Bitcoin and Crypto wallet 101
Where you store your bitcoin or cryptocurrency is an important decision to make in your bitcoin & crypto journey. You may already know that cryptocurrencies are stored in wallets, but there are a couple of things you should know before you are able to choose one, and know how to use them correctly and to your benefit. Let’s dive in a little deeper.
What is a crypto wallet?
A cryptocurrency wallet is a piece of software that is used to store and handle your private and public keys. It has two main functions, allowing you to receive and spend cryptocurrencies. You could choose among different presentations such as a device, physical medium, program, or a service.
Not sure what public and private keys stand for? No worries, we have you covered. Here is an example. When you create a cryptocurrency wallet it gives you two things, your public key and your private key. Think of your public key like your “email address”, and your private key acts as your “password”.
As with your email, you need to share your public key with anyone you want to send you crypto. On the other hand, just like with your password, you never want to share your private key with anyone. The person in control of the private key has complete control over all funds in that wallet.
Types of cryptocurrency wallets:
There are around 5 main different types of cryptocurrency wallets. Each of them with special characteristics of usability and security. Let’s start!
Web wallets
Are often the most user-friendly wallets, but not the most secure as they are on devices that are almost always connected to the internet. They may be built into your browser as an extension or may be accessed through a webpage. In general, the more time your wallet is on a device that is connected to the internet, the more chance there is for it to get hacked.
Some examples are the wallets you can open in Coinbase for bitcoin, ETH & ERC20 tokens. For ETH & ERC20 tokens only: Metamask, and MyEtherWallet.
Mobile wallets
Are the most used type of crypto wallets in the market right now. They are relatively easy to use. Since mobile wallets are always connected to the internet, they are still not the most secure type. It is important to pick a mobile wallet that allows you to control your private keys and that have a good user experience that helps you understand its functions easily.
Examples: Green Address wallet and Samourai wallet for bitcoin. Coinomi for bitcoin, ethereum and a range of other cryptos.
Exchange wallets
Most cryptocurrency exchanges provide users on-site wallets and these wallets are the ones that need to be used when buying and selling on that platform. As a general rule, you should not store large amounts of crypto in exchange wallets, or use them for long-term storage. The reason for this is that most exchange wallets are what’s known as “custodial wallets”.
When using a custodial exchange wallet, you do not have access to the private keys. This means that the exchange can seize, steal, or leave your funds exposed to theft if they do not follow adequate security practices. Even some of the most well-known exchanges such as LocalBitcoins and Binance have been hacked in the past resulting in the loss of user funds.
Some exchanges like LocalCoinSwap provide users with non-custodial wallets. These are web-wallets as described earlier, where you are able to access and export your own private keys ensuring you do not need to trust the platform with your funds as they do not have control of your keys.
Some decentralized exchanges also let you trade directly from popular web wallets and therefore you do not need to utilize exchange wallets whatsoever. If offered, this is generally a more secure option. You can trade directly out of your MetaMask wallet on exchanges such as LocalCoinSwap, Idex, and EtherDelta.
Desktop wallets
are software that you can install on your computer. Because your desktop is often connected to the internet it is necessary that you use and keep your antivirus software updated in order to avoid malware.
Examples: Electrum for bitcoin only and Exodus for bitcoin, ETH & ERC20s, and more.
Paper wallets
You create it yourself by printing your private keys and public addresses on a piece of paper and start transferring your bitcoin or altcoins on it. A paper wallet is secure since it is never connected to the internet, but it requires a high level of care as it can easily be accidentally lost or destroyed. Also, if someone finds your paper wallet, they will then be able to access your crypto, even in the future.
Hardware wallets
Are a hardware device (similar to a USB memory stick) specifically built to handle your private keys in a secure manner. They generally have pin code on them that is required for access . These are generally considered to be the most secure wallet type as your private keys are never exposed to the internet, and even if your phone and computer are hacked/compromised, your private keys remain safe and in your control.
Examples:
Bitcoin, ETH & ERC20s: Trezor and Ledger Nano.
Bitcoin and crypto wallets wrapped up
Cryptocurrency wallets are a very important part of the bitcoin and cryptocurrency ecosystem. They help people to store, send, and receive cryptocurrency. As you have read, there are a few different types of crypto wallets. Each of them with various characteristics of usability and security. All of them have their place, and which to choose depends on the individuals needs. While web and app crypto wallets are super useful for ease of use, low amounts of holdings, and quick transactions, hardware wallets are more secure for holding large amounts of cryptocurrencies, or storing crypto for long periods or irregular use.
We hope this article will help you manage your crypto in a secure and easy way. If you have any questions or comments please feel free to join our telegram community and follow us on twitter.
Until the next time!
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