Are you ready to buy crypto but don’t yet know how to store it properly? In this guide, we delve into the different types of crypto wallets, how to choose the one that fits your needs, and the steps you need to follow to set them up.
Before we delve into the different options, let us briefly explain what cryptocurrency wallets are and how they work.
What are cryptocurrency wallets?
A cryptocurrency wallet is a software program, online service, or physical device that stores the keys you need to access your digital assets. In essence, it provides an encrypted access point to various blockchains to help users make transactions and track their cryptocurrency holdings.
How do cryptocurrency wallets work?
Cryptocurrency wallets interact with the blockchain by using two different keys; a public address and a private key. Both are depicted as a long string of characters and remind of a complex password:
- You can share your public key with others to request and receive cryptocurrency
- You can use your private key to access and use your coins.
For more information on how public addresses and private keys work, click here.
When you send cryptocurrency to someone, you are essentially transferring the ownership of your coins to their address. The coins remain on the blockchain and are never really placed inside the wallet; the only thing that changes is the combination of keys that can access it.
Before we delve deeper and start exploring the different types of wallets, it’s important to understand a few basic terms.
Hot vs cold wallets
Cryptocurrency wallets are divided into hot and cold wallets.
- Hot wallets (also known as online wallets) are connected to the internet. They are easy to use and have a great interface. They also store a large number of cryptocurrencies. That being said, they are more susceptible to technical issues, hacking attempts, or governmental regulations.
- Cold wallets (also known as offline wallets) are NOT connected to the web. They are more secure than hot wallets since they are, by nature, inaccessible by hackers. However, there is no third party that can offer insurance or protection for your coins; you are the only one responsible for their safety.
Custodial vs non-custodial
Apart from their division in hot and cold storage options, cryptocurrency wallets are also split into custodial and non-custodial.
- A custodial wallet has custody(control) over your coins. They keep a backup of your private keys, offering safety and backup for your funds. While this may come with its own set of risks, custodial wallets aim to provide users with more convenience when storing crypto. A simple 4-digit pin code on an app is all you need to access your coins and make transactions.
- A non-custodial wallet is decentralized, meaning that you own your private keys, and no third party can access or control your funds. This is certainly the safest and more superior option, but users bear a great responsibility.
Note that, when you purchase crypto from an exchange, the platform will most often deliver the funds to your exchange wallet (custodial). This is why more experienced investors recommend users to store their funds off exchanges.
Safe Currency, on the other hand, delivers your coins straight to your personal wallet. This ensures maximum safety for your funds at all times.
Recovery phrase and BIP39
When you first set up your wallet, the software will indicate a recovery phrase (also known as a backup, seed or mnemonic phrase). You will need to write this phrase down and store in a safe location. A recovery phrase consists of 12 to 24 words that you need to input in a specific order to regain access to your funds in case your wallet is damaged, lost or stolen.
The mnemonic phrase of your wallet belongs to a group of words known as the BIP39 wallet list. With a total of 2048 words, this list is able to translate your words into numbers, so you can write them down in a more secure way. This is also the reason why metallic backup wallets, like Billfodl, have a 4-character space to define each word.
The different types of cryptocurrency wallets
Now that you know more about the technical specifications of wallets and the terms used to describe them, it’s time to delve into the different wallet types. Note that each wallet has its own unique attributes and characteristics, and your choice will highly depend on your personal needs.
Option #1 - Online & Mobile wallets
Online and mobile wallets are placed into one category since most wallet providers offer a mutual solution. They can be accessed on the web, but also through downloading an app on your smartphone.
- Online wallets are accessed from the web, whether you are using a desktop, tablet, or smartphone. Exchange wallets belong in this category as well, since they store your funds on hot wallets of their platform.
- Mobile wallets are applications which you can download and instal on your smartphone. They usually act as an extension of your online wallet and offer a better user experience.
Both these wallets are a great option for beginners that wish to invest a small amount of money and learn how to use cryptocurrency.
Pros of Online & Mobile wallets
- Convenient and efficient with great design
- Access your funds from multiple devices
- Support for multiple coins
Cons of Online & Mobile wallets
- Not very secure; require additional security (2FA, SMS authentication, etc.)
- Most options are custodial, meaning that you are not in full control of your coins.
- Most option offer hot (online) storage
Our favorite Online & Mobile wallet - Blockchain.com
Blockchain.com offers one of the best online wallets in the market. It is non-custodial, supports 7 cryptocurrencies, and has a state-of-the-art interface. Aside from that, you can download the wallet’s app for iOS and Android, and make faster transactions using its handy QR-reading option.
