A cryptocurrency wallet is essentially a software program that you use as the credit card — to transact with other market participants. It allows you to receive bitcoins or any other cryptocurrency, store it, pay with it for goods and services, trade and exchange for fiat or other coins.
Any wallet stores the public key, that is like your bank account number, and the private key, which is like the PIN number for the credit card. You would want to show the card at the shops but you would never share the pin code with anyone.
The number of crypto wallets has grown year by year since the invention of Bitcoin in 2008: at the end of 2016 there were around 10 millions users, by the end of March 2020, there were more than 47 million users of the crypto wallets of different types, according to Statista.
The needs of these 47 million users vary significantly. Some store bitcoins as hodlers, some invest in altcoins, some trade actively with all kinds of cryptocurrencies to get the most profit out of the market now. That is why there is no “one size fits all” solution.
Let’s dive deeper and see what kind of wallets might suit your needs best!
Old School Solution — A Piece Of Paper
A paper wallet is a piece of paper with printed private and public keys. To be precise, it is usually two pieces of paper, because it would be not wise to keep them together.
- The paper with the public key is used to receive assets on your account and transfer coins from your other wallets.
- The paper with the private key is used to withdraw funds and send currencies to other people or wallets.
It is a cold wallet: there is no way you can connect paper to the internet. That makes this solution immune to hackers attacks or phishing schemes. Because of that, some experts argue that it is by far the safest way to store the cryptocurrency wealth. Yet you might still want to opt for a two-stage verification process to be 100% sure.
Also, it is definitely the most old-school style and the least convenient wallet among different types of wallets currently available in the market. Additionally, it is not always a feasible option, because not all cryptocurrencies let you print the address.
It is important to remember that paper is quite a vulnerable material. Famous Russian writer Bulgakov said that “Manuscripts don’t burn” but your wallet will. Moreover, the ink will flow upon the touch of water, which could be just a humility of the tropical day in the middle of the rainy season.
A Tiny Computer With A Single Purpose Of Storing Your Coins
The hardware wallet is a hardware version of the paper wallet. Only it has an additional layer or two of protection.
The safety of the hardware wallet is based on the fact that the device is a single-purpose computer that is not smart enough to contain malware. Of course, ever the most popular devices, like Ledger Nano, Keepkey or Trezor, could be hacked under some circumstances, especially using such techniques as address swapping.
The hardware wallet is still one of the most secure solutions among different types of cryptocurrency wallets. It is also the easiest way to secure your bitcoins since there is no need to protect the computer. You can connect your wallet even to the infected device and still be safe and sound.
On the other side, it is not very easy to understand for complete novices and it is not free. You might need a couple of wallets for backup purposes or to maximise security. One wallet can contain various cryptocurrencies, or several hardware wallets can be used as a backup for your funds in one currency only.
To understand better how many hardware wallets you might need and find the optimum solution, read our ultimate guide for choosing the hardware wallet in 2020.
A Desktop Client To Store Keys On Your Hard Drive
The desktop wallet is the desktop client or the software installed directly on your computer. If you choose the desktop wallet, like Exodus, Bitcoin Core or Electrum, your keys would be saved on your computer’s hard drive, which is a plus.
Most computers are connected to the internet, so it would be a type of hot storage unless you never ever had plugged it into the World Wide Web. Therefore, the pain of regularly inspecting your computer and installing anti-malware solutions lies entirely on you.
The desktop wallet would not be the most obvious solution to use on the go. Secondly, you might need to create the backup version, since the computers are not 100% undamageable, and they can be easily stolen.
Accessing Your Funds Via A Browser
With web wallets, you can access your funds through different internet browsers, like Google Chrome or Brave. This is definitely hot storage and private keys are not held on your hard drive, like with desktop wallets, but online, in the browser of your choice. This gives hackers an opportunity to use DDOS attacks to gain your coins.
Many cryptocurrency exchanges, like Coinbase, offer hosted web wallets to ease the trading processes. Nominex exchange also helps the clients to enable fast transactions. The risks here lie not only on the personal level but on the level of the platform.
Luckily, nowadays such platforms offer the protection that is in many cases more strong than one regular user can guarantee on a personal computer.
With the growth of market maturity, more and more users trust such wallets since it is very convenient for trading. Web wallets also attract novices who want to start transacting with currencies without diving deep into technical details.
Using Cryptocurrencies On The Go
No surprise that in the 21st century, the mobile wallets lead as the most popular option among different types of cryptocurrency wallets.
Their main advantage is the convenient use on the go. Imagine that in the coffee shop you would use the QR code with your bitcoin key instead of ApplePay. This way you can also trade your currencies wherever you go.
Some experts argue that mobile wallets are safer than their web brothers since there are fewer viruses for smartphones. Yet with fewer viruses made for the phones, fewer people take precautionary measures and install anti-virus software. As a result, this is a debatable plus.
Mobile wallets vary in terms of compatibility with different devices and supported cryptocurrencies. But we suggest also to look a bit deeper and check, whether there is a strong development community behind the app and what are the backup and restore functions.
Mobile apps are so popular for some reasons like additional features. For example, you can download the Nominex app for free and not only transact with your assets but also participate in daily tournaments, without risking your assets and gain access to other entertrading activities that unite fun and trading experiences in an easy-to-use app. Using non-custodial wallets, like Bitcoin.com wallet, also allows you to be fully in control of your funds at all times.
Your Wallet For Your Purpose
First and foremost, we all remember the saying: Not your keys, not your Bitcoins. Yet it seems unreasonable not to use cryptocurrency exchange accounts or other benefits offered by more convenient options than hardware wallet or paper wallet.
Instead of choosing one wallet, we suggest using different kinds of wallets for different kinds of purposes.
- For storing large amounts of bitcoins, ethereum or other altcoins, the cold storage solutions with extra security would do their jobs best.
- For trading and convenient on the go use you might want to choose web or mobile wallets.
The most important is not actually the type of wallet, but the wallet itself. Before placing your precious bitcoins anywhere, it is essential to check the reputation of the platform, the producer of the device or vendor.
A wallet is just a software, and as with all software, the must-have in 2020 is an open-source code with a strong developers community.
To learn more about the topic, visit https://nominex.io/blog/2020/07/06/5-main-types-of-cryptocurrency-wallets/