A cryptocurrency wallet is a necessary requirement for anyone interested in the crypto market, from the casual crypto user to a serious trader and investor. Just like your personal wallet, a cryptocurrency wallet is meant to store your digital currency in a secure and readily available location. No wallet – no crypto.
In this article, we’ll show you why you need to have one, the options available, and how to set one up. We’ve tested all the best wallets for you and you’ll know exactly which are best for your needs after reading.
What is a Cryptocurrency Wallet?
To conduct successful transactions you need both a public key and private key. A private key is a long string of alphanumeric code that authorizes a transaction.
It works by also helping to generate a public key that the other person or party uses to start a transaction request.
The owner of the cryptocurrency then uses his or her private key to authorize the transaction. After the transaction is authorized, this can be added to a permanent blockchain.
A cryptocurrency wallet, therefore, is used to keep your private keys safe. If you lose or forget your private keys, you lose access to your cryptocurrency. If access to your cryptocurrency is hacked or stolen, then you lose ownership!
Why Do You Need a Wallet?
Apart from needing a wallet to receive any cryptocurrency you’re interested in, it is also used as a form of security very similar to a bank.
Unlike fiat currency though, cryptocurrency wallets more easily allow you to earn money from home or wherever else you are. There is no need for a “brick and mortar” bank location to store your currencies.
Since cryptocurrencies are meant to operate on a decentralized system, having one means that you have more control over how to store and protect your investment.
You’ll also need a wallet if:
Finally, a wallet also assures you that if or when you receive cryptocurrency as payment, you can designate where your income goes.
So, what types of wallets are out there to help protect you? What type of wallet is the best to use? Let’s dig a little deeper…
The Different Types of Wallets
A cryptocurrency wallet can fall under 4 categories:
Each will provide various types of security features and can work online and/or offline depending on what you prefer to use. Here is a quick overview of each type and a few recommendations to look into!
Online (or Hot) Wallets
Usually when you start off learning how to buy cryptocurrency of any type, you’ll set up an online wallet and use it when exploring methods for earning online income.
The purpose of online wallets is usually as a holding place for transactions. There may be some online wallets that can be used over multiple platforms so you can move your cryptocurrency from an online wallet to an offline desktop wallet.
For security, most will have a 2-factor authentication feature you can choose. All of these factors make online wallets a perfect option for regular transactions.
While this doesn’t happen too often, it must be noted that online wallets are the most vulnerable to being hacked and you can, therefore, lose cryptocurrency when it’s stored on an online wallet.
If you are looking to buy and invest in cryptocurrencies in the market, it’s highly recommended you invest in some type of offline or hardware wallet in addition to an online wallet. This way, you can store the majority of your cryptocurrency in a safe location and keep only what you need to spend in an online wallet.
Coinbase is one of the best and most popular wallets. It is popular for a few reasons: Its interface makes it easy to use and it’s proven to be a very secure option for the online wallets.
It supports a wide array of cryptocurrencies and also gives access to the Coinbase broker exchange. This makes it easy for transactions from the marketplace to be moved to storage on an online wallet.
Coinpayments is a versatile online wallet that can store approximately 700 cryptocurrencies. One attractive feature is that you can use Coinpayments to purchase items directly online and go beyond just trading.
It’s also recognized for its security, and can even operate as a mobile wallet. Despite it being an online wallet, the cryptocurrency wallet app mobile feature makes Coinpayments an attractive hybrid that can be accessed anywhere.
Offline Software Wallets
Also called desktop wallets, these cryptocurrency wallets are a type of software that can be installed. It’s considered an offline wallet as you can download your cryptocurrency from your exchange or online wallet into your offline software wallet and you can use it without an internet connection. It doesn’t need to be attached to any online exchange to work.
What we mean is that your cryptocurrency private keys will be stored directly on your computer and it is significantly more secure. While computers can be hacked, it isn’t as easy to target if your software wallet isn’t always be connected to the internet.
Do keep in mind that if your computer crashes, is attacked by malware, breaks or is physically stolen, then your software wallet goes with it.
To circumvent this, several software wallets provide recovery systems so that if any of the above happens, you can recover your private keys through a system of security protocols.
Moreover, there are several useful tools software wallets can offer such as in-wallet trading and live charts to track the market demand for each cryptocurrency.
This offline software wallet is compatible with all major operating systems like Linux, Mac and Windows. It is a fast and easy to use software wallet for both beginners and experts with excellent privacy.
Probably the most attractive feature of this cryptocurrency wallet is that it can be backed up to a hardware wallet, and supports a recovery process for extra security and protection.
Exodus is a popular offline wallet for beginners that also supports storage for multiple cryptocurrencies. It’s free to download which is one of the reasons why many beginners choose Exodus. Its layout makes it easy to use and it has great security features to protect your cryptocurrency assets.
