What is a cryptocurrency wallet?
Our Cryptocurrency Wallet Guide aims to answer all your wallet questions, but first things first. Cryptocurrency wallets are a safe way to store certain digital assets like your private keys securely. Wallets don’t simply store cryptocurrencies as the origin and destination of transactions; they store the ‘key’ to accessing transacting funds.
How do cryptocurrency wallets work?
Cryptocurrencies are ‘digital’ assets. That is, there’s nothing to put in your pocket or pass from hand to hand. Duh, right? Here’s the part I found interesting. Cryptocurrencies aren’t stored in a wallet either. Although, when speaking or writing about them, it’s often phrased as such.
What’s stored in the wallet is the Private Key. This private key is unique to your wallet. Think of it as your password. It is the ‘key’ that unlocks access to the cryptocurrency. Giving you access to your account… cryptocurrencies.
You will also have a Public Key. This key is given to others so they can send you currency. The public key is like your email address or username.
Because of this, anyone can send you money but they don’t have access to it. Similar to how anyone can send you an email but cannot access your email account.
What the wallet does is store and sync your private and public keys with the blockchain. If your public and private keys match, the transaction will be successful.
What are the Different Types of Cryptocurrency Wallets?
There are several kinds of cryptocurrency wallets. Different wallets have differing features, offer varying degrees of protection, and support different cryptocurrencies.
There are two main types.
Cold Storage Wallets
These wallets support offline storage on hardware devices. These are the safest wallets and are recommended for the storage of larger sums.
These wallets are ‘web-based’ wallets connected to the internet. Some examples of hot wallets are mobile, browser extension wallets and so on.
They are not as safe as others can access or hack them from the internet. However, they usually make transactions more convenient, easier and faster. Best used as a medium between cold storage and transacting. Store a limited amount of coins on the hot wallet to carry out anticipated transactions.
Hot wallets can be further subdivided as follows
Desktop wallet software can be downloaded to your computer from the wallet’s website. These wallets are as secure as your computer is. So, if someone gets physical or remote access to your computer, they can access your wallet… your keys… your cryptocurrencies!
- Desktop wallets come with full control over your Keys.
- A variety of backup options are available to secure your funds.
- They are, generally, straightforward to use.
- If you lose your computer, it gets stolen or dies for good; you may lose all your currency.
- Your wallet is as vulnerable as your computer is. Connecting to the internet puts you at risk of malware, hacking, etc.
- It would be best if you had your computer to access your crypto. No computer, No crypto.
Web or Online wallets are usually the most convenient as they allow access from anywhere at any time. However, they also allow access to ANYONE that can trick/hack their way in.
Additionally, because you don’t ‘control’ your keys, there are other limitations and risks. You are at the mercy of the platform hosting the wallet. They could prevent access to you or they could go the way of the dinosaurs. In either case, you may lose everything.
You should keep a limited amount of cryptocurrency in this wallet. Keep what you anticipate using and nothing more. You don’t keep your life savings in your pocket, do you? Hope not… Treat this type of wallet like you would your actual wallet. Fill it only with what you think you’ll need.
- Anywhere, anytime access makes this a very convenient wallet for transacting.
- Exchanges are getting better at securing users’ online wallets. Security features like 2-factor authentication are making it a safer option.
- Usually, the easiest to get started with.
- There is a greater risk of being hacked.
- Usually, you have less, if any, control over keys and security.
A mobile wallet is an app that stores your cryptocurrency on your smartphone. These wallet apps are usually free and can be downloaded from the developer site or an apps store like Android or Apple stores. These wallets have similar advantages and disadvantages as the desktop wallets above. The difference is, they are used on your phone, not your computer.
- As long as you have your phone, you can access your coins.
- Mostly the same security features, but mobile wallets can also use QR codes.
- Like any Hot-Wallet, your cryptocurrencies are vulnerable to hacking.
- Like a Desktop Wallet, your coin is probably gone for good if your computer is stolen, broken, or lost.
Cold storage wallets include the following.
Hardware wallets are the safest type of wallet. They don’t connect to the internet so hackers can’t access your coins. Hardware wallets used to be more challenging to transact with. However, these wallets continue to improve. Many now support users to easily send and receive coins without needing to connect to the wallet to the internet. Many also have digital displays, greatly improving security by completing and verifying transactions without a computer.
- A good one transacts without needing to go online or go through a computer to send/receive funds.
- They are incredibly secure and very much hacker-proof.
- The best option for long-term storage or storing a large amount of cryptocurrency.
- Have various additional security features, including backups which allow you to regain access to coins even if the device is lost, stolen or broken.
- You need to have a physical device to make transactions.
- Not as beginner-friendly.
- Most hot wallets are free. Hardware wallets are physical and therefore cost money to buy.
- Someone could still get your coin from phishing, but that’s not the wallet’s fault.
A Paper Wallet is just a piece of paper with a generated code printed onto it. Both your private and public keys are printed onto the paper. To make a transaction, ‘swipe’ or manually copy the codes.
- Secure from online hacking.
- Easy and inexpensive to produce.
- It can be good for the long-term storage of coins.
- Paper can be lost, stolen or damaged. If this happens, the coins are most likely gone!
- How safe are cryptocurrency wallets?
- The security of a wallet depends partly on the type of wallet used and on, you, the user.
