How to choose a crypto wallet is a question that seems obvious at first but you quickly realize how easy it is to get overwhelmed by the sheer number of wallets you can choose from. Whether you’re planning to start trading or simply hold crypto coins for future investments, a cryptocurrency wallet is a must-have. So, considering your goal, you need to know how to choose the right crypto wallet.
In order to choose the right crypto wallet, you first need to decide what you plan to do with your cryptocurrency. Then decide how much control you want over the wallet where your currency is stored. Then finally, you decide what type of wallet will best suit your needs prioritizing ease of use and security.
In the crypto world, wallets are essential for owning and investing in cryptocurrencies, regardless of their type. As of 2022, there are over 150+ different crypto wallets so choosing the right wallet can quickly overwhelm you especially if you’re new in the crypto world.
In this beginner’s guide, we’re going to cover how to choose a crypto wallet that best suits your needs.
We’ll touch on the most important things you need to choose your own crypto wallet, including:
- What are crypto wallets
- How to determine your purpose for a wallet.
- Choosing a custodial vs a non-custodial wallet.
- Types of cryptocurrency wallets.
- Choosing your wallet.
Considering that a cryptocurrency wallet is something every crypto trader must have and the risk of choosing a wallet that isn’t secure enough, being able to differentiate between a good and bad wallet is definitely a good thing to know.
By the time you’re done reading, you’ll know why and how to choose a crypto wallet.
Let’s get started.
What are crypto wallets?
One of the most common misconceptions about crypto wallets is that your coins or tokens are stored in the wallet itself. However, Even though crypto wallets are similar to traditional wallets, they don’t actually store your cryptocurrency.
As you may or may not know, cryptocurrencies are decentralized. They aren’t stored in a single location but recorded in the form of transactions and stored on the blockchain. In layman’s terms, they are like bank accounts that allow you to track your balance and make transactions, all from one place.
Hence, crypto wallets are basically blockchain programs that store your public and private keys. And in the cases of hardware wallets, the software is connected to hardware similar to a USB stick.
No “real” coins are actually ever exchanged.
A private key is a randomly generated string of numbers and letters that allows you to send cryptocurrency to someone else. Without it, you can’t approve transactions. This is why it’s crucial to keep it as safe as possible since if your private key is stolen the thief basically has control over your wallet.
Losing your private key means losing your tokens.
The public key is a key that others can see, think of it as your bank account number. It’s derived from the private key through a hash. The public key is your digital wallet address, and it’s used by others to send cryptocurrencies to your wallet.
Simply put, your public key is your bank account number, and your private key is your security code. It’s fine for people to know your public key, but not your private one. For example, when a person sends you crypto coins, they are signing off ownership of those coins to your wallet’s address.
However, in order to have access to those coins, the private key stored in your wallet must match the public address to which the coins were sent. If the public and private keys match, the balance of the wallet will increase, while the senders will decrease accordingly.
How to Choose a Crypto Wallet (Step-by-step Guide)
Step one: Determine why you need a wallet
The first thing you need to decide is what you plan to do with your cryptocurrency. If you don’t know why you need a wallet or what you want to use a wallet for then it will be that much more difficult to choose the right one. There are many factors that can influence your decision on which wallet you choose but knowing exactly what need will greatly narrow down the options making it easier to choose.
For example, if you’re into NFTs and the NFT market is what you’re interested in, choose a wallet that can connect to NFT marketplaces such as OpenSea, SuperRare, and Solanart. Some of these marketplaces operate on a particular network so if you plan on buying NFTs on a particular network exclusively then you may require a specific wallet for that network.
If you plan to frequent multiple marketplaces then it’s also possible you may require multiple wallets depending on the marketplaces you use.
For instance, OpenSea supports Ethereum, Polygon, and Klatyn networks; most transactions use Ethereum, and a lot of NFT traders including myself, use Metamask to buy, sell, store, and list for purchase, NFTs they got through OpenSea.
For Solanart, which relies on the Solana blockchain, you’d probably want to choose a wallet that is commonly used by Solana cryptocurrency holders such as Phantom, Solflare, or Sollet.
If you don’t care about NFTs and just want a place to store or send and receive cryptocurrency then you will need to decide if you’re comfortable using the wallets on exchanges or if you prefer wallets where you have more control.
Another determining factor to ask before you choose a wallet: Is there a mobile app version? Some wallets are intended for use on desktop computers as a browser extension and are not as mobile-friendly as you might expect, especially if they’re not as established as some of the wallet software mentioned here. Personally, I prefer desktop and browser extension wallets as I find they are easier for me to maneuver than mobile wallets.
If security is your top priority (and it should be), you might want to consider a hardware crypto wallet. These frequently come in the form of a USB stick that you can disconnect from your system (and the internet) for added security.
