Blog. Crypto Academy. The Ultimate Guide to Crypto Wallets

October 1, 2018

The Ultimate Guide to Crypto Wallets

October 1, 2018

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If you want to invest in cryptocurrencies, it is important to be aware of your crypto wallet options. A cryptocurrency wallet acts as your digital bank account in which you can store, send, and receive digital currencies like bitcoin.

This guide to crypto wallets is designed to introduce you to the types of crypto wallets available and give you some ideas about which wallets to use for a variety of crypto activities.

What is a Cryptocurrency Wallet?

A crypto wallet is a software that allows users to store, send, and receive cryptocurrencies. Cryptocurrency wallets store users’ private and public keys and interact with blockchain platforms to process cryptocurrency transactions.

You need to have a crypto wallet to send, receive and store cryptocurrencies.

Types of Crypto Wallets

There are different types of cryptocurrency wallets, each with specific features. There are online wallets, mobile wallets, hybrid wallets, desktop wallets, hardware wallets, and paper wallets.

It’s essential for you to pick the right type of wallet to ensure a smooth crypto trading experience. Each wallet comes with different levels of ease-of-use and security features. Unfortunately, there is no one-size-fits-all crypto wallet. So, before you make up your mind and start doing crypto trading, check out different crypto wallets and opt for the one that fits the bill.

Online Wallet

An online wallet is a crypto wallet that you can access using your web browser. Online wallets are easy to set up and simple to use. Register with an online crypto wallet provider such as blockchain.info, and you are ready to start receiving cryptocurrency.

One of the drawbacks of online wallets is that in some cases the wallet provider holds your private keys, which means you do not have full control over your cryptocurrency holdings. This makes your wallet is more likely to be hacked.

Therefore, you should only use online wallets as temporary storage for smaller amounts of cryptocurrency. For example, you might hold a small amount of cryptocurrency in your online wallet for shopping online.

The most popular online wallets include:

Binance
Coin.Space
Blockchain
BTC

Mobile Wallet

Mobile wallets are the most convenient way to store cryptocurrency as they allow you to have quick and easy access to your digital cash. Mobile wallets are excellent for users who regularly pay for goods and services using digital currencies like bitcoin because a quick QR scan is all it takes to make a payment.

Mobile wallets can be downloaded on the providers’ websites or from the Android or Apple app stores. Coin.space and Edge are the two most popular multi-currency mobile crypto wallets. They enable users to store a range of different crypto assets on their phones.

Mobile wallets are considered safer than online wallets. However, they should also only be used to store smaller amounts of cryptocurrency. Why? A smartphone can be compromised by hackers. Furthermore, it is easy to lose or accidentally damage your phone, which will make it harder for you to retrieve your cryptocurrency holdings using your wallet backup codes.

Hybrid Wallet

Hybrid wallets are a combination of online wallets and mobile wallets. They allow users to access their cryptocurrency holdings on their phones and in a web browser.

Hybrid wallets offer a very convenient way to store and access your digital currency holdings and are great for beginners. However, as already mentioned for online and mobile wallets, they are not the safest option to store your crypto assets. Hence, they should also only be used to store small amounts of digital currency.

Desktop Wallet

The desktop wallet is the original crypto wallet that was first created when bitcoin was launched in 2009. A desktop wallet is a software application that you download so that you can store your cryptocurrency holdings on your computer.

Desktop wallets generally download the entire blockchain of a cryptocurrency. These are known as “full client” desktop wallets. Having said that, there are also light versions of desktop wallets, known as “light clients” or “SPV clients”, which take up less space on your hard drive.

Desktop wallets are more secure than online and mobile wallets but require more maintenance as they regularly need to be updated to their latest version to function optimally. This can be somewhat challenging and confusing to less tech-savvy cryptocurrency newcomers.

