What is a cryptocurrency wallet? How does it work? Do I really need it and if yes, how can I choose the most suitable option?
If you were thinking of trying to work with cryptocurrency, you might have been asking yourself these questions. Here, you will find detailed replies to all of them.
What Is a Cryptocurrency Wallet
To understand what a crypto-wallet is, you need to understand what cryptocurrency is and how it works. First of all, we want to make one detail clear: a cryptocurrency wallet and cryptocurrency exchange are not the same things. While some exchanges might offer their wallets, others, such as LetsExchange, don`t do it. They work through API with multiple exchanges to provide the most convenient cryptocurrency exchange rates for the user. There, to buy and sell cryptocurrency, you need to have a wallet already.
In most cases, when you are asking what is a crypto-wallet, you are told that it is something similar to a physical wallet. It is a place where you store your money.
This comparison is not completely correct though. Crypto coins are a code, a string of characters. All these strings are stored in the blockchain and visible to anybody who downloads the blockchain. For example, a coin might look like this:
ghSgyub24j5632H2oy
This string is registered in the blockchain, and everybody can see it. However, to use it (to send it to another user or to pay with it), you need to prove that it belongs to you. To do so, you use a special code called a private key. It is a random combination of symbols and works just like a PIN code works for your bank card. You provide this private key as proof that you have a right to a specific coin.
This private key is stored in a cryptocurrency wallet. Thus, a crypto-wallet is a place where you store the private key to the coins but not the coins themselves.
Types of Cryptocurrency Wallets
Now, let us have a look at where exactly these private keys can be stored. Cryptocurrency wallets are classified into different categories. We will check the main classifications and see which wallet is better for what purposes.
All wallets are classified into hot and cold ones. Hot wallets are those that are connected to the internet. Cold wallets are those that aren’t connected to the internet. The type you choose depends on what you need cryptocurrency for.
A cold wallet
A cold wallet is better if your aim is to buy coins and store them. You can use a specially purchased device as a cold wallet or you might opt for a home solution.
A hardware cold wallet can be purchased online. It might cost around 100–200 USD. It comes with all the needed software pre-installed, so, you buy it and use it.
Another option is to use a home-made solution to store the private keys to your coins. It can be your computer, laptop, smartphone, USB stick, or hard disc. Anything where you can store a private key (which is a string of symbols) can serve as a wallet. You need to download special software there.
Both specialized and home-made cold wallets are:
- Safe: it is almost impossible to get unauthorized access to your data stored in them.
- Easy-to-use: you can use them on any device.
- Protected from malware: as long as you don't connect to the internet and don`t use them with other devices, they cannot be infected with viruses, etc.
A special type of wallet is a paper wallet. It is a piece of paper with your private key or a QR code printed on it. A paper wallet can be on a special website and reprinted with a usual printer. To use the wallet, you need to scan the QR code and provide a secret key (you get it, too).
A hot wallet
It is a wallet connected to the internet. These wallets are better for those who buy and sell cryptocurrencies, pay with crypto online, and so on. Hot wallets are used for trading crypto, too. In other words, a hot wallet is always available, thus, it is more convenient than a cold wallet if you use it constantly.
- Web wallets
You can open a wallet on an exchange platform. Wallets offered by exchanges are normally hot wallets. You can access them directly in your browser by providing login data. Some exchanges even use facial recognition or voice recognition to ensure the top safety level of your hot wallet.
The biggest and the most reliable exchanges nowadays keep the majority of funds of their users in cold storage to avoid the funds loss if the exchange is hacked. This is the most preferred way to use your funds if you keep in your wallet a significant sum.
- Desktop wallets
A desktop wallet is a special application that can be downloaded directly to your desktop. They are easy-to-use and relatively safe. Make sure though that you constantly update the antivirus software and system. You can turn a desktop wallet into a cold wallet if you disconnect the computer from the internet and use it just to keep the private keys.
- Mobile wallets
A mobile wallet is a special application that allows accessing your private keys from a smartphone. It is similar to a desktop wallet, the only difference is that a mobile wallet works on mobile devices.
