You would need a wallet if you are interested in using virtual coins such as Bitcoin, Ethereum, Bitcoin cash or any other of the over 1,500 coins and tokens currently available on the market. This guide is your shortcut to knowing what a cryptocurrency wallet is, how they function, and which one suits you best, if you are new to cryptos.
Crypto wallets
A software application that gives you access to all the cryptocurrencies in your possession and enables you to control your holdings, store, receive and send coins is a cryptocurrency wallet or just a wallet.
Some wallets are designed to carry only one form of coin, while others are designed to hold several coins, which is very convenient if you don't want to restrict yourself to a single asset. There are other features in some wallets, such as monitoring live exchange rates for your favorite fiat currency.
There is a public and a private key in each crypto wallet.
Another crypto misnomer is a public key, since it is not a key but an address for a wallet. It's like a bank account number used by other individuals to transfer coins to your pocket.
Your digital signature and a PIN code are a private key to your crypto locket combined. The wallet is used to access and control the funds connected to it.
A private key is a string of randomly generated and encrypted letters and digits in the format your wallet supports. You don't have to go deeply into the technical details of how you have produced your private key, make sure it's kept safe and stable. It will be possible for someone who gets your private key to open your wallet and take your money. In addition, you will lose your money if you lose or miss your card. Just Forever. Regardless of what. No key, no cash. Keep it in mind and use your keys to be smart.
Technically, they delegate the ownership of the coins to your wallet address when anyone sends you Bitcoin or some other form of virtual currency. So the trade comes down to a blockchain record and a balance shift in a few cryptocurrency wallets. As such coins still exist only in a digital form, there is no physical exchange of coins.
Hot and cold
Hot wallets are still online, which makes them more agile, fast, and user-friendly, but less stable. Wherever you are, they give you immediate access to your digital properties, as long as you have a computer linked to the Internet. But this comfort comes at a cost: due to continuous Internet access, they are intrinsically unstable and vulnerable to theft. You don't even monitor the protection of your wallet at times, as it depends on your wallet service provider's practices.
Cold wallets with robust security and enhanced anti-theft protection are interned-disabled physical devices. When you need to make a purchase, you plug them into a device and then take them back to the safety of the offline world. They're pretty much hacker-proof, you just need to make sure they're not stolen, ruined, or lost. Cold wallets are a vault or safe deposit box cryptocurrency option where you maintain your long-term holdings. They are better used in the foreseeable future for storing vast quantities of cryptocurrency that you do not want to spend.
Types of crypto wallets
Any wallet is just a way to store a mixture of your public address and a private key, but different businesses have created numerous software solutions to enhance the user interface and include additional features that serve unique purposes.
Desktop wallets
Desktop wallets are programs of software that you download and run on a laptop or device. They are simple to install and available for all operating systems, although some can only be used on a specific OS. Upon launch, most desktop wallets have a mnemonic phrase for you. It's a long string of phrases that store data needed for a wallet recovery. If it is re-installed, you will need it to get access to your wallet. So storing the mnemonic phrase in a secure location, far from prying eyes, is important.
Pros: Desktop wallets provide a high degree of security since they can only be accessed from the device they are mounted on. The protection of your wallet is your responsibility. In order to protect your wallet from external threats, you do not have to rely on other people. Desktop wallets often typically have rich features and provide additional tools and functions. The majority of cryptocurrencies have created a desktop wallet for their coins.
Cons: You and your digital assets can fall victim to viruses and malware because your computer or laptop is connected to the Internet. You will lose your virtual cash if your machine is hacked or gets a virus. If you want to keep your coins secure and sound, antivirus, anti-malware software, and a decent firewall are a must.
Mobile wallets
Mobile wallets run on a smartphone or tablet as an app and are very similar with additional features such as the QR code scanner to their desktop siblings. They are the most widely used type of wallets, which is hardly surprising because people nowadays like to do stuff on the go, to be able to check their crypto balances, to send and receive coins anytime, anywhere. For both iOS and Android devices, all major cryptocurrencies have mobile wallets, while less common ones can only have Android versions.
