In February 2022, Binance (the world’s largest cryptocurrency exchange in terms of daily trading volume) got in the same league as global superstars like J Balvin, Jimmy Butler and Valentina Shevchenko to take on big game cryptocurrency ads. The global consumer empowerment campaign invited fans to sound the #CryptoCelebAlert focus on learning and researching cryptos themselves.
Also, while there have been efforts from different crypto organizations to warm up the world to the virtual currency, some of the biggest global corporations like Microsoft, PayPal and Starbucks have already hopped on the crypto bandwagon and embraced the future.
Why are we telling you all this? Just to let you know that it’s time that you should also open yourself up to the crypto-verse and see the potential that this ‘Money 2.0’ has.
Purchasing the hottest and trending cryptocurrencies has never been simpler but knowing how to keep them properly and safely takes a lot more effort. And we are here to help you with the security part! Duh, because security is your best buddy in this word full of cyber-criminals eyeing your beloved crypto.
Today, we are going to be talking about crypto wallets. Choosing the best cryptocurrency wallet can make your head spin, whether you should go for a hot wallet or put your money into a hard wallet. And with so many options, it always gets more confusing. We are here to clear the air on a crypto wallet.
So, without further ado, let’s jump straight in!
- A crypto wallet is a crucial tool for buying, trading, and selling cryptocurrencies.
- For a user to trade cryptocurrencies, it is essential to have a wallet address to facilitate the transactions.
- A cryptocurrency wallet is a software program or hardware containing public and private keys unique to the owner of a wallet.
- A crypto wallet allows you to interact with blockchains, enabling you to make purchases and transactions and monitor your balance.
How Do You Hold Cryptocurrency?
For as long as we can remember, our wallets have carried our money, cards, random scraps of paper or maybe a photograph of a loved one. They have been leaving butt-lumps in our jeans, but our money has evolved today, and so have our wallets! So, where do we store our new money, we mean cryptocurrency? A crypto wallet. To hold your crypto coins.
Now that you’ve finally bought yourself your first crypto, the one that makes your heart skip a beat, what’s next? You take a moment to admire and enjoy it before moving on to the next step. And by the next step, we mean owning a crypto wallet!
A crypto wallet is an essential tool for buying, trading, and selling cryptos. You as a trader should have a cryptocurrency wallet to safe-keep your cryptos as well as to protect and validate your transactional information. Whether hardware or software, aka hot or cold storage wallets, these make crypto as easy as shopping online with a credit card.
To simplify things for you, a crypto wallet keeps your private keys safe and accessible (if you lose your private keys, you lose your crypto! No one can help you get them back, at any cost). Crypto wallets come in various forms, including smartphone apps and wallets that resemble USB sticks. Although some differences exist, they all work by keeping private key pairings that let you send and receive your virtual money across several devices.
How Does a Cryptocurrency Wallet Work?
We’ve already thrown light on what is crypto wallet, but the more important question now is how does it work?
Unlike a traditional wallet, which can hold physical cash, a crypto wallet is something that you need to kickstart your crypto journey.
Broadly speaking, a cryptocurrency wallet can be categorized into 2 types, either software or hardware. Though each type works somewhat differently, they are all meant to give you secure access to whatever cryptocurrency you own. There is no cryptocurrency stored in a cryptocurrency wallet. Rather, it keeps track of the public and private keys needed for crypto transactions. Your coins are kept on a blockchain, which is a form of digital record that underpins the operation of numerous decentralized cryptocurrencies.
A crypto wallet generally uses two types of keys: a private key and a public key.
Public keys work in the same manner that your bank account number does (a public key is a long string of randomly generated numeric characters).
Numbers can be communicated with a third party, such as a cryptocurrency exchange, without jeopardizing your wallet’s security. This key lets you receive cryptocurrencies in transactions—often via a wallet address, a compressed form of the wallet’s public key.
On the other hand, private keys should be kept secret. You may access the actual cryptocurrency on the blockchain with a private key. So, having access to your private keys is the same as having access to your wallet’s cryptocurrency.
Did You Know?
Around 20% of Bitcoin has been lost permanently or is stuck in wallets that can’t be accessed, according to crypto analytics firm Chainalysis. This equals 3.76 million BTC (about $190 billion) now!
Hot and Cold Crypto Wallets
Now that you have come this far in our cryptopedia, we’re sure a crypto wallet is something that piques your interest. So, we’re here to further break it down for you!
If you want to keep your crypto safe, finding the correct mix between functionality and security when storing it should be your priority. If you buy any quantity of cryptocurrency and wish to keep it for yourself, you have the option of utilizing a hot wallet, a cold wallet, or a mix of the two. And we are here to make sure you choose the best.
|Criteria||Hot Wallet||Cold Wallet|
|Definition||They are applications connected to the internet and store your private keys online.||They are hardware devices that store your private keys offline.|
|Working||These are connected to the internet and cryptocurrency is delivered directly to the wallets through a swift online transaction process.||Here, the transactions begin online and then shift offline for signing the private keys by the cold wallet. The verified and completed information is then sent back online.|
|Suitable Users||Crypto traders or everyday users who want to make quick online payments with crypto.||People who seek the highest level of security for storing their cryptocurrency.|
|Types||Online hot wallets are available in exchanges such as Binance and Coinbase. The two most popular hot wallets are Exodus and Mycelium.||Hardware wallets and paper wallets are the two main types of cold wallets. Popular hardware wallets include Trezor and Ledger.|
|Security||Vulnerable to hacking due to all-time internet connectivity.||Your private keys are always offline, thereby improving security.|
So, should you use hot or cold wallets or a mix of both? Continue reading to find out more.