How to Choose a Cryptocurrency Wallet
We believe that you have already decided whether you need a cold or a hot wallet. Now, let us have a look at the criteria that your wallet shall comply with. On it, the safety of your funds depends.
The reputation of the company which wallet you are going to use
When looking for a wallet, you will find plenty of options. Never choose to keep your funds on a wallet provided by a company that is not known yet. Never use the service provided by a company with a bad reputation. In both cases, the risks to lose your funds are too high.
Technologies applied for key storage
In some wallets, private keys are kept in a wallet. While in others, private keys are kept in the server of the company. We recommend choosing those wallets where private keys are kept in a wallet because server storage is more prone to hacking. Don`t forget about two-factor authentication.
Options of backing up your wallet
Things tend to die sooner or later, including laptops and smartphones. Thus, a proper backup mechanism is a must. The best wallets come with a rescue link, several passphrases, a password, or other options to restore the wallet if the device on which you use it breaks down.
A multi-currency wallet means less trouble
Some wallets are developed to store one cryptocurrency only, some can store a couple of major cryptos, and there are wallets that can store many cryptocurrency types. The last option is the most convenient because with it, you don’t need to open a new wallet for every coin you want to buy.
Integrated cryptocurrency conversion
Many wallets offer this functionality. It allows you to convert one crypto into another within the same wallet. For example, you buy or receive bitcoins, and you can convert them to Ethereum or another coin without a need to use the services of an exchange.
QR code scanner
For mobile wallets, it is a must, without a QR scanner, you will not be able to perform any transaction. Make sure though that a QR scanner is available in your desktop or web wallet, too. It adds a security layer because, with it, you don’t need to type in your public key to send or receive money. And if you make a mistake by typing that long string of symbols, your money may be lost.
Customer service
Sometimes, it is a matter of seconds whether you win or lose. If something goes wrong with your wallet, you shall be able to get help asap. It is possible only if the customer service is available constantly in a way convenient for you to contact them. Needless to mention that a customer service agent shall speak a language you know.
The Best Wallets
To make your search easier, we have selected the best wallets in each category. Of course, this is not the final choice, you can opt for any other wallet that you believe is convenient.
- Top online wallets
Coinbase — it is a wallet offered by one of the biggest exchanges in the world. You can use it from a desktop or your Android or iOS device.
Blockchain — you can use the wallet via accessing it directly in your browser or by downloading a special Android or iOS app to your mobile device. The wallet is known for its top security level.
- Top hardware wallets
Ledger Nano S — it is one of the most popular hardware wallets. It supports over 700 coins, is easy-to-use, and is known for its top-safety level.
Trezor One — this wallet also supports more than 700 coins and is known for its convenience and safety.
- Top mobile wallets
Copay — it is one of the best mobile wallets backed up by one of the leading Bitcoin payment providers. It is available for both Android and iOS devices and supports Bitcoin and Bitcoin Cash.
Coinbase — this mobile wallet is offered by one of the biggest exchanges. It is known for being highly reliable and safe. It supports the majority of coins.
- Top desktop wallets
Electrum — this wallet is lightweight and fast. It offers both cold and hot storage solutions. Electrum can be integrated with the best hardware wallets such as Ledger Nano S and Trezor One. it supports Bitcoin only which might be a significant drawback if you want to store several cryptocurrencies.
Exodus — this wallet is functional and very safe. It supports all popular cryptocurrencies and its user-friendly interface allows you to use the wallet even if you have never done it before.
You Are Ready to Get Your First Coins
Now, you know the main information about crypto-wallets and can choose one that suits your needs. Once you do it, you are invited to buy your coins on LetsExchange without registration, instantly, easily and safely.
Stay tuned for further updates, crypto guides, and market insights from LetsExchange. You can also follow us on Twitter, Facebook, Reddit, LinkedIn, Instagram, Telegram, Medium, and Steemit for first-hand information from our team.