When talking about cryptocurrencies and how to handle them, wallets come into discussion rarely. Yet, storing them safely is one of the most important tasks a crypto holder should consider. Thus, I made this review about cryptocurrency wallets, types that exist, and how you should deal with them. I also explain their purpose, issues that came to light in recent years, and how to avoid those issues.
Wallets and Their Purpose
I’ll keep it simple, as the wallet’s purpose is quite straightforward. Cryptocurrency wallets are online storages where you can stack, transfer in and out coins at your leisure. It is indicated by an address code upon which you can send or receive coins anytime, anywhere.
These storage platforms exist on the Internet, but the latest development also saw them take a physical form as well. Thus, wallets can function both online and offline. If you keep the coins there intact, that is. However, to send or receive, for example, bitcoins, an Internet connection is a necessity.
There are several aspects about cryptocurrency wallets that you should be aware of. In the following sections, I will talk about transaction fees & speed settings, ledger records, and types of storages. Finally, I will look at different kinds of wallets.
Transactions and Ledger Records
A public ledger record notes each transaction anyone does in the blockchain network. Anyone can view these, including your transfers as well. Records, in most blockchain systems, hold necessary information that makes up a transaction. It includes address codes (sender & receiver), a number of coins transferred, and the time transfer took place.
Therefore, these ledger accounts show anything you do with a wallet. Your storage platform generates address codes. In some storages, you have a static code while others keep generating new addresses all the time. The second type is more secure while your balance includes all addresses as well.
You should also be aware of the transaction system, speed, and costs. Some coins need confirmations from third parties to allow your transfer to get going (like with bitcoin). Other blockchains use a scripted online contract (Ethereum’s smart contracts) which sets agreed-upon requirements that you need to meet for the transaction to take place.
In the first case, you pay miners to keep the transfer system running. They are, however, usually slow to commence, what with a large number of coin transactions per second. In the second, costs are lower, and deposits/withdrawals are much faster.
Hot vs. Cold Storage
There is a concept of cold and hot storage wallets that might confuse beginners. To get straight to the point, I’ll explain what is meant by “hot” and what by “cold” storages. Hot wallets are those that exist only when the Internet is on. These include online platforms where you sign in with your account and keys are provided for you, also known as public keys.
Cold storage wallets are those that can operate offline as well as with limited services. You still need an online network to send/receive coins but maintaining or checking your balance can be done without the WiFi connection. These include desktop, paper, and hardware wallets.
Online “Hot” Cryptocurrency Wallets
These are the most numerous storage platforms, but also known for their weak protection systems. Many of these come in the form of free service while keys are not private. In my opinion, you can use online wallets for quick transactions, such as trading or exchanging small quantities of coins. They also come in handy for starters to learn about the crypto world.
They are probably the oldest form of coin storage, since the beginning of the industry in 2009. Desktop wallets are an upgraded version of its website counterparts. Here, you can download the software and keep your keys private. Also, you can generate recovery seed codes, which block the program if you suspect your wallet was compromised. However, if you ever lose your computer to viruses or technical programs, you lose balances as well.
Famous examples are Electrum, Jaxx, Exodus, Armory, GreenAddress, Copay, Ethereum Wallet, Daedalus, Litecoin Core Wallet, Rippex, Verge Electrum, and others. Downloading and using desktop cold storage software does not cost a thing these days.
Mobile App Wallets
As the crypto market matured, more and more of clients demanded mobile platforms as well. Now, we have phone apps that both iOS and Android users can download and enjoy. These come in as a mix between desktop and online platforms, keeping easy-to-navigate interfaces with private keys. However, if you lose your phone or sell it without transferring coins out, you can consider your balance lost.
You can check out Uphold, Coinbase app, Coinomi, Bread Wallet, Mycelium, Edge, LoafWallet, Cryptonator, and other apps as well. Although a few charges for their services, most of the mobile wallet apps are free to use.
Papers are a really handy thing to have but these are a pain to set up on your own. Or, at least they were in the past. Now, you can download your own QR codes and print them out on a piece of paper to use only when necessary. You can also connect these with any other platform as well since you really hold the single address code on a note.
However, be careful not to lose it or destroy it along the way. In that case, your balance is as good as gone, if you didn’t synchronize the paper with an online platform. These are usually free unless purchased from an exchange.
Hardware devices are what I call the latest invention of the crypto storage market. Looking and acting like USBs, these HD wallets serve as a bastion for your digital money. They are the safest in terms of protection system and provide many safety features. Some of those features are: physical button confirmation of transfers, PIN and password codes, screen for offline balance inquiry, and much more.
The only downside to them is their price tag, which can be quite costly. You can also sync these with other platforms if needed, provided your online platform supports those devices. The most famous models right now are Ledger Nano, TREZOR, KeepKey, and CoolWallet S.
Which one do you use? Write in the comments below.