How to choose the best cryptocurrency wallet for your needs
A bitcoin wallet is a program for sending or receiving bitcoins, store them, and monitor its balance. You need a bitcoin wallet to manage your cryptocurrency just like you need your email programs such as Outlook or Gmail to manage your email. How wallets work, what difference them, and everything you`ll need to know to choose your own wallet, it the article below.
Crypto wallet theory
Bitcoin wallets are essential for digital currency users, it`s your personal interface with the blockchain. Wallets monitor Bitcoin addresses on the blockchain and update its own balance with each transaction. Wallet defines by its Private key and where it’s stored. It is a long string of numbers and letters that acts as the password to your Bitcoin wallet. You can think of it as coordinates for locating your Bitcoins. So whoever knows the privet key has control over tokens. The private key is used to generate your Bitcoin address. It is a way smaller string of numbers and letters, and works just like an email address or debit card number: it`s something you give out to people who want to send you Bitcoins. Even though the Bitcoin address is generated through the private key, there is no way to figure out what the private key is just by examining your Bitcoin address.
As Bitcoin wallets evolved, HD wallets (Hierarchical Deterministic wallets) were created. HD wallets generate an initial phrase known as a Seed or mnemonic phrase. This seed is a string of 24 common words that you can memorize or write down in a safe place instead of a long confusing private key. If your wallet gets destroyed or stolen, you can enter the seed in order to reconstruct the private key.
Because these private keys and seeds have complete power over your Bitcoins they must be kept secret and safe.
Now let’s see what forms wallets can accept.
A Hot wallet refers to any form of Bitcoin wallet that is connected to the Internet. This can be a web service, a wallet installed on a computer with an internet connection, or even a wallet installed on your mobile phone.
- Desktop wallets
These type of hot wallets store your private key on your computer. A standard Bitcoin wallet will create a “wallet.dat” file containing its private key. This file should be backed up by copying it to a safe location. As long as your computer is free of malware o any security weakness your Bitcoins are safe. But today it`s hard to be 100% protected, and wallet connected to the Internet is a valuable target for hackers.
- Web services
Markets, exchanges, betting sites, and other Bitcoin services. Highly convenient, as they allow you to buy, sell, and send Bitcoins at a moment’s notice. They will provide a Multi-Factor Authentication option to guard against external hackers. Still, web wallets are the least secure option for storing Bitcoins, since you don`t have any access to your private key. You`re basically asking someone else to hold your coins. You not only have to fully trust the 3rd party but also if the service will be hacked, you could lose all your funds. The key thing is that if you don`t hold the private key to your crypto, you do not really own it. Not recommended to store any significant amount of coins.
- Mobile wallets
These are wallets that store your private key on your mobile phone. Although many wallets including web wallets are accessible via mobile apps and highly convenient, doing so presents the worst-case scenario for security. As phones are frequently lost, broken, or stolen, it`s strongly advised that you enable multi-factor authentication, password-protect your wallet, and create a private key backup. Substantial sums should not be stores on a mobile wallet unless used in tandem with a hardware wallet, which we will discuss later in the article.
*\Hot wallets are the most popular, but the least secure type of wallets./*
Cold Storage wallets
Cold Storage refers to any type of wallet that is independent of any internet connection and cannot be hacked remotely. Some of them are hardware wallets, paper wallets, and brain wallets.
- Paper wallet
It is just a piece of paper with the private key or seed written on it. So only someone who can physically access that paper can steal your Bitcoins. However, paper wallets are easily destroyed and it`s advisable to create multiple copies, so if one is lost your Bitcoins can still be retrieved. Also to send the Bitcoins you have on your paper wallet to someone else you will have to import the private key into some form of digital Bitcoin wallet.
- Hardware wallet
This is a physical device comparable in size to a flash drive that safely stores your private key. This wallet cannot be hacked even if your device is compromised by malware, you can even use it with a public compute that you don`t trust.
