How do I choose the right crypto wallet for me?
The first thing you need to do if you are planning on delving into cryptocurrency investment is to choose a crypto wallet. There are different types of crypto wallets to choose from, each with their own advantages and disadvantages. A crypto wallet comes with a private key that allows only you to access it.
Your crypto wallet is not just for the storage of your cryptocurrencies, it is also where you will send and receive cryptocurrency from.
Crypto wallets come in various forms, both hardware wallets and software, online and offline. Some are mobile apps and others look like something out of a Star Wars movie.
Regardless of the form your chosen crypto wallet takes they mostly function in a similar manner. You can use key pairings to sync your wallet over your various devices, giving you convenient access.
How do crypto wallets work?
Unlike a traditional wallet, a crypto wallet doesn’t actually hold any currency. It is a storage place for the public and private keys relating to the blockchain your cryptocurrency is stored in.
A blockchain is a decentralised peer-to-peer digital record of all transactions, also known as entries, for that particular cryptocurrency.
What is the difference between public and private keys?
There are two different types of keys used in crypto wallets;
Public – A public key is used as and has similar functions to an IBAN (International Bank Account Number). It is a code made up of a series of numbers and allows the holder to make transactions using cryptocurrency. Most often the key is compressed into what is known as your wallet address. For example, when you want to receive a transfer, you give the sender your bank account number. If you want to receive a cryptocurrency transaction, you use your public key or wallet address to ensure a secure exchange.
Private – Your private key is extremely important and should never be shared with anyone. Giving someone access to your private keys would be much like handing over your bank card and PIN number. Anyone with the private key has direct access to your cryptocurrency on the blockchain.
Sending cryptocurrency between wallets is much the same as any online transfer that uses an account number, telephone number or some form of username as the recipient’s details.
Different types of crypto wallets
Here are some of the different types of crypto wallets and their advantages and disadvantages;
- Paper – This is considered the safest way to store your private keys and believe it or not it is completely offline! Paper storage refers to a document such as a QR code which can be stored in a safe place away from the threat of hackers. When needed this code can then be scanned using an online wallet to make the required transaction.
- Hardware – A hardware wallet is a device that often looks like a slightly old-fashioned chunky USB stick. This option is again considered to be very secure as it offline when not plugged into your computer to make a transaction. Also, more often than not, they are protected by some form of biometric lock.
- Mobile – This type of crypto wallet comes in the form of an app much like any other. Your private keys are stored on your mobile phone allowing easy access whenever you wish to make a transaction using your cryptocurrency. Unfortunately, these types of wallets are more prone to hacking and malware.
- Online – With an online wallet your private keys are stored on a third-party server, often belonging to a cryptocurrency exchange or similar. The pros and cons of this type of crypto wallet are similar to that of a mobile wallet with the added concern of third-party involvement.
- Desktop – This kind of crypto wallet is a program used to store your private keys on your computer’s hard drive. In some cases, the program downloads the entire blockchain to your computer which requires a powerful computer and fast internet. They are considered more secure than web or mobile wallets as there is no third-party involvement.
The above wallets can also be categorized as either hot or cold wallets, online and offline respectively. Mobile, Online and Desktop are all hot wallets as they are based online. Paper and Hardware wallets are cold wallets and offline.
Choosing the right one
There are a number of things to consider when choosing a crypto wallet, such as;
Security – Always top of the list when considering any financial service, is it safe? As mentioned earlier they all have their advantages and disadvantages.
Convenience – For some people it will be more advantageous to be able to access on the run, so a hot wallet would be the convenient choice. However, if you are more likely to be sat in front of a computer most of the time then a cold wallet would maybe be more suitable.
Cost – A bit like choosing a transfer option in your online banking, fees can vary dependent on how quickly you want the transaction to take place. Shopping around and making comparisons could be beneficial in the long run.
Diversity – Some wallets can hold a single cryptocurrency, where as other have the ability to hold multiple, again something to consider if you plan on delving further into the world of crypto in the future.