Cryptocurrency Wallets – Why Do You Need Them?

Wallets are software programs, which interact with the blockchain and allow you to send and receive coins across the whole world in mere seconds. They provide the connection between sender and receiver by providing the connection through the blockchain.

To understand how they work you need to know that your wallet doesn’t contain cryptocurrencies like a real wallet, as they don’t physically exist. Instead it gives you access or ownership over the coins that are stored on the blockchain. When you create a cryptocurrency wallet you actually create a pair of keys – your private key and your public key. The Public key is a combination of numbers and letter, which serves as your address. Just like a physical address you can give your wallet address if someone wants to send you cryptocurrency. Your private key is also a seemingly random very long combination of letters and numbers, but actually it is connected to the generated Public key. It serves as the “password” which gives you control over your public key and as the name suggests you shouldn’t tell it to anyone, as it would be extremely easy for someone to steal your coins.

Now that we explained the basics of what a crypto wallet is, let’s dive into the different kinds of wallets that exist.

• Desktop Wallet

  The first and maybe the biggest category is the Desktop Wallets. These crypto wallets are applications that you download to your computer and are only accessible through it. The only thing you need is access to internet and you are ready to buy, send and receive coins. They are generally considered one of the safest types of wallets, but there is still the risk of your computer getting hacked and having your coins stolen. Some wallets provide and extra layers of security but we will get to that later. Some of the best cryptocurrency wallets in this category are Bitcoin Core and Electrum, if you are interested in storing Bitcoin. Exodus is your best option if you own more than one cryptocurrency and want to manage your coins from one place.

• Mobile Wallet

  Mobile wallets are apps that you download on your phone and are used similarly to desktop wallets, but are even more convenient because people carry their smartphones everywhere they go. They are usually smaller in size than the desktop ones, as phones have limited storage space. Mobile wallets are the most practical for everyday use, because most of them are equipped with QR code scanners with which you can easily scan the address of the person or vendor you want to send coins to instead of typing or copy-pasting long lines of letters and numbers. Mobile wallets carry their own risks, as if your phone gets stolen you will instantly lose your coins if your wallet is not properly encrypted and backed up. One of the most popular wallets for a mobile phone is Jaxx.

• Online Wallet

  Online, or also called Web wallets, are wallets that are accessible through a web page. They are convenient in a way that you can log into them from any device with proper internet browser and access to internet. At the same time, they expose your crypto wallet to the highest risk as in most of the cases you store your public and private keys on a third party server (meaning that you usually don’t have control or even access to your key pair). This means that you have to trust another person or company with storing your funds, which in some cases, especially with bigger amounts is a risk that is not worth taking.

• Hardware Wallets

  The wallets that we discussed above are all considered Hot Wallets, which means they are connected to the internet, thus increasing the risks of getting hacked. On the other hand, Hardware wallets are Cold Wallets (also called Offline Wallets), which means your public and private keys are stored offline, limiting the risk of a theft to a minimum. Hardware wallets are, as the name suggests, hardware devices, usually in the form of a USB Flash Drives, with added features such as buttons and small display. They are usually connected to a Software wallet connected to the internet in order for you to make transactions, but at the same time they don’t face the same risks as other wallets. This is due to the fact that you need to physically approve your transaction by entering a password inside the hardware wallet or other methods for keeping your funds safe, even when connected to the internet. The only downside to them is that they are not cheap. Usually the price of a hardware wallet varies between $100 and $120, but if you have invested thousands of dollars into the crypto sphere, then it’s a small price to pay for your safety. The most popular models hardware wallets are Ledger Nano S and Trezor. Both of them are multicoin wallets so you can store all your coins and tokens in them.

• Paper Wallet

  Another type of Cold Wallet is the paper wallet. It’s by far the simplest cryptocurrency wallet out there and doesn’t need a sophisticated explanation. It’s more or less your set of keys written or printed down on a piece of paper. It’s a good way to store large amounts of coins which you are not going to use for daily trading, as there is absolutely no way that anyone can “hack” it. The biggest risk connected to it is that it’s a piece of paper which can easily be lost, stolen or destroyed so you should really take the necessary steps to protect it. You should store in somewhere safe where only you have access to it and it’s advisable to make a copy of it just in case something happens to it. Another option is to split your wallet into two pieces and store them separately for even higher security.

We will provide a short list of best crypto wallets for each category, based on their security, privacy and additional features:

Now that we went through all kinds of cryptocurrency wallets, we want to finish this article by telling you that we covered only the basics of the topic and if you want to read more on the subject, you can do so at this site, dedicated to crypto wallets, including full reviews, guides, additional features and much more.