Step two: Choose between a custodial vs a non-custodial wallet
Cryptocurrency wallets are either custodial or noncustodial. The custodial wallets are centralized, where a company or exchange holds your public key, private key, and funds, giving you an interface to manage your cryptos. The noncustodial wallets are the ones you manage yourself.
If you don’t have access to the ‘private keys’ for your crypto assets, technically you do not have control over your crypto – so make sure your wallet provides you with access to your private keys if you want total control.
Private keys are randomly generated 12 or 24-word passphrases, and each crypto wallet address has its own private key (passphrase). Whoever is in possession of the private key for an address, has complete control over the crypto associated with that address.
If you don’t have access to your private keys for your wallet at all times, you have nothing more than a claim to whatever currencies or NFTs you keep there; someone else is taking custody (and control) of them. If the exchange controlling the keys to the wallet goes bankrupt, it is very possible you’ll never see your crypto assets again.
Additionally, when you don’t hold the private keys to your crypto assets, every time you want to use them (eg. send them), you need to ask for permission from the custodian (since the custodian is the one in control). Since they are in control they have the power to delay your send request by days and charge additional fees to “let” you use your crypto assets.
The custodian can even refuse outright to allow you to withdraw your assets. On the other hand, when you have the private keys, you’re interacting directly with the crypto assets public blockchain, so there’s no middleman.
When you choose a wallet remember that the best wallets make it easy for you to manage (back up) all your private keys. Keep in mind that while it’s important to own and control the private keys to your crypto assets, managing those keys can be more difficult than you might think. There are a few reasons it’s difficult:
Firstly for the majority of people, the best way they know to keep their private keys safe is by writing them down on paper and keeping that paper somewhere safe. Read more on password management best practices here.
Second, if you spend a lot of time in the crypto space you should have more than one wallet. You may want a savings wallet and a spending wallet that you can use if you do a lot of transactions. For each wallet, you’ll have a different private key that you must manage.
Finally, if you’re a multi-coin wallet user, you’ll have at least one private key for every different blockchain your wallet supports. If you start trading using multiple crypto assets on multiple chains, managing all your keys can be a lot of work.
Before making a decision on the choice of a wallet, look for a wallet with private key management features, also known as backup features, which makes the process a lot easier. An example of this would be the Bitcoin.com Wallet which offers ‘Cloud Backup’ for your private keys.
This is a pretty cool feature since all of your private keys are saved in the cloud (Apple or Google) and whenever you create a new wallet, the new private keys for it are automatically backed up to the cloud. Not only that but because of the way they are stored they can only be decrypted by a password that you create beforehand.
If you lose access to your device, you’ll just need to re-install the app, sign in (via Apple or Google), and enter your Cloud Backup password to restore access to all of your wallets and all your cryptos. By contrast, without this feature, you’d need to enter all of your 12 or 24-word passphrases for all of your wallets and cryptos in order to restore access to them.
Step three: Choose your type of cryptocurrency wallet
There are a plethora of different types of crypto wallets to choose from each with its own pros and cons regarding ease of use for trading and security. However, regardless of the wallet you choose, a wallet is only as secure as the user keeps it. Make sure you safeguard the passwords that grant access to your funds.
Although there are many types of wallets they can be classified into two broad categories: Hot storage and Cold storage wallets.
» Learn more: How to keep your cryptocurrency safe and save money
Hot storage Crypto wallets
Hot storage cryptocurrency wallets are basically wallets that are connected directly connected to the internet in some form or the other, such as a phone app, a desktop software program or an online provider (hence “hot” storage).
While these wallets are used by the majority of people since they are free to use, they are not free from risk. Because they are connected to the internet they are susceptible to being hacked and your wallet drained. Although exchanges and wallet providers are getting better at preventing cybercrime the number of scams and hacks is still growing at an alarming rate.
Desktop wallets
Desktop wallets are software apps that run on your pc and are used to store all your cryptocurrency. The advantage of a desktop wallet is that it is non-custodial so you have complete control of your funds, so no issues with a third party that can freeze or lose your funds.
You can download and install desktop wallets on your computer regardless of the operating system you run. They are a relatively safe method of storage since they can only be accessed through your computer. With that said, keep in mind that our PCs are constantly connected to the Internet so never assume that your keys can’t get stolen.
You are in control of the wallet so you’ll need to secure and back up your wallet and make sure your computer is safe from malware.
Examples of popular desktop wallets include Atomic Wallet, Bitcoin Core, BitPay, Electrum and Exodus.
Mobile wallets
Mobile wallets are basically the same as desktop wallets but for your smartphone. Most of us are constantly on our phones, so it’s no wonder that mobile wallets are among the most convenient types of crypto wallets. They are often created with an easy-to-use interface and a stylish design.
