What is a Crypto Wallet
If you are planning on purchasing crypto, or have crypto on an exchange you will need to set up your crypto wallet. This is where you’ll store and organize your crypto portfolio. Crypto wallets come in various formats like desktop apps, browser extensions, mobile apps and hardware wallets. These are handheld devices which come in various sizes and shapes. All of the above function, in the same way, storing private keys and allowing you to send and receive crypto. However, some of these wallets are more secure than others, but all are better than leaving your cryptocurrencies on an exchange. The reason is each wallet comes with a private key that allows you and only you to access the wallet’s contents. After the recent FTX catastrophe and many others of the past, this is more important than ever.
Private Keys Vs Public Keys
A crypto wallet does not hold any actual cryptocurrency, as it is stored on the blockchain. Instead, it holds the two types of keys needed for transactions a public and a private key.
Private keys are exactly what they say in the title and should be kept private. These keys allow access to your cryptocurrency on the blockchain. So if anybody has these they have the key to your wallet and access to your funds.
Public keys are comparable to how your bank account number works. These may be disclosed to any third party, like exchanges, NFT marketplaces or friends or family, without jeopardising your wallet’s security.
Types of crypto wallets
What are Cold Storage and Hardware Wallets?
Cold storage and hardware wallets are crucial for anyone who wants to securely store their cryptocurrency while having self-custody. Cold storage simply means keeping your cryptocurrency offline. And a hardware wallet is a tangible device that allows you to store your cryptocurrency offline. Essentially these can be the same thing and are commonly classed as so. However cold storage can simply be a paper wallet where your private keys are stored.
Together, these two methods provide a highly secure way to store your coins and protect them from hacking and theft.
One of the main reasons why cold storage and hardware wallets are important is that they are not connected to the internet. This means that hackers cannot access your coins through the internet, which is the most common way that cryptocurrency is stolen. Additionally, hardware wallets are not susceptible to malware or other types of cyber-attacks commonly seen, making them a highly secure option.
Another benefit of cold storage and hardware wallets is that they allow you to have self-custody over your coins. When you store your coins on an exchange or in a hot wallet, you are trusting the security measures of that platform. But with cold storage and hardware wallets, you are in full control of your coins and can ensure that they are always protected.
Furthermore, hardware wallets are designed to be user-friendly, making it easy to store, access, and transfer your coins. They also come with detailed instructions and guides to help you set up and use them, making them accessible even for those who are not tech-savvy.
In conclusion, cold storage and hardware wallets are a necessity for anyone who wants the ultimate security of their cryptocurrency. They provide high security and they allow you to have full control over your coins which is essential.
A mobile wallet is an app that lets you store and control your cryptos on a smartphone. Mobile wallets are super convenient and really easy to use for quick transactions for peer-to-peer use. You also have the benefit of portability.
Desktop wallets are programs that run on your computer or laptop and store cryptocurrencies. They are easy to use However, you have to ensure the machine you are using is free from any viruses and be observant and trustworthy about what you are downloading on your computer,
as you have sole responsibility for the security.
Web wallets are online-based crypto wallets that can be accessed via Computer or mobile. These are commonly installed as browser extensions and are great for trading NFTs and airdrops before securing them in an offline wallet. However, since your passwords are kept on online servers, there’s an increased risk of theft.
These wallets are hosted directly on the exchange where you buy your crypto, for example, Binance, or coinbase.com. These wallets are great for trading and buying cryptos. However, they are not suitable for long-term holding especially if they are being used for large amounts. The reason is, the crypto exchange holds onto your private key for you. This private information is kept and accessed online, which makes it potentially at risk if the exchange gets hacked. Also in the past, I have personally seen exchanges withhold withdrawing due to increased traffic or system issues. this is not ideal if you need your funds immediately. However, there are some benefits they offer like staking on coins you cannot natively stake like Bitcoin and automatic airdrops.
How to choose the best crypto wallet
The best crypto wallet will depend on your needs and level of experience.
- Security. Hands down the best security of all the wallets mentioned above are the Hardware wallets. This is simply because it is offline and built specifically for crypto. However, technically you can turn an old laptop or mobile phone into a hardware wallet, by wiping it clean and keeping it offline. However, a hardware wallet is the most portable, secure and many have Bluetooth now it ranks 1st
- Fees. Depending on what you are doing in crypto a hardware wallet is not always preferred, for quick transactions back and forth. Imagine trading or buying and selling NFTs multiple times through the day and you sent each transaction out from your exchange wallet to your ledger, this would incur multiple network fees which could tally up, it would be more beneficial to use your exchange wallet. The same goes for using a mobile wallet and sending it to your friends or family.
- Cryptocurrencies. Crypto wallets come in a wide variety, some offer multiple cryptocurrencies, while others are limited to one. This is where Hardware wallets shine as well, as some offer up to 5000 different coins and are constantly being updated adding the newest coins to their arsenal.
As you can see there are many benefits and a few drawbacks to each wallet depending on the use case. I use all of the above for various reasons and situations depending on the network I’m using or the task I am doing. And considering they are all free bar the hardware wallet. I only have to make one purchase for the utmost security of my assets and move smaller amounts to various other wallets for specific tasks. this is why I highly recommend a hardware wallet to have the best of both worlds.