Meta Description: Deciding which cryptocurrency wallet to use is tricky, especially when there are so many options with different features and levels of security. Here is our guide…
How to pick the best crypto wallet?
A wallet is like a gateway between you and your cryptocurrency. It holds the keys for you to access your holdings. Without a wallet, you won’t be able to buy or sell coins.
Most cryptocurrency wallet guides discuss how wallets store your crypto – but their descriptions are not strictly true. Technically, your cryptocurrency never leaves the blockchain.
You can access your crypto by using private keys. Each wallet gives users two sets of keys. Public keys, which allow other users to send you crypto, and private keys you use to confirm that you are the owner of the received coins.
With this in mind, let’s explore the main types of wallets and their particularities.
Types of cryptocurrency wallet
Crypto wallets can be divided into three categories. A hot crypto wallet that lets people send digital assets across the internet is the most popular option. Hot wallets are also called hosted wallets because they are created automatically when you register on crypto services like Coinbase or Binance. You can access them through any browser (web version) or download them to your PC or smartphone.
A cold wallet is not connected to the Web and resembles a flash drive. Plug it into your computer any time you wish to carry out transactions.
Paper wallets are offline and usually look like a printed piece of paper with QR codes and keys. You cannot send or receive coins with their help, as they just provide you with a way to save and protect your keys. Thus, you will need another wallet for transactions.
How does a crypto wallet work?
Upon creating a wallet, a user will get private and public keys. Each wallet key is basically a string of letters and numbers that can also be presented as a QR code.
A public key acts like a digital wallet address. The number of public keys stored in your wallet depends on the number of supported coins. Public keys are created and linked to each coin individually, meaning your wallet can have several public keys. Keep in mind that you cannot send different coins using one address. For instance, you cannot send Cardano to an Ethereum address; otherwise, you will lose your Carnado tokens for good.
Your digital wallet needs to be protected from unauthorised access. This is where private keys come in handy. A private key is a form of cryptography that allows you to access your cryptocurrency and protects your assets from theft. You can make your own private key by creating a seed phrase, which is 12-24 random words. You have to store it somewhere safe and not forget it.
Which crypto wallet should you choose?
There is no definite answer to this question – it depends on your preferences. Think about what functionality and level of security you need, and what coins you want it to support. Hardware wallets provide you with the best protection. You will own your keys and eliminate the chances of your wallet being hacked. On the other hand, you bear more responsibility – if you lose your password, no one can help you recover it.
One of the well-known incidents happened in 2013 when James Howells forgot a password to his hardware wallet with about 7,500 BTC. That is why some people may pick a hosted wallet and contact a support team to help them regain access to their funds.
Cold cryptocurrency wallets (hardware)
As you already know, you will get the best security with cold wallets. The reputable providers of these devices are Ledger and Trezor. Their products come with features like staking, seed phrase generation, backups, and a range of supported cryptos. Cold wallets work offline, so hackers have little to no chance of getting their hands on your funds.
For example, Ledger offers cold cryptocurrency wallets that come as small USB devices. They feature buying, selling and trading options, as well as a handy app to manage your funds on the go. Ledger also allows users to stake supported cryptocurrencies.
Cold wallets are regarded as the safest option. The downside is that they cost money. The prices start from an extremely reasonable $49 for a Keep Key wallet to a high-end $190 Trezor Model T. On average, hardware crypto wallets will cost you about $100. Traders often choose hot wallets because they don’t feel that spending money on storing crypto is worth it.
Hot cryptocurrency wallets (software)
There are many free hot cryptocurrency wallets available. MetaMask is probably the most popular choice for tech-savvy traders. For example, MetaMask plugs into Ethereum seamlessly and allows people to deploy their custom ERC20 tokens. There are also wallets like Jaxx, Blockchain Wallet and Bitcoin Core that you might want to check out. They have all the standard features like balance view, buying/selling/transferring, and they can be downloaded on your PC or phone.
Hot wallets are centralised and they manage your private keys. Therefore, you rely on mediators and expect them to serve as safeguards of your assets. It makes these wallets more susceptible to cyberattacks. One of the most infamous incidents happened in 2014. A group of people hacked the Mt.Gox system and stole $460 million.
You will need to pick a wallet that suits your trading needs and budget. There is no wallet that suits every trader. Your choice will depend on the following factors: the type and amount of crypto you want to store, the level of security you want to have, and convenience (quick registration, easy-to-use interface, etc). Use this guide and try different products to settle on the one that meets all your expectations.