Which One is For You?
Like any important asset, storing cryptocurrency necessitates a personal decision about how to best safeguard it while striking the perfect balance between functionality and security. But this does not mean that we’ll leave it here to you. We’ll of course, try our best to help you. And we’ll start this by listing out the pros and cons of both a hot and cold crypto wallet.
|Generally free to use.||Less secure: hackers, possible regulations and other technical vulnerabilities.|
|Provides you quick access to your crypto (many hot wallets are accessible via mobiles).||Third-party dependence.|
|Easy to use.||Users may lose access to their crypto if a service (for example, a web wallet) decides to stop providing services without warning.|
|The most secure option as it’s completely offline.||Expensive to purchase.|
|Not ideal for everyday usage.|
How to use a Crypto Wallet?
By now, you must have chosen what kind of crypto wallet you will use to further your crypto journey. So, what’s next?
Learn how to use different types of cryptocurrency wallets, and you’ll be on your way to becoming a crypto superstar, probably.
A hosted wallet is one of the most famous and simple-to-use cryptocurrency wallets. When you purchase cryptocurrency through an app like Coinbase, your funds are automatically sent to a hosted wallet. It is called hosted because your crypto is kept for you by a third party, the same way a bank stores your money in a savings account. These are the 3 main steps to follow when setting up a hosted wallet:
- Choosing a platform you trust
- Creating your account
- Buying or transferring your cryptocurrency
A self-custody wallet, such as Coinbase Wallet, gives you full control over your cryptocurrency. Non-custodial wallets don’t rely on a third party — also known as a ‘custodian’ — to keep your cryptocurrency safe. While they supply the software required to store your crypto, you are solely responsible for remembering and protecting your password. There’s no way to access your crypto if you lose or forget your password, the ‘seed phrase’. And, if your private key is discovered by someone else, they will have complete access to your assets. Follow these steps to set up a self-custody wallet:
- Download a wallet application
- Create your account
- Be sure to write down your private keys
- Transfer your cryptocurrency to your wallet
A hardware wallet is a physical device the size of a thumb drive that stores your crypto’s private keys offline. Most individuals don’t use hardware wallets because of their increased complexity and cost. Still, they offer some advantages, such as keeping your crypto safe even if your computer is hacked. Here’s how to set up a hardware wallet:
- Buying the hardware wallet
- Installing the software
- Transferring your cryptocurrency to your wallet
There are numerous methods to keep crypto, just as there are numerous ways to store cash (in a bank account, a safe, or under the bed). With crypto, you can keep things simple with a hosted wallet, have full control over your crypto with a non-custodial wallet, or take extra measures with a hardware wallet, or even have many types of wallets simultaneously. It’s all about your preferences.
How Safe are Crypto Wallets?
In general, crypto exchanges and -wallets do not provide sufficient insurance and security to be used to keep money in the same manner that a bank does. As the value of bitcoin has risen, so has the number of viruses meant to steal cryptocurrency from wallets and cyber-attacks on exchanges.
Keeping your crypto secure involves some forethought and work, but it is no longer as difficult or time-consuming as it once was. Anyone with a reasonable amount of crypto will definitely find it well worth the effort!
Word to Remember
A seed phrase is a string of words generated by your crypto wallet. It is used to gain access to the crypto linked with it. Think of a wallet like a password manager for your cryptocurrency, and the seed phrase like the master password. If you have your seed phrase, you’ll have access to all of the crypto associated with the wallet that generated the phrase — even if you delete or lose the wallet.
With all the chatter around cryptocurrency, we’re sure you have made up your mind about venturing into the world of digital currency and building your virtual wealth. And as for the security part, we’ve got your back with some robust cryptocurrency wallets.
So, before we bid adieu, we’d like to share our top picks for the best cryptocurrency wallets of 2022.
- Coinbase Wallet – Best for beginners
- Electrum – Best for Bitcoin
- Mycelium – Best for Mobile
- Ledger Nano X – Best offline crypto wallet
- Exodus – Best for Desktop
- Crypto.com – Best for DeFi Wallet
Now that you know the secrets to keeping your virtual currency safe, what’s stopping you from minting some dollars and rolling in cash? Get started today, and you might be on your road to building the crypto empire you’ve been dreaming of building.
When looking for a crypto wallet, you must ask yourself the following:
How often am I going to trade?
How much am I willing to spend?
What functionality do I really need in a crypto wallet?
Having asked yourself the general questions, the general rule of thumb is to look out for the following:
24/7 customer support
Hardware wallet compatibility
There is no single static fee for every crypto wallet. A cryptocurrency wallet transaction fee varies depending on the exchange you use for trading. Some wallets allow their users to pay a higher fee to speed up the transactions.
The best cryptocurrency wallet should be able to provide you with the highest degree of security for your public and private keys. In most cases, the best cryptocurrency wallet should also come with features such as 2-factor authentication and multi-signature support. If your biggest concern is the safety of your beloved crypto, we recommend you look out for hardware/offline wallets such as Ledger since cold storage wallets are inherently better for security than hot wallets.
Generally, most cryptocurrency wallets are hot wallets that require a fee for every transaction you process using the wallet. On the other hand, you can buy a cold wallet such as Ledger, Trezor, KeepKey, etc., from the brand’s respective website or through trusted third-party sellers like Amazon.
Read more about Cryptocurrency Hardware Wallet.