Understanding your options for storing crypto securely both on and offline.
Cryptocurrency wallets is a digital wallet that you use to store your crypto coins or tokens, just as you’d store your cash and cards in a physical wallet. You can also access your tokens in a crypto wallet using your “private keys”. Private keys are the cryptographic information – essentially a string of secret randomised letters and numbers – that you use to access your crypto and make transactions. There are numerous different types of crypto wallets, all with different features and varying levels of security. So, which one is best for you?
While there are numerous crypto wallets available on the market, they can be separated into two main categories: hot and cold wallets.
A hot wallet, also known as a “software wallet” is a crypto storage facility that is connected to the internet. Centralised cryptocurrency exchanges (CEXs) usually offer hot wallet storage via their sites, but you can also download them.
Some hot wallets are specifically designed to be in partnership with certain web apps, which means that they may only be compatible with specific cryptocurrencies. So, if you’re interested in investing in more than one type of cryptocurrency, it is worth researching which wallets are compatible with the crypto you’re looking to buy. Many downloadable hot wallets that are compatible with multiple currencies are also free of charge.
There are 3 main types of hot wallet. These include:
As mentioned above, a web wallet is an online wallet that’s in partnership with various web apps. These services store cryptocurrency on your behalf. This means that the third party site has access to your private keys.
Popular web wallets include:
- Ease of access. Web wallets can be accessed from anywhere and via any electronic device that is connected to the internet.
- User-friendly. Web wallets generally have user-friendly interfaces, and only require an email address and username to set up.
- High risk. There’s a risk of downloading viruses and malware with web wallets that leaves you open to phishing scams. The third-party provider having access to your private keys also poses a security risk to your cryptocurrency. This is because anyone with access to your keys can steal your crypto.
These wallets are, as the name suggests, downloadable as apps to your smartphone, tablet, or other mobile device. They are generally compatible with either iOS or Android.
Popular mobile wallets include:
- NFC technology. Most mobile wallets are able to facilitate payments in physical stores through ‘near field communication’ (NFC) technology or by scanning QR codes. This means that you are able to spend your crypto easily where it is accepted via your mobile device.
- Provide user control. No one else has access to your crypto or private keys with a mobile wallet, unlike a web wallet.
- User friendly. These wallets are easy to download, with simple user interfaces. They are generally considered to be the easiest form of wallet to use.
- High risk. If you lose your phone, you risk losing your crypto. That being said, you can opt for an app that allows you to back up your wallet with 12 or 24-word password protection, which will mitigate this risk.
These wallets, similar to mobile wallets, are hot wallets that you can download and install on your laptop or desktop computer. While they are hot wallets, any of these blockchain wallets offer cold storage options too. Essentially this is the same wallet, but it is not connected to the internet when it is considered “cold”.
Popular desktop wallets include:
- User friendly. Desktop apps are usually considered to be easy to use.
- Provide user control. No one else has access to your private keys with a desktop wallet.
- Free to download. You often don’t have to pay for desktop wallets.
- Secure. These apps are generally considered to be the most secure of the hot wallet options.
- Cold wallet options. Desktop hot wallets generally have the option to also be cold wallets.
- Virus risk. These apps can be susceptible to viruses and malware.
- Lack of freedom. Unlike mobile apps or web apps, you can’t access your crypto easily on the go with a desktop wallet.
Cold wallets, also known as “hardware wallets” are physical devices in which you can store your crypto that are not connected to the internet. These can be on desktop apps, as mentioned above, or physical storage devices that are similar to USB sticks.
These wallets are particularly useful for people who have a lot of crypto, because of their high security levels.
Popular hardware wallets include:
- Security. Cold wallets are by far the most secure way to store your crypto. This is because they are not connected to the internet and therefore cannot be hacked, and are not susceptible to viruses or malware.
- User control. No one else has access to your private keys with a hardware wallet.
- Cost. Cold hardware wallets are the highest cost crypto wallets on the market. They generally cost upwards of $100.
- Physical theft risk. If someone steals your hardware device, you risk losing all of your crypto.
- Less convenient. Unlike web wallets and mobile devices, you can’t access your crypto on the go with a hardware wallet. You must also transfer your crypto to a trading platform from your device in order to use it.
Finding the best cryptocurrency wallet will depend on your level of knowledge of crypto, the amount you own, and what type of crypto you own. Therefore, it’s worth doing your research into individual products on the market before making a selection. You can also compare crypto wallets using various comparison tools online.