What would we do without crypto wallets? They keep our coins safe and untouchable, without them holding cryptocurrencies wouldn’t make sense.
Since the inception of Bitcoin, wallets have always been an integral part of the cryptocurrency ecosystem.
How else would you be your own bank?
People who are only in crypto for the investment might be blind to it, but the following is a simple fact: Should we be interested in such a thing, crypto wallets can be our own personal banks.
Nonetheless, it’s 2019. There are banks that store crypto for their clients - providing cryptocurrency custody service for them, and to most of their clients it will seem that the concept of personal storage is somewhat unnecessary. After all, it is like in every line of commerce: Someone charges a fee for making a complex thing simple to handle.
You know what they say though - Not your keys, not your coin. Letting someone else take care of your cryptocurrency introduces the element of trust into crypto, and if this were sensible, we wouldn’t have cryptocurrencies at all because everyone would be perfectly happy with fiat.
Good news is that just like cryptocurrency custody providers make “having” crypto easier, crypto wallet developers are likewise making it easier to manage your coins yourself. That reaches from simplistic usability for the wallet you use every day from your phone to advanced anonymizing tools for coins that are not inherently private.
In short, there are now so many different types of crypto wallets - wallets that each can serve a specific role in our trading journey.
The evolution of crypto wallets
Crypto wallets have evolved a lot throughout the years and they have become safer, more flexible, and more personalized.
All the crypto wallet drainage: The human factor
One early type of crypto wallets were so-called brainwallets.
These days, when you’re setting up a new wallet via its software, you get a random 12-24 seed phrase generated for you. Essentially, you could have a brain wallet do the same thing - but you would have to come up with that seed yourself. Most people would instead have their brainwallet generated from a simple phrase - the name brainwallet refers to the concept of memorizing your seed rather than writing it down on a piece of paper. Once this became a known fact, there was a wave of bruteforce attacks.
By now, probably all of these primitive brainwallets have been drained by hackers. They are one of the reasons why people who weren’t in crypto would be convinced that “crypto always gets stolen”, or some other similar blanket statement. Today’s crypto wallet landscape is far safer though, simply because it doesn’t leave the crucial task of seed generation to humans.
Crypto wallets by their purpose
There are a couple different kinds of crypto wallets out there:
Paper wallet - For this kind of wallet, your private keys and public addresses are printed on a piece of paper. If you can physically manage the paper, this will be your safest storage option that doesn’t even require a lot of technical skill. It is not feasible to use a paper wallet for daily transactions though.
Hardware wallet - These wallets are actual physical devices that are built specifically for handling private keys and public addresses. It’s probably the most secure kind of crypto wallet for the regular crypto investor who is not skilled to homelab their own air-gapped crypto storage. For now, crypto hardware wallet producers still do not care too much about the sourcing of the hardware, and even if they did, us traders would still only need to take their word for it.
Software bugs and vulnerabilities in hardware wallets get discovered several times each year but generally, the criminal activity in crypto stealing focuses on much far lower hanging fruit. That makes hardware wallets very reasonable safe. Hardware wallets are usable enough for regular transactions, although not extremely convenient.
Desktop wallets - These are wallets that you can download via software packs. There are tons of these available for all operating systems - Mac, Windows, Linux, etc. They are very easy to use, but exposed to every piece of malicious or spying code that your laptop might contract from adverts or videos during common web browsing.
Mobile wallets - These are applications that people can download on their smartphones. They are ideal for smaller transactions on-the-go, or as a transit place for an exchange withdrawal which will eventually go to a hardware wallet.
If you are a trader, a combination of a mobile app wallet and a hardware wallet is currently the best compromise for both usability and security.
Web wallets - The least secure way of storing crypto. You can use web browsers to access these wallets, and in some cases you do not even get to own your private keys. Having your crypto in a web wallet that keeps your private key is equivalent to leaving the coin on an exchange.
In crypto, security should always be your top priority.
When it comes to cryptocurrency trading, you should always really, really, really think twice before leaving your money on an exchange just because you’re too lazy to withdraw them.
Just pick a mobile wallet and a hardware wallet and if it’s only slightly doable for you, transact from devices that you don’t use on a daily basis to limit your exposure to malware.
The next thing would be to always consider how secure your wallet (still) is and how you can even make it more secure. After all, these are the things that hold all our money.
These are the questions to ask yourself:
- Is the development and testing active?
- Is there a community on Reddit or elsewhere around the wallet?
- Crypto wallets are a black box, unless you’re a security researcher: Who are the devs? Do they have any reputation at all? How long have they been around?
Of course, always be sure to enable all security measures like setting a strong password and enabling 2-Factor Authentication.
Good wallets on the market?
There are tons of different wallets to explore out there but I’ve rounded up three wallets that seem to be the best at what kind of wallet they are.
Trezor is probably the most user-friendly hardware wallet around, even though in terms of popularity it loses to Ledger. Trezor works with multiple currencies and also works as a password manager as well as a two-factor authentication device. The device has a failsafe for lost passwords and lost devices (but you should probably still be extra careful that this does not happen).
One of the oldest and most highly regarded desktop wallets, Electrum is available for download on Windows, Mac OS X, Linux, and Android. It has the ability to work with some physical wallets and offers a great deal of flexibility.
Electrum is a lightweight Bitcoin wallet where the lightweight means you don’t need to download the whole blockchain - Electrum has its own network of trusted nodes. That is a convenience but also a limitation, as the Electrum node network has been under a severe DDoS attack since April 2019.
Formerly Blockchain.info, this is one of the more secure crypto wallet services that are accessible through a web browser. It currently supports BTC, BCH, ETH, ETC and XLM only and comes with a pretty convenient smartphone app. The app has a bunch of advanced security features that you won’t find in more popular wallet apps - think IP whitelisting, fingerprint access and such. They’ll nag you about verifying your real world identity though, so you will have to proceed with caution if privacy is important to you.