If you wish to download and use a Blockchain wallet, check out the following video that details the setup process:
Option #2 - Desktop wallets
Desktop wallets are downloaded and installed on your computer, making them more secure, due to a single point of access. They are great for people who are looking for a secure solution without having to pay for it.
Pros of desktop wallets
- Accessible through one device (added security)
- Supports multiple cryptocurrencies
- Store your funds offline and provide non-custodial solutions
- Some options integrate with hardware wallets for additional security
Cons of desktop wallets
- More complex interface that mobile wallets
- Internal or external computer damage could affect the safety of your funds.
- Less flexible fee structure
Our favorite Desktop wallet - Exodus
Exodus is a light-weight desktop wallet with great design and support for 89 cryptocurrencies. It is very secure, offering optional email verification, and has excellent customer support in case you need assistance. The wallet can be downloaded by any Windows, Linux, or Apple Mac computer.
The following video describes what steps you need to take to download and install an Exodus wallet.
Option #3 - Hardware wallets
Hardware wallets are small devices that look like USB-sticks and help you access your coins in the most secure way. They operate fully offline and require manual authorization for each transaction, making them practically unhackable. This type of wallet is best for individuals who invest significant amounts of money and are willing to pay a premium for it.
Pros of hardware wallets
- Maximum security due to additional security layers
- Support more than 1000 cryptocurrencies and store funds offline
- Easy access through a pin-code
- Physical confirmation of transactions by touching the device’s buttons
- Non-custodial solution
Cons of hardware wallets
- They cost between $50-$200
- The initial setup process can be complex for beginners
- Portability can be an issue since most hardware wallets don’t support Bluetooth
Our favorite hardware wallet - Ledger Nano S
The Ledger Nano S is the best-selling hardware wallet, having sold nearly 2,000,000 devices in its 6 years of existence. It is the only independently-certified hardware wallet, having received an ANSSI certification for its high level of security. The wallet supports more than 1100 cryptocurrencies and is very easy to use, even by a complete beginner.
To set up your Ledger Nano S and see how it works, watch the following video:
Option #4 - Paper wallets
Paper wallets are the earliest cryptocurrency wallets, and are rather complex when looking at the alternatives. Essentially, you receive randomly-generated keys for a wallet that stores a single cryptocurrency (e.g. Bitcoin).
Pros of paper wallets
- Maximum security at no cost
- Funds are stored offline
- Easy to create
Cons of paper wallets
- If you decide to withdraw your funds, you need to transfer the complete balance in one transaction.
- Can easily be damaged or lost - it is best to laminate them
- You can only access them by entering your private key
- Each wallet can only store 1 cryptocurrency
How to create a paper wallet
Each cryptocurrency offers a different paper wallet option. Here are the steps you need to follow to create a paper wallet for Bitcoin:
- Head over to Bitaddress
- Move your cursor around the screen until you reach 100%
- Print your wallet details and store them in a safe location
- You can now send money to your wallet by scanning the QR code of your public address
Which wallet offers the best security?
If you are looking for the best security in the market, we recommend you choose a hardware wallet. While these wallets come at a relatively high cost, they are certainly worth the investment. Hardware wallets are mostly aimed towards investors who buy larger amounts of crypto, but are also a smart choice for people who invest more than the device’s pricetag.
Which wallet is the best for beginners?
Amateur investors will find most value in a wallet that is convenient and easy to use. When it comes to these two attributes, there is no better option than online and mobile wallets. They offer a simplistic interface that is easy to navigate and are easy to access from multiple devices. That being said, hardware wallets are also a great option, especially for those that value safety over convenience.
You now know what cryptocurrency wallets are and how they work. To summarize, here are the four different types of wallets you can choose from:
- Online and Mobile wallets - Convenient and easy to use but not very secure
- Desktop wallets - Better security than online wallets with a single point of access
- Hardware wallets - Best security in the market but can be costly for those on a budget
- Paper wallets - Strong security but rather outdated and complex.
After analysing the pros and cons of every option, you should be able to choose the wallet that suits your individual needs, and follow the instructions in the accompanying videos to set it up.
Once your wallet is ready, all that’s left to do is buy cryptocurrency. To do so, head over to Safe Currency, select the coin you wish to buy, and make sure you add your wallet’s public address at the point of checkout.
The process is very easy and takes less than 15 minutes to complete. As soon as the transaction is completed and your coins become visible in your wallet, you can use them as you please.