What is a Cryptocurrency Wallet?
A cryptocurrency wallet is a software program that stores private and public keys and interacts with various blockchains to enable users to send and receive digital currency and monitor their balance. If you want to use bitcoin or any other cryptocurrency, you will need to have a digital wallet. Some wallets, such as Exodus (https://exodus.io) support multiple different assets.
How do they work?
Millions of people use cryptocurrency wallets, but there is considerable misunderstanding about how they work. Unlike traditional ‘pocket’ wallets, digital wallets don’t store currency. In fact, digital currencies don’t get stored in any single location or exist anywhere in any physical form. All that exists are records of transactions stored on the blockchain.
What are the different types of Cryptocurrency wallets?
There are several types of wallets that provide different ways to store and access your digital currency. Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.
Desktop wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security. However, if your computer is hacked or gets a virus, there is the possibility that you may lose all your funds.
Online wallets run on the cloud and are accessible from any computing device with an internet connection. While they can be convenient to access, online wallets store your private keys and are controlled by a third party, which makes them more vulnerable to hacks and/or theft.
Mobile wallets run on an app on your smartphone. For sending or spending cryptocurrency on-the-go, mobile wallets are your best option. They are however less secure than a locked-away hardware or paper wallet, in the sense that mobile wallets are only as secure as your phone.
Hardware wallets store your private keys offline, so you don't have to worry about your coins' security every time you surf the web as you would with a software wallet. Once it's unplugged, it's secure. So, you only plug it in when you make a transaction, similar to how you might swipe a credit card. Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. To access assets, users simply plug in their hardware wallet into any internet-enabled computer or device, enter a pin, enter their transaction details, and confirm. Hardware wallets make it possible to conveniently transact while also keeping your funds offline and away from danger.
Paper wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward. Transferring bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet.
Are Cryptocurrency wallets secure?
Wallets are secure to varying degrees. The level of security depends on the type of wallet you use (desktop, mobile, online, paper, hardware) and the service provider. A web server is an intrinsically riskier environment to keep your currency compared to offline. Online wallets can expose users to possible vulnerabilities in the wallet platform which can be exploited by hackers to steal your funds. Offline wallets, on the other hand, cannot be hacked because they simply aren’t connected to an online network and don’t rely on a third party for security.
Although online wallets have proven the most vulnerable and prone to hacking attacks, diligent security precautions need to be implemented and followed when using any wallet. Remember that no matter which wallet you use, losing your private keys will lead you to lose your money. Similarly, if your wallet gets hacked, or you send money to a scammer, there is no way to reclaim lost currency or reverse the transaction.
Which Cryptocurrency wallet is the best?
There is an ever-growing list of options. Before picking a wallet, you should, however, consider how you intend to use it.
- Do you need a wallet for everyday purchases or just buying and holding digital currency for an investment?
- Do you plan to use several currencies or one single currency?
- Do you require access to your digital wallet from anywhere or only from home?
- Take some time to assess your requirements and then choose the most suitable wallet for you.
Exodus is a digital wallet that is currently only available on the desktop. It enables the storage and trading of bitcoin, Ether, Litecoins, and many other alt-coins through an incredibly easy to use, intuitive and beautiful interface. Exodus also offers a very simple guide to backup your wallet. One of the great things about Exodus is that it has a built-in shapeshift exchange that allows users to trade altcoins for bitcoins and vice versa without leaving the wallet.
Advanced users searching for a bitcoin mobile digital wallet, should look no further than mycelium. The Mycelium mobile wallet allows iPhone and Android users to send and receive bitcoins and keep complete control over bitcoins. No third party can freeze or lose your funds! With enterprise-level security superior to most other apps and features like cold storage and encrypted PDF backups, an integrated QR-code scanner, a local trading marketplace and secure chat amongst others, you can understand why Mycelium has long been regarded as one of the best wallets on the market.
Bread Wallet is a simple mobile bitcoin digital wallet that makes sending bitcoins as easy as sending an email. The wallet can be downloaded from the App Store or Google Play. Bread Wallet offers a standalone client, so there is no server to use when sending or receiving bitcoins. That means users can access their money and are in full control of their funds at all times. Overall, Bread Wallet’s clean interface, lightweight design and commitment to continually improve security, make the application safe, fast and a pleasure to use for both beginners and experienced users alike.
Created by Bitpay, Copay is one of the best digital wallets on the market. If you’re looking for convenience, Copay is easily accessed through a user-friendly interface on desktop, mobile or online. One of the best things about Copay is that it’s a multi-signature wallet so friends or business partners can share funds. Overall, Copay has something for everyone. It’s simple enough for entry-level users but has plenty of additional geeky features that will impress more experienced players as well.
Armory is an open source bitcoin desktop wallet perfect for experienced users that place emphasis on security. Some of Armory’s features include cold storage, multi-signature transactions, one-time printable backups, multiple wallets interface, GPU-resistant wallet encryption, key importing, key sweeping and more. Although Armory takes a little while to understand and use to its full potential, it’s a great option for more tech-savvy bitcoiners looking to keep their funds safe and secure.
Trezor is a hardware bitcoin wallet that is ideal for storing large amounts of bitcoins. Trezor cannot be infected by malware and never exposes your private keys which make it as safe as holding traditional paper money. Trezor is open source and transparent, with all technical decisions benefiting from wider community consultation. It’s easy to use, has an intuitive interface and is Windows, OS X, and Linux friendly. One of the few downsides of the Trezor wallet is that it must be with you to send bitcoins. This, therefore, makes Trezor best for inactive savers, investors or people who want to keep large amounts of bitcoin highly secure.
The Ledger Wallet Nano is a new hierarchical deterministic multisig hardware wallet for bitcoin users that aims to eliminate a number of attack vectors through the use of a second security layer.
Green Address is a user-friendly bitcoin wallet that’s an excellent choice for beginners. Green Address is accessible via desktop, online or mobile with apps available for Chrome, iOS, and Android. Features include multi-signature addresses & two-factor authentications for enhanced security, paper wallet backup, and instant transaction confirmation. A downside is that Green Address is required to approve all payments, so you do not have full control over your spending.
Blockchain is one of the most popular bitcoin wallets. Accessing this wallet can be done from any browser or smartphone. Blockchain.info provides two different additional layers. For the browser version, users can enable two-factor authentication, while mobile users can activate a pin code requirement every time the wallet application is opened. Although your wallet will be stored online and all transactions will need to go through the company’s servers, Blockchain.info does not have access to your private keys. Overall, this is a well-established company that is trusted throughout the bitcoin community and makes for a solid wallet to keep your currency.