Mobile wallets for iOS and Android operating systems are the most convenient for face-to-face payments and the use of QR codes to make quick payments. Another benefit is that your keys are usually stored locally on your smartphone.
Considering that you are constantly on your phone frequenting a variety of websites on the internet, mobile wallets tend to be more at risk and suffer from various security shortcomings. Similar to desktop wallets, you’ll be responsible for backing up your device to keep your digital cash safe from hackers, scammers, or outright losing the device.
Popular mobile wallets include Bitcoin Wallet, GreenAddress and Mycelium; Atomic Wallet, BitPay and Exodus also have mobile versions of crypto wallets.
Web Wallets/Online Wallets
Just as the name suggests Web/Online wallets offer browser-based wallets that can be used either on desktop or mobile but don’t provide the full control that traditional desktop or mobile wallets offer. Online wallets run on the cloud so as long as you have an internet connection you have access to them. This makes them very convenient since you can access them from wherever you are.
Although they possess a high level of convenience the online storage of the keys also poses a threat. Your keys are not fully in your control, and by centralizing numerous keys you make them more vulnerable to attacks.
These types of wallets are used by exchanges such as Coinbase and brokerages that offer cryptocurrency such as Robinhood.
Cold storage/Hardware wallets
A cold wallet also known as a hardware wallet is a small, encrypted portable device that allows you to download and carry your Bitcoin and other cryptocurrencies. If you’re serious about storing your cryptocurrencies for the long run and not just dabbling, then as far as security goes, a hardware wallet is something you must invest in.
Hardware wallets differ from software wallets in that they store the keys for your wallet on an offline hardware device. Most of them are designed to be safe even when connecting them to infected computers. Some say that a major drawback of hardware wallets is their price but I say can you really put a price on the peace of mind of knowing your digital fortune is safe?
Cold wallets often cost as much as $100+ but because your crypto wallet keys are stored offline they are considered much more secure than hot wallets.
For more info check out How Crypto Hardware Wallets and are you actually safe using them?
Some popular cold wallet providers include:
-
Trezor: This company offers small, key-size cold wallets ranging from about $60 to $200.
- Ledger: Designed like a thumb drive, Ledger has cold wallets ranging from about $60 to $120.
Paper wallets
As the name suggests, paper wallets allow you to store your private and public keys in print, usually via QR codes but you can also print them on plastic, similar to a credit card. Contrary to how unsafe the name might sound, it’s actually a very safe solution to store your private keys.
One inconvenience is that in order to spend money from your paper wallet, you need to first transfer it to a software wallet. This process is known as “sweeping”. In terms of security, the main drawback is the fact that a printed wallet can easily get lost or stolen.
Step four: Choose your crypto wallet
Now that you have a better understanding of how to choose a crypto wallet, choosing the best wallet for you is still a matter of what you prefer. With that being said there should still be a set of pragmatic and practical reasons for why you choose what you choose. Before anything, it’s important to ask yourself some questions:
- How often will I need access to the wallet?
- How quickly will I need to gain access to funds?
- How many currencies will I hold?
- How much does the wallet cost?
- How secure is the wallet?
- Am I willing to trade security for convenience?
Costs
Most cryptocurrency wallets are usually free the exceptions would be the hardware wallets. If you have intentions of holding large amounts of currencies then investing in a good, secure hardware wallet is a no-brainer.
Security
The most important factor you should keep in mind when choosing a wallet is its security. After all, a simple security breach can cost you millions of dollars. It’s important to carry out plenty of research about the wallet’s security features.
Mobility
When it comes to mobility and convenience, online and web wallets are your best friend. You can access them from anywhere, regardless of the device you’re using.
User-friendliness
After security, user-friendliness is one of the most critical aspects of any type of crypto wallet. It can mean the difference between enjoying using the wallet and getting frustrated with it. It can also decrease the likelihood of you doing something wrong and putting your keys at risk.
Generally, mobile and desktop wallets are very user-friendly, and they don’t need much work to set them up properly.
Convenience (multi-currency)
Most crypto enthusiasts plan to hold more than one cryptocurrency. If you plan to as well then picking a wallet with multi-currency support is a must. Before choosing ensure that the wallet you intend to choose has great support and reviews.
On the off chance that you’re planning to use the wallet for just one crypto coin, you should check out that specific coin’s website to see if they have a dedicated wallet. Another popular feature of hardware wallets is that apart from being secure they also support a variety of cryptocurrencies.
Conclusion
If you’re a cryptocurrency trader that has a lot of cryptocurrency assets, I recommend a combination of hot wallets for quick trading or purchases and cold wallets to secure the bulk of your cryptocurrency resources.
Regardless of the wallet you choose, crypto assets are considered extremely volatile. A good rule of thumb is to never trade or own more than you can afford to lose.
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