Everything You Should Know About Crypto Wallets
Have you heard the one about the German engineer who might have lost $220 million worth of Bitcoin? Stefan Thomas has two more password attempts left before he’s locked out of his crypto wallet containing 7,002 BTC. Forever
Cryptocurrency is hard enough to understand on its own. But all the news about people locked out of their wallets can make the space seem even more intimidating. Luckily, this guide compiles all the info you need about crypto wallets: what they do, why you need them and the best ones.
What is cryptocurrency?
Cryptocurrency is a peer-to-peer virtual currency. Like the dollars and cents we’re used to, crypto can buy, sell, and account for goods and services.
Government bodies don’t regulate these currencies. Instead, we record every transaction on a public ledger. This database (aka the blockchain) is updated across thousands of computers worldwide. Users can trust their transactions are valid since all information is heavily encrypted.
What are public and private keys?
First, we need to learn about keys. Every cryptocurrency user has a public key and a private key. The public key is a unique ID that’s accessible to everyone on the blockchain. If people want to send you cryptocurrency, they send it to this address.
To access the cryptocurrency at that address, you need a private key. It’s the ‘password’ to enter your safe deposit box (the public key). This combination of public and private keys is what makes cryptocurrency so secure.
What is a crypto wallet?
Let’s clear one misconception: crypto wallets don’t ‘hold’ your crypto assets like the traditional wallets we recognize. Instead, a cryptocurrency wallet securely stores the public and private keys to access your money.
You can use a crypto wallet to send and receive cryptocurrency from your peers, access dApps, and buy NFTs. The wallet will generate a transaction signature that updates the blockchain. If all blockchain and crypto technologies were a single app, your wallet is like a user account.
Hardware Wallets vs Online Wallets
There are two different kinds of cryptocurrency wallets. Each one has its advantages and drawbacks.
A hardware wallet (or cold wallet) is a USB thumb drive or storage card that holds your crypto keys. They’re physical devices that you can keep in a safe place. Cold storage, as it’s known, is more secure than an online wallet. The downside is that if you lose that drive, your assets are irrecoverable.
An adjacent version is the paper wallet, where users write down their private key or seed phrase and refer to it every time they’re using crypto.
Crypto casuals are typically more familiar with online or software wallets. The first Bitcoin wallet was a software program. These apps are connected to the internet, so they’re comparatively less secure than hardware wallets. But since they’re so easy to access, they make using crypto much easier.
Crypto Wallets vs Bank Accounts vs Digital Wallets
It’s helpful to compare cryptocurrency wallets with the other financial accounts we already have:
Currency types. Bank accounts hold, send, and receive fiat currencies, like AUD, USD, etc. Digital wallets (like those in PayPal) also have fiat currencies. Cryptocurrency wallets don’t contain any currency, but they are used to send and receive crypto.
Insurance. Most bank accounts offer insurance to protect your money in case of fraud. Digital wallets tend to do the same. Since a central authority does not operate cryptocurrency wallets, you’ll have to deal with any scams you face by yourself.
Applications. You can buy things with money directly from your bank account or e-wallet via debit card or mobile payments. A cryptocurrency wallet can also allow you to use dApps, purchase NFTs, and more Web 3.0 services.
The Best Crypto Wallets in 2021
Coinbase Wallet — Ideal for Beginners
Coinbase Wallet is a separate app from Coinbase. The latter is an exchange, a service where you can buy and sell cryptocurrencies to other traders. (Much like a stock exchange for crypto.)
On a centralized exchange platform like Coinbase, the provider stores every crypto asset you buy in a custodial wallet. That means you don’t have access to your private keys. Many crypto investors say that this means you don’t truly own your crypto.
However, Coinbase Wallet is different: you have access to your public and private keys. The app has an intuitive UI and integrates seamlessly with Coinbase’s exchange. As far as mobile crypto and bitcoin wallets go, Coinbase’s offering is top-tier.
Ledger Nano X — A Great Cold Wallet
Ledger Nano X is one of the most popular cold wallets on the market. The device supports nearly 2,000 cryptocurrencies and sports a sleek metal exterior. Suffice to say, Ledger’s latest hardware wallet is impressive inside and out.
Ledger is also a well-respected brand in the crypto world and has been making cryptocurrency wallets for years.
Exodus — A Desktop Wallet
Exodus is a software wallet that you can download on Linux, Mac, and Windows devices. Its companion mobile app is also available on the App Store and Play Store. Like Coinbase Wallet, Exodus is a non-custodial hot wallet.
Contrary to web-based hot wallets, you can turn off your computer’s internet to secure your private key even further when it’s not in use.
Wallets Are Your Entry Point to the World of Crypto
- Sign up for a hot wallet
- Buy a cold wallet
- Write your seed phrase on a sheet of paper
One thing stays true: wallets are essential for accessing the future of finance. Cryptocurrency has incredible innovation to offer, and you could be missing out on incredible opportunities.
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Frequently Asked Questions
What is the best crypto wallet?
Many people agree that Ledger’s cold wallets are the best of their kind. Browser wallets like MetaMask are ideal for people interacting with DeFi applications. Coinbase Wallet is an excellent choice for mobile-first beginners. Exodus is a popular software wallet for use on desktops.
Which is the most secure crypto wallet?
Many consider hardware and paper wallets (cold storage) to be the most secure. In the hardware wallet market, Trezor and Ledger are well-known providers.
Is there a wallet that holds all cryptocurrency?
It’s common for people to search for currency-specific wallets, like a Bitcoin wallet. In reality, most wallets hold a variety of coins. Those can include Bitcoin, Ethereum, Litecoin, and more.