Every crypto asset has its own dedicated official desktop wallet. That is standard in the cryptocurrency industry. The official bitcoin desktop wallet is Bitcoin Core. There are also several other desktop bitcoin wallets such as Armory or Electrum.

Most popular light client desktop wallets:

Most popular full client desktop wallets:

Hardware Wallet

Hardware wallets enable users to store their digital asset holdings offline so that they cannot be accessed by hackers. Hardware wallets are USB-stick-like devices that contain your wallet’s private keys.

To set up a hardware wallet, you will first need to back it up (in case it gets damaged or you lose it). Next, you install the wallet’s proprietary software and connect the hardware wallet to your computer so that you can receive cryptocurrency to your wallet’s public address. Once you have completed the transaction, you disconnect the hardware wallet and store it in a secure place.

The two most popular hardware wallets are the Ledger Nano S and the Trezor. They are also the preferred methods of storing large amounts of cryptocurrency by seasoned bitcoin investors. Another hardware wallet to consider is KeepKey. This hardware wallet supports multiple altcoins and is gaining traction due to its ease of use straight out of the box.

Paper Wallet

An alternative way to securely store your cryptocurrency offline is to use so-called paper wallets. Paper wallets are printed out paper documents that contain two QR codes. One represents your wallet’s public key that you can use to send cryptocurrency to the paper wallet while the other QR code is your wallet’s private key, which you use to send cryptocurrency from your paper wallet to other wallets.

Once you have set up your paper wallet, ensure that you store it in a safe place where it cannot be damaged or easily stolen. Since they are paper documents, it is best to laminate them as an extra safety measure.

Paper wallets can be created on websites such as BitAddress and WalletGenerator for free.

Do Crypto Wallets Charge Fees?

Most cryptocurrency wallets will not charge you a fee. However, most cryptocurrencies require you to pay a small transaction fee that goes to the network’s miners to incentivize them to maintain the blockchain and process your transactions.

The size of the transaction fee depends on the cryptocurrency you are using and the level of priority you want the transaction to have. Remember, the higher the fee on the transaction, the quicker your transaction will be processed as miners prioritize high fee transactions over low fee transactions.

Having said that, all crypto wallets can be downloaded for free and there are no monthly maintenance costs as is often the case with bank accounts.

Unfortunately, there are also a number of fake cryptocurrency wallets that were created by cyber criminals with the purpose of stealing your digital currency holdings. Fake wallets can come in the form of mobile apps and online wallets.

The prevalence of scams and cybercrime make it imperative that you only use reputable cryptocurrency wallets that are found on each cryptocurrency project’s website. Also, it is wise to check the URL of the wallet you are about to download to ensure you did not accidentally arrive on a phishing scam website.

Look for wallets that allow for 2-factor authentication. Think of the additional authentication step as a warm blanket of security for your wallet rather than a waste of time.

Finally, it is important to always back up your wallet and keep your private keys away from prying eyes.

What Crypto Wallet Should You Use?

To answer this questions, you need to first ask yourself what you want to do with your wallet.

If you want a wallet that allows you to easily spend your cryptocurrency in a cafe or a retailer that accepts bitcoin as a payment method, a mobile wallet will be the right choice. It easy to use and allows for quick and convenient payments.

If you want to use cryptocurrency for online shopping or need to deal with it on a regular basis for business purposes, a desktop wallet would be the way to go. It allows you to make fast payments online but still provides an adequate level of security.

On the other hand, if you have bought cryptocurrency and want to hold it as a long-term investment, storing your holdings in a hardware or a paper wallet will be the right decision since these are the two safest options for storing digital currency offline.

It should be noted that most crypto investors use a combination of several wallets. For instance, you might use one type of wallet for purchases and small transactions and another type of wallet to hold the bulk of your crypto assets.

Decentralized digital currencies like bitcoin allow anyone in the world to “be their own bank.” A big part of that is knowing which wallet is right for your purposes, knowing how to use your crypto wallet, and knowing how to secure it properly.

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