- Nov 22, 2024
This guide to cryptocurrency wallets will help you understand what a wallet is, what types of wallets are there - and which are some of the best wallets out there.
Cryptocurrency wallets are one of the most basic things needed by anyone who deals in cryptocurrencies. You can be a trader, a hodl-er, a merchant or a miner - but you would still require a cryptocurrency wallet to store your cryptocurrencies. For a newcomer, cryptocurrency wallets might be a little overwhelming to understand - given that there are so many types of wallets!
Let us begin by answering the most basic question - what is a cryptocurrency wallet?
A cryptocurrency wallet can be understood as the real-world equivalent of a bank account:
It is where you can store your money.
It allows you to send and receive money.
Anyone who wants to send you money sends it to your account number.
A cryptocurrency wallet functions in a similar manner:
In the world of cryptocurrencies, a “wallet” allows you to store, receive and access your cryptocurrencies. A cryptocurrency wallet is an essential requirement for anyone who deals with cryptocurrencies as all your currencies are stored here. Let us take a look at the two key elements of a cryptocurrency wallet:
The Public Address
The Private Key
The wallet address is a public address which is a string of random characters put together. Each wallet address is unique. Similar to a bank account number, each wallet comes with a wallet address - which is used by people to send you cryptocurrencies. Like a bank account number, each wallet address is also unique.
Anytime you need someone to send you cryptocurrencies, you have to send them your wallet address - which can be in the form of a string of characters, or in some cases, a QR code. Anyone with the access to your wallet address can potentially look into the amount that you are holding.
Private keys are the most important aspect of a cryptocurrency wallet. In the most simplest of words, these keys are stored in wallets which grant access to making and verifying transactions. In order to access your bank account, you need a signature or a password. This signature or password is then verified with the bank’s records and only then a transaction is verified. Similar to this, cryptocurrency wallets come with a private key. The private key has to be kept secure all the times.
Different kinds of wallets are classified based on how they store this private key. Some wallets store the key with themselves while some hand it over to a third-party service, while there are some which store it offline with the user. Let us now take a closer look at the different kinds of cryptocurrency wallets:
There are a number of cryptocurrency wallets which are classified in the way they treat the private keys. Let us take a look at some of the most popular kinds of cryptocurrency wallets:
Before we delve deeper into the different types of cryptocurrency wallets out there, let us take a look at hot wallets and cold wallets - the most basic means to differentiate between cryptocurrency wallets. The difference here is that hot wallets are ones which are always connected to the internet while cold wallets are the type of wallets which store cryptocurrencies offline.
In simpler terms, a hot wallet is like a bank account and a cold storage is like a bank vault. Cold storage devices - hardware wallets or vault services come at a price, while hot wallet services such as web wallets and exchange-based wallets are usually free of cost. Let us now look at the different kinds of wallets out there.
Considered to be the safest form of cryptocurrency wallets, hardware wallets ensure that your private key is stored in a device that remains disconnected from the internet. Your currencies are safe as long as the device remains in your possession. While a paper wallet is a piece of paper that can easily be lost, hardware wallets are much safer - as they can be stored safely and are not at risk of being torn or damaged easily. Hardware wallets need to be connected to the internet to make transactions - but they store cryptocurrencies and private keys offline.
Desktop wallets are cryptocurrency wallets which can be installed on the computer of a user. In these kinds of wallets, the access of the private key remains in possession of the user and the key is stored in the PC. This is considered safer than web-based wallets because it is harder for a hacker to break through a PC and gain access of the key than it is to do so on a server. Unlike web-based services where keys of a large number of users are stored together, desktop wallets store only your key.
Exchange-based wallets are basically web wallets - but they are considered to be more secure than regular wallets. In these kinds of wallets, cryptocurrencies are stored on wallets which are maintained by the cryptocurrency exchanges. However, the private keys remain in possession of the exchange and not the user - this is why exchange hacks result in major loss of cryptocurrencies.
Web wallets are internet-based cryptocurrency wallets where the private key is stored either with the website handling the wallet or on a third-party server. These kinds of wallets are quite popular but they are not considered to be as secure because if the server is hacked, all the private keys fall in the hands of hackers who can then access the cryptocurrencies of the consumers.
Mobile wallets function similarly to desktop based wallets - but the private key is stored on a phone rather than being stored on a desktop PC. They are considered quite safe too - and are getting popular over the past few years. Many popular wallet based apps are now releasing their mobile wallets as well.