Jaxx is one of the stronger multi currency wallets available on the market. Supporting all of the most popular cryptocurrencies, Jaxx offers a lucrative feature to convert between Bitcoin, Ether and other crypto’s through their Shapeshift technology. This is a very attractive feature for many looking for easy cryptocurrency integration.
Finally, Jaxx is available on a number of platforms from Windows, Linux, Mac, Android and iOS, making it easy to access from your computer or your smartphone!
For anyone who wants to buy a lot of different cryptocurrencies or stock up on something popular like Bitcoin, a cryptocurrency hardware wallet provides some of the best accessibility and security. A hardware wallet is a small external device or USB drive that can be plugged into your computer and your private keys can be stored to it.
Since it’s an external device, it takes your cryptocurrencies completely offline and thus, the risk of your private keys being compromised is minimized. It’s also referred to as cold storage. It does take a small investment of around $100 to purchase, but it’s one of the best options when it comes to security.
However, hardware wallets can be physically stolen or lost. So, if you buy a hardware wallet, make sure to keep it in a secure place where you won’t lose it! Also, if not cared for properly, hardware wallets can fall victim to wear and tear.
The Ledger Nano has consistently been chosen as one of the best hardware cryptocurrency wallets available. The item itself is about the same size as a USB drive with a display that can be used for an extra layer of security. You can opt to use 2-factor authentication and also have a pin-code lock so transactions have to be confirmed by the user.
The internal hardware is also tamper proof so its storage drives cannot be physically opened and removed, making it one of the most secure hardware wallets on the market.
Trezor is also a very popular choice for a hardware wallet. It can be more secure compared to some models of Ledger Nano, but it is also a little more expensive. It does have an excellent feature of being compatible with some offline desktop wallets though, so you can use Trezor as a backup or recovery option.
KeepKey is one of the newer hardware wallets on the market. It shares many of the same attractive and secure features of both Trezor and Ledger Nano, but is a little bit bigger in size compared to the other two. However, don’t be put off by this as it also comes with a larger display that makes it capable of offering a few different security features.
The final option which is definitely the most secure option of them all is a paper wallet. A paper wallet is actually a printed out wallet that contains a scannable code with your private keys.
One of the advantages of having a paper wallet is that it’s a 100% offline wallet so there is no possibility of being hacked or being affected by malware. It may take take a few minutes to set up your paper wallet and get it printed, but the end result is a great option to store cryptocurrency as a long term investment.
The disadvantage is that paper wallets are easy to destroy if they are not cared for. It’s recommended that you get your paper wallet laminated or sealed to prevent water damage or tearing.
Walletgenerator.net is a paper wallet generator that will take you through step-by-step instructions for how to create your very own paper wallet. This is recommended as it is a multi cryptocurrency wallet currently supporting 192 currencies. Once you go to the page, just follow the instructions and make sure your computer has access to a printer to print your wallets!
Security Tips: How to Keep Your Cryptocurrency Safe
Obviously, the security of your cryptocurrency wallet is key when it comes to storage. Whether you are trading cryptocurrency full-time or trying to make a successful side hustle, do what it takes to keep your cryptocurrency safe and in your control. Here are a few pieces of advice:
More Than One
Having more than one wallet is always recommended. While you usually will start with an online wallet, make sure to always store your unused cryptocurrency to a second and more secure wallet. Getting your private keys off an online platform provides extra assurance that your cryptocurrencies will not be hacked or stolen.
So if you’re going to be investing in cryptocurrency, get an offline, hardware or paper wallet – or even all three!
Security, Backup & Recovery
Another thing to consider is to always take every security measure you can with your wallets. For example, 2-factor authentication is a must when setting up any wallet. If there are additional security measures a wallet offers, take them. Make sure that you are the only person who knows how to access your cryptocurrency.
Also make sure you backup your wallets. If you have an online wallet, back it up to a software wallet. If you have a software wallet, back it up to a hardware wallet. If your online wallet is hacked or your software wallet is affected by malware, having backups are important for making sure you don’t lose your digital assets.
If you have the option for a recovery system with your offline and hardware wallets, take the time to set them up. Again, if your computer breaks or your hardware wallet falls into a pool of water, having a recovery system can help you regain access to your cryptocurrency.
Do what you can to you ensure the protection of your cryptocurrency.
A cryptocurrency wallet is not just a requirement when you get started in the cryptocurrency world, it’s also about keeping your digital assets safe. Whether you want to make money with cryptocurrency or use it as buying and selling power, no one wants to lose something that is of value!
Once you decide on which wallets you’ll be creating, you can start filling them with your cryptocurrencies of choice by following these guides:
While you will most likely start with an online cryptocurrency wallet, it’s highly recommended that you also consider investing in a software wallet, a hardware wallet or a paper wallet. All of these options provide excellent security for your cryptocurrency but they have different strengths and weaknesses. After reading this article, you’re now well prepared to decide what will work best for you and your goals in the cryptocurrency world!