As covered above, cold storage hardware & paper wallets are very secure from hacking. Hardware wallets are resistant to damage and often come with backup recovery features in the event of loss, damage or theft.
A quality hot wallet is also pretty safe. Not as safe as a cold storage wallet but improvements to security continue to be made.
A few recommendations
- Always back up your wallet. Keep your passphrase safe and don’t lose it!
- Use wallets that offer encryption and USE IT! Your Keys will be encrypted and require a Code (PIN, 2-factor authentication) to gain access to the private keys. This makes hacking much less likely. Though not impossible.
- Keep your wallet Updated. Make sure that the software is always kept up to date. It doesn’t matter whether it’s a hot or cold wallet. Missing updates will put your wallet at an increased risk of being hacked.
- Use more than one wallet. Keep the bulk of your coin in cold storage. Use a secured hot wallet to carry out transactions. And create different wallets for different purposes.
- Like, as a private wallet, a shopping wallet, and so on.
- Be mindful of Phishing exploits. No wallet can protect you from phishing. So, make sure you know exactly where you’re sending your crypto. Once sent, it’s gone.
How much do cryptocurrency wallets cost?
There are two potential costs associated with wallets
- Purchase Price and Fees
- Typically, you don’t need to buy a hot wallet. They are apps that are freely downloaded to your computer, phone or browser.
- Hardware wallets will cost. It should be obvious why.
- Most all wallets will have transaction fees.
Fees are usually determined as follows
- Exchanges may apply a small fee for using their service for transactions.
- All transactions must be confirmed by the network of the coin being sent. Most coin networks apply a small fee to this confirmation process. The rate depends on the network.
- Transactions using a credit card or bank account will usually have a medium to high fee applied by the card or bank.
Are Cryptocurrency Wallets Anonymous?
Wallets are typically stored publically on the blockchain. They do not have anyone’s name associated with the wallet. However, all transactions are recorded on a public ledger, and it is possible to track transactions and identify the owner of a wallet. Some wallets like Jaxx improve anonymity by not requiring any personally identifiable information. While complete anonymity may not be possible, it is a top priority of many developers and may be possible soon.
What is the Best Cryptocurrency Wallet?
- Consider the following when deciding on a digital wallet.
- How many cryptocurrencies do you need to store?
- What will you do with the coins? Store long-term, use regularly, or a bit of both…
- How will you spend the coin? Gaming, shopping, trading…
- How often will you be making transactions?
- Do you need different transaction records for different uses?
- Are you more concerned with ease and convenience or the safety and security of your assets?
Top Picks: These are all great wallets!
All of the following wallets are recommended. Which is right for you will depend on how you answer the above questions. It’s impossible to say, “wallet ‘X’ is THE BEST WALLET for EVERYONE.”
Well, it’s possible to say, but it would be a lie 🙂
Cold Storage Wallets
Ledger Nano S
The Ledger Nano S is a great hardware wallet with an inbuilt screen that secures your keys from hackers. The price depends on when and where you buy it but it usually costs around $50.
- The inbuilt screen is used for recovery and verification and can’t be accessed (hacked) via a computer.
- Has push-button physical transaction verification on the device.
- Well designed, portable and very durable.
- Advanced passphrase customization option.
- Compatible with other hot wallets like MyCellium, Electrum, MyEtherWallet, and so on…
- It’s not free.
KeepKey Hardware Wallet
The KeepKey cold-storage wallet supports Bitcoin and several Altcoins. It has solid security features, including a recovery phrase, PIN, and passphrase.
- Include a security screen for transaction confirmation.
- It is a well-built and designed device.
- Offers great security features like PIN and 12, 18 or 24-word seed phrases.
- Supports numerous popular and altcoins.
- Not the best wallet for frequent and easy transactions.
Trezor Hardware Wallet
Trezor is another great hardware wallet with a screen. They use a well-regarded, very secure open-source code.
- Security screen for safely making and confirming transactions.
- Generates 24-word seed offline.
- Uses Zero Trust approach offering multiple security layers.
- Does not use batteries or any way to communicate/interface or be hacked through other devices.
- Customizable 24-word seed.
- Failed attempts to access result in an increased delay until the next attempt can be made.
- It can be challenging to get set up and use.
- Best for cold storage. Not as convenient for regular use.
Jaxx is a multi-chain wallet for storing a wide variety of cryptocurrencies. It is a universal wallet great for cross-platform pairing and is free. Download to a smartphone or computer and pay a low transaction fee.
- You store your keys. Great for control and security!
- Compatible with computers, smartphones, and all main operating systems.
- Has a well-designed and intuitive user interface.
- Supports major coins and MANY others.
- Provides access to the largest market cap making coins highly liquid.
- It uses the ShapeShift service for easily converting blockchain tokens and coins.
- Hot wallet vulnerabilities.
Infinito is a universal wallet supporting iOS and Android devices, most major cryptocurrencies (including Bitcoin), and ERC20 and NEO tokens.
- Intuitive, user-friendly design and interface.
- Universal wallet supports just about everything and they continue to grow the list.
- 2-Factor Authentication.
Mycelium is a great open-source web wallet for Android and iOS devices. Mycelium continues improving its wallet and has many other great products.
- Free downloadable app with a well-designed, intuitive interface.
- Fantastic security for an online wallet.
- Just Bitcoin.
- Needs a desktop app.
To learn about crypto wallets here or read our beginner’s guide to crypto here.