Crypto Assets are valuable. There’s no doubt about that. For example, 1 bitcoin is worth over $9000. While Crypto newcomers, oldies, and others in between are at different points in their cryptocurrency journey, it’s safe to say we can all agree on this: It is super important to keep your Crypto assets safe. Crypto wallets provide a way of keeping your Crypto assets (bitcoin, ethereum, and other tokens) relatively safe.
In our typical simple, straightforward, limited technical jargon manner at coinagers.com, this review presents the best guide on the internet for all in picking the best Crypto wallets for your use. The truth is there is no hard and fast rule for picking wallets. It depends on individual needs. But before we dive deeper, it’s best to start at the very beginning — What are crypto wallets?
In simple terms, crypto wallets provide a way to access, send, and receive crypto assets. To achieve this, crypto wallets connects you to the blockchain. Remember, in our easy bitcoin explanation here, we explained how bitcoin and blockchain technology works. To recap, digital currencies (crypto assets) like bitcoins are based on blockchain technology. A blockchain is just a ledger used to record transactions digitally with no third party. See more details here.
We digress, let’s get back to crypto wallets
Acquiring bitcoins means you too are now on the blockchain. Crypto wallets provide a way to interact with the blockchain. Some oversimplify what crypto wallets are by describing it as a safe where you keep your crypto assets like bitcoins, ethereum, etc. But that description is false for one main reason — bitcoins (crypto assets) are digital currencies that do not exist in physical form but only digitally and permanently on a blockchain and not in any crypto wallets. Meaning when it is said that bitcoins are transferred from wallet to wallet, it just means ownership changes but the bitcoin itself remains on the blockchain. Crypto wallets might work like bank accounts but unlike banks, the money is not stored in the Wallet (bank). How? Crypto wallets generate codes that work like a bank account number that you can use to send and receive crypto assets. These are called public and private keys. A private key is proof of ownership of your bitcoins. It identifies your bitcoins on the blockchain. The public keys are connected to the private keys almost in the same way your bank account number is connected to your bank account.
Important note: You can give anyone access to your public address to receive crypto assets. But never give out your private keys and never lose it. If you do, you lose access to your wallet and the crypto assets linked to it. (Note we used ‘linked’ instead of ‘stored’ to show that assets are not stored in the wallet). Anyone with the private keys can easily send your bitcoins anywhere.
To prevent this from happening some crypto wallets services help keep your private keys safe without giving you direct access to it while other wallets grant you access to your private keys. Each method has its pros and cons and we discuss more on that later. This is just one factor to be considered before picking a wallet service. We consider other factors in the next section. Just before that, to emphasize how important it is to use a secure wallet, see below for a list of popular recent wallet attacks.
- In 2018 Coincheck lost an estimated $534 million due to a hacking
- Popular crypto exchange Binance had about $40 million in crypto assets stolen in May 2019
- Bithumb was hacked in June 2019 with funds of around $30 million stolen
- Bitpoint lost $32 million in July 2019 to a hacking
Point is your crypto assets are only as secured as the wallets that control their use.
Each of the factors below could be an advantage or disadvantage depending on what the user wants. It should also be noted that most users have more than one type of wallet as explained in the next section of this guide.
- Control of private keys: Do you want full control of your private keys by choosing wallets like Myetherwallet or can you trust wallets like Etoro to control your private keys and keep your assets safe?
Custodial Vs Non-Custodial Wallets
Wallets that cede the storage of private keys to third parties are called custodial wallets (examples: Coinbase, Freewallet, Binance, BitMex) while those that let you store your private keys are called non-custodial wallets (Examples: Edge, blockchain.com, electron cash, Coinomi). It all depends on you. Custodial wallets hack can result in the loss of your funds in the same way a non-custodial wallet can result in a loss of funds if you lose your private keys. Please note that these are both extreme situations. Whether you pick a custodial or noncustodial wallet, you will most likely never lose your funds.
- Ease of use: Do the wallet interface and modus operandi make it easy to use?
- Level of the user: Some wallets are easier to use for a beginner but might be unappealing for experts who want to have more control of the technical side of things.
- Purpose: Some wallets are more suitable for daily frequent transactions and use like shopping, payment of utility bills, trading, and other expenses. Other wallets are more suited for long term safekeeping for example to Hodl (a fancy term in the cryptocurrency world that means holding cryptocurrency for a long while). Some wallets are also more suitable for multiple ownership of assets — you know, like a joint account. These are called multisig Wallets.
- The assets: Some wallets like Trust wallet provide access to several assets (multi-crypto wallets) and tokens on the same wallet. Other wallets restrict the type of crypto assets it can access. For example, Myetherwallet can only access the Ethereum network.
- Security: Wallets that links to a large volume of assets need to be more secure than others used for immediate and frequent expenses and are not linked to huge amounts. The type of development community of the wallet service can also be a determining factor of the level of security it embodies. There are open-source wallets (like trust wallet) that allow anyone to edit the codes of the software while closed wallets are only controlled by the service provider and are primarily in charge of providing updates and bug fixes for the wallet (like Coinomi). Still, on security, some wallets require a single authorizing entity while others require more than one for transactions to be processed. We will discuss this further soon.
- Anonymity: Blockchain transactions are only anonymous in the sense that they do not reveal names and other personal details of the user. There is no complete anonymity. A better expression is to say blockchain transactions are pseudonymous meaning it can be tracked. Depending on the wallet service you use, your anonymity or pseudonymity can be further reduced as some wallets require a comprehensive KYC (Know Your Customer) before using their service.
