurrencies in a mobile, wallet, it would be best to store only a fraction of your crypto portfolio and also implement heavy password protection, create a private key backup as well as 2-factor authentication.
Desktop wallets can be installed on a private PC where one’s private keys are also stored, but this means they are hot wallets if one’s PC is regularly connected to the internet. There is a considerable degree of risk if the PC breaks down, gets hacked, or is stolen. However, this seems like a safer option than a mobile wallet because PCs can be disconnected from the internet most of the time especially when not in use.
Crypto wallets on betting sites and cryptocurrency exchanges fall under this category and they facilitate the easy transfer of funds. Some of the downsides include the lack of self-custody since the private keys are held by the websites operating the exchange or online casino. They are, therefore, not the most secure option and they carry a higher risk of malicious attacks. Despite their limitations and risks, web wallets are highly convenient and with this type of wallet, you can sell, buy and send Bitcoin quickly and easily.
To reduce the risks, many web wallet services will provide two-factor authentication options in order to protect your web wallet against hackers and other risks. This can include, for example, validating every account login with a text message. Despite these safeguards, we simply feel that web wallets are not worth the risk when it comes to storing any significant number of coins. If you are new to the crypto wallet world, we recommend that you do not keep your cryptos in a web wallet.
The Best Crypto Wallets To Choose From
Now that we have explored the different crypto wallets categories, it is time to look at some of the best wallets in the market. Users can select any of these wallets depending on their preferences. Also, take the time to assess your needs before you choose a wallet. Take the time to answer some important questions such as:
- Can I afford to pay for a wallet?
- How often will I use the wallet?
- How many cryptos, such as Bitcoin, will I need to store?
- Which cryptos will I be storing
- Will I need to share the wallet with someone else?
- Am I able to safeguard the wallet or would I prefer that someone else will protect it?
- Will I need to carry the wallet around with me?
- How tech-savvy am I?
Take the time to assess your needs. You may want to use more than one wallet and so for example, you can use a hardware wallet for large amounts of cryptos, and then you can also have a mobile wallet that you can use for daily payments. In this way, if you lose your mobile phone, or it breaks, you are not putting the bulk of your cryptos at risk.
How Do You Get a Cryptocurrency Wallet?
Mobile and desktop wallets can be downloaded from the Internet for free. Hardware wallets you can buy online and then these wallet types are shipped to you. When you sign up for a specific service, you will then receive a web wallet.
So, let us look at some of the crypto wallets that are available out there.
These are cold storage hardware wallets that offer the highest level of security to cryptocurrency holders. They come in two options; the Ledger Nano S and the Ledger Nano X. Prices range between $59 and $119, which might seem a bit pricey at first glance but a worthy cost for the highest possible level of security for your crypto holdings. To learn more about Ledger wallets
This is another hardware wallet that offers a high level of security for your digital assets, as well as easy connectivity and compatibility with numerous desktop wallets. It has an easy-to-use interface, making it user-friendly for novice and professional users. The Trezor wallet also has two options just like its rival. They include the Trezor Model T which features an in-built display that makes it easier to confirm transactions and the Trezor Model One. To learn more about the different TREZOR wallets.
Now that you have a good understanding of cryptocurrency wallets, you will hopefully have an easier time selecting the options that suit your preferences. Good luck and always implement proper safety measures to avoid losing your hard-earned cryptocurrencies.