Paper wallets might sound trivial - but they are easy to use and are one of the safest kinds of cryptocurrency wallets. The public address as well as the private key are both printed out on a piece of paper. As long as the paper remains in your possession - your cryptocurrencies are safe. The private key comes as a QR code which can be scanned - or can also be manually entered on a specialized software designed to recognize that paper wallet.
Now that you know the different kinds of cryptocurrency wallets that there are, let us now take a closer look at the factors that must be kept in mind before you choose your ideal cryptocurrency wallet:
The most basic thing to consider before selecting a cryptocurrency wallet is the currencies that it supports. If you are trading in multiple currencies, then your ideal wallet must support most of those currencies. On many occasions, traders who deal in multiple currencies tend to look for multiple wallets because not all wallets support all currencies.
Each cryptocurrency wallet has different policies when it comes to transaction fees. While most wallets do not charge you for depositing - there are charges associated with transactions and withdrawals which need to be considered before finally choosing the wallet.
Another thing that needs to be kept in mind before opting for a cryptocurrency wallet is the kind of safety features that it offers. You need to check out the way it stores the private keys and the amount of control you have over them. Moreover, you also need to check if your wallet allows you to set up security features such as 2 Factor Authentication, etc. Another way to find out if a wallet is safe is by looking into how long it has been around. Wallets which have been around for multiple years without any major incidents are usually considered safer.
The kind of transactions you make also matter a lot. If you are someone who uses cryptocurrencies for day-to-day transactions - you might require a different kind of wallet (a mobile wallet) compared to someone who wants to invest large sums of money and keep it secure for months - or even years (a hardware wallet). If you are an active trader, you might want to make use of an exchange based wallet for easy access to your funds at all times.
Now that you know what cryptocurrency wallets are and how to choose a wallet, let us take a look at some of the best cryptocurrency wallets of recent times:
Ledger is a company which is known for making some of the best hardware wallets ever. The Ledger Nano in particular, has been one of their most popular wallets - and has gained appreciation from millions of users. The wallet comes with a small screen on top which shows you various bits of information. It supports multiple currencies and is highly secure.
The wallet is basically a USB device which is quite inexpensive and offers support for various third party applications as well. It is easy to use and physically, quite durable too. You can either buy Ledger Nano S from their official site.
PROS
Highly Secure
Supports a Large Number of Currencies
Physically Durable
CONS
Might be a little overwhelming for first-time users
UI isn’t so great
Also Read: Which Coins Are Supported by Ledger Nano S?
Another hardware wallet similar to Ledger Nano, Trezor is a popular choice in the cryptocurrency markets. The wallet is particularly prefered by those who want a high level of privacy. The wallet is immune to all kinds of malware attacks and ensures that your private keys remain safe. It is slightly expensive compared to the Ledger Nano - but quite easy to use too!
One advantage that Trezor has over Ledger Nano is that Trezor’s web interface is simple and easy to use compared to that of Ledger’s. Moreover, Trezor supports most of the popular cryptocurrencies, including ERC-20 tokens!
PROS
Strong Security
Easy to Understand User-Interface
Supports ERC-20 tokens
CONS
Costly
When it comes to hardware wallets, KeepKey comes out as a good replacement for TREZOR and Ledger devices. The KeepKey hardware wallet can be operated by even beginners - and comes with a number of advanced features which pro-users can make use of. It is slightly larger in size when compared to the other two, but looks more premium as well. The wallet is quite secure and allows for easy options of backing up of data.
KeepKey supports Bitcoin, Bitcoin Cash, Ethereum, Litecoin, Dogecoin and Dash. Apart from these cryptocurrencies, it supports dozens of other ERC-20 cryptocurrency tokens too. The company is now owned by ShapeShift - and allows users to easily trade tokens directly from the KeepKey UI (without needing to set up an account on any exchange).
PROS
High Level of Security
Beginner Friendly
Good Looking Wallet
CONS
Costly
Heavier to Carry
Needs Third-party Addons
Binance isn’t technically a wallet - but it is a cryptocurrency exchange which provides a wallet service. It is perhaps the best choice for those individuals who are looking forward to trade cryptocurrencies on a frequent basis. Not only is Binance secure, but it also supports over 350 cryptocurrencies at the moment. Moreover, Binance allows easy trade of cryptocurrencies on its platform - even providing a 50% discount on the trading fees when you choose to pay trading charges using the Binance Coin cryptocurrency.
Binance also comes with a smartphone application and a PC application which can be used to access the exchange account and make transactions as well as withdrawals. Moreover, while Binance is a crypto-to-crypto exchange as of now, the exchange will soon start supporting fiat currencies starting late 2018!