Now let’s see different wallets, and the pros and cons of each.
Crypto wallets can be categorized based on 2 criteria
– Access to the Internet
Types of crypto wallet — Hot and cold wallets
– Mode of operation
Types of crypto wallet — Hardware, Software, and Paper wallets
A crypto wallet can be a hot or cold wallet depending on its access to the internet.
Hot wallets are wallets that require access to the internet in one form or another. They are easy to use and suitable for beginners. However, access to the internet leaves these wallets vulnerable to malware and other types of attacks. There is a wide range of Hot wallets to pick from depending on the aforementioned factors (See section above). Crypto exchange websites and desktop wallets are examples of hot wallets. Hot wallets are free.
Cold wallets can be managed offline (without the internet). That makes them more secure than hot wallets. But wallets like this are less user friendly and can be technical. Cryptocurrency newbies may not find cold wallets suitable. But expert users and hodlers will easily love any of these wallets — USB wallet, a dedicated hardware wallet — all examples of cold wallets.
Hardware wallets are physical devices for storing private keys and public addresses of your crypto assets. Objectively. these are the most secure type of wallets although these sometimes impact their user-friendliness. Hardware wallets are mostly cold wallets. Also since they are physical devices (some are like USB devices), it can get lost and you know what that means? All your crypto assets are lost forever if you don’t have a backup. Always use a hardware wallet if you’re holding a crypto asset for the long term.
Popular hardware wallets: Trezor, Ledger
As the name implies this means having your private keys on paper. These private keys are generated offline (cold wallets) and are printed on paper and kept safe. As an extra layer of security, the private keys can also be encrypted with a passphrase to prevent unauthorized access to your crypto assets in the event your paper wallet gets stolen. All these technicalities make it unsuitable for cryptocurrency beginners. Paper wallets can be linked to other types of wallets (e.g. Software wallets). Paper wallets are suitable for use as gift cards and can easily be carried from place to place like Fiat currency notes. While very secure, paper wallets have grown less popular over the years and the reasons make sense. Paper can easily be destroyed in an accident (fire, water, etc.) or lost. What’s more, it’s not so convenient to send parts of your funds as a paper wallet typically requires you to send all the balance at once. You can generate paper wallet here — bitaddress.org
Software wallets are hot wallets (see the previous section). It requires access to the internet to use these wallets, and these make them susceptible to attacks from cybercriminals. Software wallets are easy to use and suitable for quick and recurrent transactions. Here at coinagers.com, we don’t recommend having your life savings on a software wallet. Wallets of this type can be subdivided into Mobile wallets, Web wallets, and Desktop wallets. Several software wallets services provide these versions.
Types of Software Wallets
These are software wallets that come in the form of Apps you can install on your mobile devices giving you access. Mobile crypto wallets are easy to use and are suitable for quick transactions. Many mobile wallets are password protected. Mobile wallets include Copay,
Jaxx Liberty, Mycelium.
These types of software wallets are accessed through web browsers. We provide an easy guide on how to use the popular metamask wallet here. Other examples of web wallets include Guarda wallet, blockchain.com, myetherwallet.
Desktop wallets are applications that run locally on your computer to help manage your crypto assets. Like other software wallets, desktop wallets are prone to malware and virus attacks. Wallets with desktop versions include Exodus wallet, Guarda wallet, Wasabi, Bitcoin Armory.
Is it expensive to transfer crypto-assets from one user to another?
This is a burning question for most cryptocurrency beginners. The truth is it varies from one network to another. On the bitcoin network, transactions are very cheap to execute while Ethereum fees (called gas) can be relatively high sometimes. But always remember that no matter how high cryptocurrency transactions can get, it’s far easier, faster, cheaper, and better than the best traditional bank.
What are multisig wallets?
Examples of multi-sig wallets include Electron and Armory. These are special wallets with an additional layer of security. To move funds from a multi-sig wallet will require more than one private key to authorize a transaction. Multisig wallets make it possible to have shared ownership of a wallet. 2 or more people can, therefore, come together to own a wallet. Here the number of private keys needed to authorize a transaction is predetermined and the rights of each of the parties to access the funds. To illustrate how crucial multisig wallets can be, we’ll give you an example. In 2019 the death of QuadrigaCX CEO — 30-year-old Canadian entrepreneur, Gerry Cotten cost investors around $145 million because the funds had been locked away in cold storage and only the CEO had the keys to access the funds. This situation could have been avoided with a multi-sig wallet which has since found widespread appeal in the crypto industry today. Crypto exchanges, individuals, and many crypto companies all use multi-sig wallets today.
Recommended wallets for beginners and newbies
For newbies ease of use is the most important factor. Therefore we recommend software wallets for beginners. Also, most new users are not looking for a place to store hundreds of thousands of dollars worth of crypto assets. They most likely just need a taste of how to store their tokens and a wallet to use for quick regular transactions. Check out our article here to see how to start. Not just for newbies, anyone can use software wallets for quick easy transactions and keep your crypto assets safe.
Quick Caveat: Never link your life savings or retirement fund to a software wallet.
Hardware wallets are more suitable for long term security of a high volume of crypto assets
Which type of wallets do you prefer?
Sound off in the comment section below
(I first published this article on coinagers.com where you can read other interesting articles)
Another great article: Non-technical ways to earn crypto that don’t suck