- Brain wallet
Brain wallets are just a way to create a private key out of a predetermined text or set of words. So instead of getting a randomly generated seed, you decide for yourself on a passphrase and use some basic algorithms to generate a private key from that passphrase.
However, Brain Wallets have a significant disadvantage, they have a higher probability of being hacked. This is because people are usually very predictable in what to use as passwords or supposedly random text and hackers have a way of knowing that.
Keep in mind, that you may want to use more than one wallet. For example, you can use a hardware wallet for large sums of Bitcoins and also have a mobile wallet with a small balance on it for daily payments. This way even if your mobile phone breaks or get stolen you`re not risking losing a lot of money.
Enough for theory, so what wallets out there?
Top 5 Best Bitcoin wallets of 2020
At this point, you should understand the risks of such investment and needs that your wallet should cover. Usually, wallets vary on a scale of security vs convenience and you need to decide where you want to be on that scale. The higher the security, the lower the convenience, and vice versa. Our brief description of the most popular wallets designed to help you navigate when choosing your own cryptocurrency wallet.
Coinbase is one of the easiest ways to buy, sell, and hold cryptocurrencies. Digital exchange and online cryptocurrency wallet provider is great for people new to Bitcoin. It makes buying and selling very similar to buying and selling stock through your bank account.
Another great feature is Coinbase Earn, which gives you free cryptocurrencies in exchange for watching videos and taking quizzes.
If you will use Coinbase, watch out for high fees and costs. There are flat transaction fees plus a spread Coinbase charges when converting between currencies.
- Type of wallet: Mobile and web
The Ledger Nano X and Ledger Nano S are hardware wallets that keep your bitcoins safe on a physical device which looks a bit like a USB drive. That hardware wallet device stores your private key and does not expose it to the outside world. Private keys on Ledger are so secure that you do not even know them yourself. Instead, they’re stored within
the device itself and secured with a PIN number. So thieves not only will need to have your Ledger in their possession but to know or guess your PIN. Alternatively, they could try and
guess your recovery seed. Good luck to them on that. The best security money can buy. The basic Ledger Nano S and Bluetooth-enabled Ledger Nano X cost $59 or $119, respectively.
- Type of wallet: Offline hardware for desktop and mobile devices
Exodus is a completely free multi-currency wallet that is available for both mobile and desktop. This digital wallet includes an attractive user interface that puts many investor-focused tools in your hands. Exodus is that it’s super easy to use, has 24/7 support via live chat, a built-in crypto exchange, and supports over 100 different cryptocurrencies. Remember, though, that your private key is stored on your computer. Make a backup of the key to ensure it’s safe just in case your computer is stolen or dies. Exodus has two main ways of regaining access to your crypto: by using a twelve-word passphrase, that you generate when creating your wallet, or simply by email restore feature.
Great to know that the security on Exodus is upgradable due to the wallets integration with Trezor, which we will talk about below.
- Type of wallet: Desktop and mobile
Trezor is another hardware device like the Ledger. So you can enjoy all the benefits of Exodus while having your crypto secured by a hardware wallet. Similar to Ledger you have two models to choose from. The original Trezor One and the Trezor Model T, that comes in at $78 and $165, respectively. Tresor is the ideal crypto wallet for anyone that wants first-class crypto wallet security and needs it to be as simple and quick to set up as possible.
- Type of wallet: Offline hardware for desktop and mobile devices
- Trust wallet
One of the best options out there for anyone wanting to carry around their crypto on their
mobile. The app can be downloaded for free from the Apple App Store, Google
Play, and as .apk for Android. It is another multi-crypto wallet and its able to interact with decentralized applications directly through the app thanks to its Web3 browser. It’s also fully opensource. This wallet works perfectly with Binance Dex and Kyber Network Protocol. That means you can make instant trades of decentralized exchanges with no fuss at all. Trust wallet is an ideal choice for anyone wanting a free multi-crypto wallet app to manage your coins on the go.
- Type of wallet: Mobile
The best wallet for you will honestly depend on what coins you want to store, the functionality you need, and what level of security you’re comfortable with.