PROS
Supports over 350 cryptocoins
Offers Discounts on Fees
Multi-Platform Support
CONS
Exchange-based Wallet
Slower Withdrawals
Also Read: Beginners Guide to Binance Cryptocurrency Exchange
Talking of exchange-based wallets for frequent traders, another popular name on the list is that of Bittrex. Bittrex has been around for a long time and continues to be featured in the list of top-10 cryptocurrency exchanges. The platform supports over 280 cryptocurrencies and has remained controversy-free and safe for most of its run.
Bittrex provides some of the best tools for those who are looking forward to trading based on research and historic price analysis as it allows the users to track prices and invest accordingly. Bittrex too is a crypto-to-crypto exchange and does not involve the use of fiat money. Unlike Binance, Bittrex only comes with a web version and does not have a smartphone or desktop application.
PROS
Supports over 280 cryptos
Highly Secure
Advanced Tools for Traders
CONS
Exchange-based Wallet
Verification Process is Too Long
One of the most versatile wallets when it comes to platform support as well as the support for cryptocurrencies it can store, Jaxx is a popular choice among cryptocurrency users. Unlike many other cryptocurrency wallets which look like they have been designed for the tech-geeks, Jaxx actually has a User Interface which is quite easy to use and navigate through.
The wallet comes with some really cool features too, such as allowing users in-wallet conversion of currencies using ShapeShift. The wallet is quite secure and offers a high level of privacy as well. However, some users complain that it can be a little slow to operate compared to other major cryptocurrency wallets. Nevertheless, a great option.
PROS
Beginner Friendly Wallet
Allows Converting Cryptos in the Wallet
Good User Interface
CONS
2 Factor Authentication protection not available
Can get a little slow at times
The Exodus wallet is a beginner-friendly cryptocurrency wallet which is quite simple and easy to use for newbies as well as for the experienced users. The wallet offers a great user interface and provides multi-asset support. At the moment it supports over 12 cryptocurrencies, including the most popular names such as Bitcoin, Bitcoin Cash, Ethereum, Ethereum Classic, Litecoin, etc.
Another great feature about this wallet is that users of Exodus can actually trade within the wallet itself, as it comes with a built-in support for the ShapeShift system which allows the users to perform crypto-to-crypto trade. One of the biggest problems that some users tend to face with the app is that it does not have a web or a mobile version and can only be accessed via desktop.
PROS
Good for Advanced Users
Offers Trading within the Wallet
Supports All Major Currencies
CONS
Desktop-only
Lack of Security Measures such as 2FA
Jaxx is a multi-platform wallet. It is avialable for desktop,web and mobile. We already discussed about its features in the Desktop Wallets section.
Blockchain is a popular choice among cryptocurrency users who want to use a simple and secure web-based wallet. The wallet comes with strong security measures. The web version allows you to set up a 2 Factor Authentication system while the smartphone version allows you to set up a PIN. The wallet has been around for quite some time and has been trusted by millions of users.
This is a great wallet for those who are just starting off their journey into the world of cryptocurrencies given that it is simple and easy to use. Moreover, it is quite secure as it offers multiple layers of security. However, those looking forward to set up an account on Blockchain.info must also know that there have been some outage issues in the past.
PROS
Highly Secure
Beginner Friendly Interface
Shows Balance in Local Currency
CONS
Identity Verification Process is Lengthy
Limited cryptocurrency support
Now that you know what cryptocurrency wallets are - as well as about some of the best cryptocurrency wallets out there, let us take a look at the various methods that you can make use of to keep your cryptocurrency wallet safe.
2 Factor Authentication, popularly known as 2FA is a security measure that you must take while setting up a new wallet or exchange account. This system basically adds on a second layer of security to your account. While a normal process to log into an account requires an ID and a password, a 2FA enabled account would require another personal identification before you can access your account.
2FA authentication can be possible in a number of ways - most popularly either using a randomly generated code on the Google Authenticator app on your phone, or by using a One Time Password which will be delivered to your phone every time you log into your account. This ensures that only you can access your wallet.
Regular backup of your wallet is critical. Backups ensure that in case you lose access of your device or your wallet gets corrupted for some reason, you can still restore that backup and regain access to your cryptocurrencies. This is most common in case of hardware wallets - which may break or get damaged and then backups are the only way to recover data.
However, PC and mobile wallet also allow users to create backups. This is an important task as it ensures that your funds remain safe.
