What is a Crypto Wallet?
A cryptocurrency wallet is simply a mechanism for accessing, managing and safeguarding your cryptocurrency. Specifically, they store the public and/or private keys for crypto transactions, and usually encrypt and sign information – for example, to execute a smart contract.
There are three main types; software wallets, hardware wallets, and paper wallets. All are designed to provide safe storage access for your digital assets, and there are many different brands of software and hardware wallets available. All have their own advantages and disadvantages, so we’ll explain the differences and how to choose the one that’s right for you.
Custodial and Non-Custodial Wallets
Before you choose a crypto wallet, it is important to understand the difference between a custodial and a non-custodial wallet.
- Custodial wallet – A wallet maintained by a third-party company, like a crypto exchange. These are extremely easy to use, and if something goes wrong there is support available for things like password recovery. However, you are handing control of your private keys to a third party, with all the risks that entails.
- Non-Custodial wallet – A wallet that gives you complete control of your private keys and much greater security. However, there is no support if you lose your wallet credentials, and you are entirely responsible for your funds.
Software Wallets versus Hardware Wallets
The easiest and most convenient way to handle your crypto is using a software wallet. These can sit on your device or browser, and are types of ‘hot storage’. It is called hot storage because it is connected to the internet. Though there are many good software wallets, and they provide excellent convenience, they are less secure than hardware wallets and cold storage.
Hardware wallets are, unsurprisingly, wallets that are built into separate pieces of hardware. Except when you are connected to other devices for updating your crypto balances, they are not connected to the internet or other networks – hence they are termed ‘cold storage.’ Being physically separated from the internet and other devices makes them much more secure.
Finally, there are paper wallets. These are exactly what they sound like – pieces of paper with information written on them. Again, these are a form of cold storage and can be extremely secure (assuming you keep the piece of paper somewhere safe). However, they are very inconvenient, and only really useful for very long-term storage.
Popular Software Wallets
There are a bewildering variety of software wallets available today, ranging from basic and functional through to highly polished, user-friendly products loaded with extras. Most software wallets are free. Below are some of the most popular software wallets:
- Coinbase Wallet
- Trust Wallet
- Atomic Wallet
- Ambire Wallet
Popular Hardware Wallets
Hardware wallets are the best way to protect your cryptocurrency while also retaining a good level of convenience. There are several major brands available, and each offers a number of models. Unlike software wallets, you’ll need to pay to get a hardware wallet. The most popular hardware wallet brands are:
Our Advice Regarding Wallets
When considering wallets, you should think about how you use, or intend to use, crypto. If you’re only testing the waters, or only plan on having a limited amount of digital assets, you’ll probably want to choose a wallet based on convenience. If, on the other hand, you plan on investing a large sum of money in cryptos, then it’s best practice to employ a hardware wallet.
Remember that you can have several different wallets. For example, you may want to use a browser-based software wallet for day-to-day activities (like paying transaction fees), a desktop software wallet for the crypto balance you trade or use for purchases, and a hardware wallet for your long-term investment storage.
Crypto Wallet Safety
Whichever wallet, or combination of wallets, you choose, you should always keep the following advice in mind:
- Always carefully research a wallet before using it
- Always ensure you are downloading wallets from a legitimate source
- Always use strong passwords
- Always write down your recovery seed phrases and keep them somewhere safe (preferably several copies in different remote places). Make sure there is nothing on the paperwork to connect the wallet to you. In most cases, if you lose your seed phrases you will not be able to recover your wallet.
- Always make sure you keep your software wallet updated to the latest version.
- Only access your software wallet on trusted devices.
- Never tell anyone else about your wallet. Especially, never talk in public about your wallet. Remember, physical violence, or the threat of it, can and has been used to make people hand over their crypto wallet credentials.
- Keep up to date with the latest industry news, and in the case of wallet hacks or security compromises, be ready to immediately transfer your crypto to a different wallet and change your credentials.