Cryptocurrencies are the new trend and you might have heard a lot about them in the news. If you are new to cryptocurrency, you might find some of its concepts confusing and hard to grasp. One of terms related to cryptocurrencies is cryptocurrency wallet. In this guide you will learn what a cryptocurrency wallet is, how it works and which ones are the best on the market.
What is a cryptocurrency wallet?
Cryptocurrency wallets are just like a bank account which are used to store, send and receive your digital currency. Whether you want to trade your cryptocurrency or you want to keep it as your asset, you will need to have a cryptocurrency wallet. These wallets are in fact software programs that store private and public keys with blockchain.
How does cryptocurrency wallets work?
Millions of people now own cryptocurrencies and they use wallets to store or trade them. However, there is a common misunderstanding among people with regard to how they work. Unlike what many of us might think, digital wallets do not store the currency. In fact, cryptocurrencies cannot be stored because they do not exist in a single location in a physical form. All that cryptocurrency wallets store is the record of the transactions on the blockchain.
By sending an amount of any cryptocurrency to someone, in fact the user sign off ownership of that amount from their wallets. To be able to receive the amount of cryptocurrency that you have received, your private key must match the public key that is assigned to the cryptocurrency. Id the keys match, the amount will be added to your wallet balance and it will be decreased from the sender’s balance.
So, as you might have understood by now, there is no exchange of real coin. Transaction are only signified by a transaction record on the blockchain and a change in the balance of cryptocurrency wallet.
Different types of cryptocurrency wallets
Several types of wallets are available that you can use including online, offline, mobile, hardware, desktop, and paper. Each type of wallet actually refers to the type of medium the wallet is stored on and whether or not the data is stored online. Cryptocurrency wallets can be divided into three different categories which are software, hardware and paper. Software wallets can be broken down into desktop, mobile and online.
- Desktop: These types of wallets are downloaded and installed on a PC or laptop and they are only accessible from the computer they are installed on. The highest level of security belongs to desktop wallets, however, if your computer get hacked or infected by a virus, there is the chance that you lose your cryptocurrency funds.
- Mobile: As the name implies, these types of wallets run on an app on your mobile phone. Mobile wallets are usually simpler than desktop wallets and they are easier to use.
- Online: Online wallets run on a cloud service and the positive point about them is that they are accessible from any device in any location. While this type of wallet is easier to use, they are controlled by a third party which makes them more vulnerable to theft.
- Hardware: These types of wallets are a dedicated piece of hardware such as a USB drive used to keep cryptocurrencies and hold them secure. Although transactions are made online via hardware wallets, they store the transactions offline which increases security. They are also easy to use as the user just needs to plug in the device and enter the pin.
- Paper: The term paper wallet can simply refer to a physical copy or printout of your public and private keys. You can print out a QR code for both a public and private key. This allows you to both send and receive digital currency using a paper wallet. Transferring Bitcoin or any other currency to your paper wallet is done through the transfer of funds from your software wallet to the public address shown on your paper wallet.
What is the best cryptocurrency wallet?
When it comes to cryptocurrency wallet, there is an ever-growing list of options you can choose from. But to choose the one that fits you, you should consider how you intend on using it. You need to consider these before you choose your wallet:
- Do you want to use it for everyday exchanges or you just want to store your cryptocurrency?
- Do you want to use a singly currency or various currencies?
- How do you want to access your digital wallet?
Here are some cryptocurrency wallets which can be a great option for you.
Ledger Nano S
Ledger Nano S is a hardware USB size wallet you can use for storing your digital currency. It is true that the hardware wallets are expensive, but in return, you get a lot of features which are hard to find in any other type of cryptocurrency wallets, especially in terms of security and backup of your private key for the digital currency.
In terms of hardware, the Ledger Nano S wallet is a compact USB device based on a smart card. It is roughly the size of a small flash drive, measuring 39 x 13 x 4mm (1.53 x 0.51 x 0.16in) and weighing just 5.9g.
The disadvantages of this cryptocurrency wallet includes no ability to create hidden accounts and no password manager.
Jaxx is a multi-currency cryptocurrency wallet and user interface for Ether, Ether Classic, Dash, DAO, Litecoin, REP, Zcash, Rootstock, and Bitcoin. It is designed to deliver a smooth Bitcoin and Ethereum experience. It is available on a variety of platforms and devices such as Windows, Linux, Chrome, Firefox, OSX, Android mobile & tablet, iOS mobile & tablet and connects with websites through Firefox and Chrome extensions. If you require a multi-currency wallet, Jaxx is a great option for you.
The disadvantages of Jaxx include the fact that its code is not open-source and it can be slow to load.
Exodus is reletively new and unknown when compared to other cryptocurrency wallets. This cryptocurrency wallet offers an easy-to-use and beautiful interface to store and exchange Bitcoin, Ether, Litecoins, Dogecoins and Dash. You can also use Exodus to simply backup your wallet. Also, Exodus is open-source and free and supports multiple currencies. But this wallet is just in the form of a hot wallet (online) and it has no web interface or mobile app.
One of the most popular bitcoin wallets is Blockchain which can be accessed from any browser or smartphone. Blockchain.info provides two different additional layers. For the browser version, users can enable two-factor authentication, and mobile users can activate a pin code requirement every time the wallet application is opened.
Although your wallet on Blockchain is stored online and all the transactions go through the company’s server, Blockchain.info has no access to its users’ private keys. In addition, aside from being free, this bitcoin wallet is well-known for good security, ease of use through web & mobile interface, and being beginner friendly.
The disadvantages of this cryptocurrency wallet include weak privacy, third party trust required.weak and the fact that it has experienced outages.
One of the world’s premiere cryptocurrency wallet platforms is Coinbase. With over 7.4 million users, Coinbase is a great tool for storing and exchanging bitcoin, Ethereum, Bitcoin Cash and Litecoin.
Although Coinbase doesn’t charge a fee to use its wallet service, transferring cryptocurrency to a wallet address outside the platform may result in a network fee.
Although Coinbase is one of the most popular exchanges and cryptocurrency wallets, it is not without its disadvantages. Coinbase offers limited payment methods, accounts are monitored, customer service has received mixed reviews, and it only provides access to a limited selection of cryptocurrencies.
How to secure your cryptocurrency wallet?
The security of your cryptocurrency greatly depends on the cryptocurrency wallet you choose and the level of wallet security depends on the type of wallet you use (desktop, mobile, online, paper, hardware) and the service provider. An online wallet is a riskier tool to store your cryptocurrency in comparison to offline wallets.
Whatever wallet to use, you need to remember that losing your private keys will lead you to lose your money. Similarly, if your wallet gets hacked, or you send money to a scammer, there is no way to reclaim lost currency or reverse the transaction! Here are some further precautions you can take to secure your wallet and your cryptocurrency.
- Back up your wallet: It is recommended that you store a small amount of your currency in an online wallet. Cold or offline wallets for backup like Ledger Nano or paper or USB will protect you against computer failures and allow you to recover your wallet in case it is lost or stolen.
- Update software: In order to have the latest security enhancements, keep your software updated. Make sure to regularly update your software wallet as well as your computer or mobile software.
- Add extra security layers: Setting long and complex passwords and ensuring any withdrawal of funds requires a password can add extra layers of security to your wallet. Use wallets that have a good reputation and provide extra security layers like two-factor authentication and additional pin code requirements.