This is a feature particularly important for organizations. This ensures that no one person can control the flow of cryptocurrency funds even if they have the private key. In case of a wallet that requires multiple signatories, it requires the approval of more than one person’s key to gain access of the funds. This ensures that no rogue employee can steal the funds and that the cryptocurrencies remain safe. However, not all wallets come with a multi-sig support.
Another thing that needs to be kept in mind, particularly when using a desktop or a mobile based wallet is to ensure that you update your wallet software regularly. Wallet-makers tend to release frequent updates for their cryptocurrency wallets, helping cover some loopholes in the code which might have been detected recently. These updates also tend to bring in additional security measures or even new features. Installing the latest updates to your wallet ensures that your funds remain protected against the latest threats.
A cryptocurrency wallet needs to be treated like a bank account. You can tell people you have one and you can share your account number with those who you want to transact with. However, it is not advisable to make it public knowledge that you hold a cryptocurrency wallet because that may lead to various suspicions and people with a malicious intent may even try to break into your wallet account and steal your cryptocurrencies. It needs to be treated just as how you’d treat a real-world bank account! Also make sure to never, ever share your password or private key details with anyone.
While in most cases it is safe to buy the Ledger Nano S wallet from Amazon, the best bet would be to order the wallet from the Ledger Wallet website itself. This is keeping the safety concerns in mind because anyone can sell you the device on Amazon while the product that comes from Ledger would be genuine. The product coming from Ledger’s website is bound to be genuine. However, in case Ledger does not deliver to your country or if you find the shipping charges too high you can consider to buy from Amazon as an option too.
Wallets provide you with your Bitcoin address, you can see it as a (usually) 34 character string. This wallet address can also be represented as a QR code for quicker transactions. Moreover, most wallets also allow you to change your wallet address at any point in time that you want to.
Yes, it is possible to hack cryptocurrency wallets. While it is a bitter pill to swallow, no wallet is 100% safe - however, there are varying levels of safety. Usually, web-based wallets and exchange-based wallets are easier to hack. This is because the private keys in these cases are stored on either the wallet’s server or on a third party server - and getting access to the keys means getting access to the accounts.
Hardware wallets are considerably safer because they keep the keys with you, stored on an offline device - which ensures that in order to break through the wallet and gain your currencies, the physical possession of the device is necessary. As long as your hardware wallet remains in your possession - your currencies are safe.
While it is possible to move the money from your cryptocurrency exchange’s wallet to your Indian savings bank account, the process might vary depending on the exchange you are investing in. If you are trading using a local, Indian crypto exchange such as Zebpay or Koinex, it is easier to do so. However, in case you are using a cryptocurrency exchange which does not support Indian banks, you will first need to transfer your money to an Indian exchange such as Zebpay - and then transfer it from there to your bank account.
Almost every major wallet these days allows you to store more than one cryptocurrency. Multi-currency wallets are the norm these days. However, when it comes to ‘purchasing’ cryptocurrencies using a wallet - it is best advised to make use of exchange-based wallets such as Binance and Bittrex - depending on the type of currency you want to purchase.
Yes, almost every cryptocurrency exchange would charge a small amount of fees when transferring cryptocurrencies outside the exchange. However, this fees varies from exchange to exchange. Most exchanges do not charge you on depositing the currencies. For those who are active traders, it is best advised to set up wallet accounts on cryptocurrency exchanges.
One of the most common mistakes that people make is that of not setting up additional security measures such as 2 Factor Authentication. These additional layers of security ensure that only an authorized user can log into the account and hackers cannot break through it.
Another common mistake that many users tend to make is that they send cryptocurrencies to the wrong wallet address. If you send cryptocurrencies to the wrong wallet address, remember that they are gone forever. This is an irreversible transaction and you’ll never be able to get them back.
Moreover, also ensure that the right cryptocurrency is being sent to the right type of wallet address. You cannot send Bitcoin on a Litecoin address and Litecoin on a DASH address, etc. Each cryptocurrency needs to be sent in its respective wallet address.
Finally, users also need to make sure that they keep making regular backups of their wallets. These backups are critical in case of your wallet malfunctioning or getting damaged or corrupted. You may end up losing your currencies if the backup isn’t properly done.
To conclude, cryptocurrency wallets are an absolute necessity for a cryptocurrency trader - or even for a miner. No one can deal in cryptocurrencies without a wallet and it is critical to understand what wallets are and how they function: as well as to know which are the best cryptocurrency wallets in the market. We hope this guide helped improve your understanding on the subject.