Pros: There are very practical mobile wallets. In a retail shop, you can conveniently use it to pay or submit coins. They are smaller and quicker, since they are used on the fly.
Cons: Due to the limited space and power of a mobile device, mobile wallets only have basic features. More importantly, since they are still connected to the Internet and have weaker cryptographic security features, the vast majority of crypto wallets are vulnerable to cyber attacks, viruses, and malware. As someone who gets access to your phone or tablet with a crypto wallet on it will be able to take away your money, you also need to be extra careful about protecting your computer.
Online wallets
Online crypto-currency wallets live in the cloud and can be accessed from any Internet-enabled computer or mobile device via a web browser. They combine the versatility of desktop wallets with mobile usability, making them very attractive.
Pros: As there is no need to wait for the app to connect to the server, online wallets offer quicker transactions. Many of them are integrated with exchanges of cryptocurrencies or allow amounts to be transferred between supported coins. When you treat them like a digital piggy-bank for small sums, they can be really useful.
Cons: The low level of protection is their weakest point. Somewhere in the cloud, your private keys are held and managed by someone else, not you. For hackers and other crypto villains, it makes them a tempting option. You should always bear in mind that even more often than any other form of wallet, online exchanges and online wallets are hacked. The fundamental advice, therefore, is not to place all your digital money in an online wallet.
Hardware wallets
Hardware wallets vary fundamentally from all the other wallet types discussed above. On a separate offline computer, like a USB, they store your private keys. Just plug the unit into a computer with an internet connection, make a transaction and disconnect the wallet if you need to transfer cash. There are LED screens in some versions, which means you can get one without a device at all. You can store over 22 cryptocurrencies and hundreds of ERC-20 tokens through popular hardware wallets. They are the best way to save huge cryptocurrency quantities that you hold as a long-term investment and do not intend to switch around very much.
Pros: Hardware wallets concentrate on security. As they only allow online transactions, but the keys are kept offline, they provide the highest degree of protection against cyber attacks. As long as you make sure that you do not lose the device itself, you will not lose your money.
Cons: Hardware wallets are less user-friendly. Typically, they are compatible with most web interfaces, but in contrast to software wallets, their performance is low. Hardware devices cost between $70-$150 and are often sold out in a split second, so it's hard to get one for yourself if you would find it difficult.
Paper wallet
Paper wallets are an early prototype of a wallet for hardware. You build it via a dedicated service, print on a piece of paper your private keys and public addresses, either as a string of letters and digits or as a QR code, and start transferring coins to this one from your app wallet. You need to transfer funds from your paper wallet to your app wallet if you need to spend those coins. This approach is often called 'sweeping.'
Pros: At the same time, it is cheap and safe. Strange as it might seem, as they are not stored on a computer or any other Internet-connected unit, they are considered to be one of the most hacker-proof wallet types.
Cons: Paper wallets for newbies are not. To build and use it afterward, you need some technical expertise, patience and a high degree of caution. Paper is not a very sturdy material, so you have to take special care to keep fire, water, and a shredder out of your pocket.
Keeping your wallet safe
While some wallets are by their nature more secure than others, users must always take precautions and be vigilant when operating with a wallet. Complacency and negligence will dearly cost you.
Diversify: In a hot wallet, online or on computer, keep small amounts for regular expenses at hand and store the bulk of your cryptocurrency assets in a safe location as far from the Internet as possible in a clod wallet. If your computer or mobile device dies, the hardware or paper wallet will protect your money from hackers, malware, and viruses and allow you to recover data.
Keep a back up: It is a good practice to make a backup of your wallet, that will allow you to regain access if anything happens to your device. It is best done on an offline computer, like a USB drive, as it is possible to hack or compromise online storage. Also, just in case, keep hard copies of your mnemonic sentences, passwords, usernames and other access info.
Keep updated: Make sure your wallet software is up-to-date, as security updates are often released by developers to protect your wallet from new threats.
Use best security practices: You are solely responsible for the safety of your assets, so try to add additional layers of protection to your crypto wallet. Start with a strong password on all the devices you have installed with the wallet app. At all times when a wallet application is opened, choose wallet service providers with strong security policies such as two-factor authentication and pin code request.
