Are you looking to invest in Bitcoin and other cryptocurrencies soon? Similar to how you secure your fiat money in banks, safes, and pocket wallets, you will also need to choose a good way to store your crypto. Luckily, you can choose between the best crypto wallets.
There are hot and cold cryptocurrency wallets. Hot wallets store your crypto online, while cold wallets store your crypto offline. Are you looking to make a choice? Read on as we describe the different categories of hot and cold wallets. But first:
What Is a Crypto Wallet?
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A crypto wallet is software that stores the public and private keys you need to access your cryptocurrencies. You need a wallet to send and receive crypto, or monitor your crypto portfolio. It is called a wallet because you use it just like a normal wallet for fiat currencies. In application, however, unlike the pocket wallet, the crypto wallet does not store physical crypto coins. In fact, your crypto coins are not stored anywhere in physical form.
While you may know how much crypto you own in numbers or value, your crypto is a record of transactions stored on a blockchain. These transactions include transferred crypto ownership from one account to another and are signified by a difference in the amount of crypto in the users’ wallets.
The only way to invest in crypto is when you have a reliable wallet since it helps you complete transactions on the blockchain.
As mentioned above, a crypto wallet stores the public and private keys you need to run your crypto business. The public key is an address to which other crypto investors can send crypto. The private key is your confidential password that you cannot share with anyone to keep your investment safe.
Types of Crypto Wallets
While a crypto wallet works almost similarly to your pocket wallet, it can be physical or non-physical.
A physical crypto wallet is known as cold storage and can be a paper or hardware wallet. A paper wallet is a small piece of paper with your keys and an easily-scannable QR code. Then, the hardware wallet is a small device that stores your credentials. Therefore, you need to store your physical wallets carefully and have them on hand when completing transactions.
A crypto wallet can also be non-physical, a type otherwise known as hot or software storage. This type of wallet is software you have on your devices, such as PC, laptop, or mobile phone. It stores your credentials on the device, making it easier to complete crypto transactions at a moment’s notice.
Besides the form, you can also choose between custodial and non-custodial wallets.
With custodial wallets, you do not independently own the wallet keys. As a result, you may not have full control of your investment as the security of your wallet hinges on the company’s trustworthiness and reputation. If the company goes bankrupt, you might also lose your crypto.
Non-custodial wallets are the better option since you independently own the wallet keys. As such, you can easily keep your crypto investment safe by not sharing your private key/phrase with anyone.
Most hardware and paper wallets are non-custodial, while web-based software wallets are custodial.
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These wallets are physical devices that store your public and private keys. The wallets are devices that resemble a USB drive and may come with other features like Bluetooth connectivity. They are the most secure wallets as they store your cryptocurrencies offline, but you must keep them with you whenever you need to transact.
When you want to transact crypto, you will need to plug these devices into a computer. Luckily, in most cases, the hardware wallet does not need you to enter your credentials. Thus, they circumvent the chances of a hacker recording your screen to read the password or hacking your keypresses.
As mentioned above, some modern hardware wallets come with Bluetooth connectivity which is a great feature when you don’t want to plug your device into the computer. However, while that feature sounds like a good way to keep your transactions offline, the Bluetooth wireless connection can compromise your account’s safety if accessed by unwanted parties.
Hardware wallets are an excellent option if you have a large crypto portfolio and even better when you hodl your crypto assets. Since the login process takes a few steps, you may want to use a hardware wallet when you do not want to access your assets very often.
You can get the best hardware wallets at around $50 or more from companies like Trezor and Ledger. Remember, you need a secure place to store your hardware wallet. Since they are small devices, it is easy to lose or damage them, which could mean you lose your investment.
In addition, it is best to keep your computer virus-free and regularly update the crypto software you use to guarantee you the latest security features.
Read the more detailed best hardware wallet reviews
2. Paper wallets
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Paper wallets are the other physical crypto wallets you can use. They, like hardware wallets, store your public and private keys offline, but you need to have them with you for any transaction you want to complete. When using paper wallets, you may manually enter your credentials on a computer or use a QR scanner to bypass the manual typing steps.
As such, they are as secure as hardware wallets, but with one major disadvantage; they are paper wallets, meaning the keys and QR codes are typed/drawn on a piece of paper. Papers are easy to lose or damage, and either of these occurrences means you cannot access your crypto investment, sometimes forever.
So, if you prefer to use a paper wallet, ensure you store it in a safe place after every use. In addition, ensure no unwanted party can access the wallet. Finally, it is also best to create multiple copies of your paper wallet and store them in different safe places that you can access when you want to transact.
3. Software wallets
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Software wallets are apps or extensions for desktop and mobile phones. These are hot wallets, meaning your crypto assets are stored online, making them the least safe if you want to mitigate hacks.
There are several crypto software wallets, including;
a) Desktop wallets
If you use your computer to trade crypto, you can use a desktop wallet. It is an application you can download online, and you can choose to save your keys for easier logins or enter them manually each time you want to transact.
However, understand that desktop wallets rely on your computer’s health and privacy. For instance, you might not want to use a desktop wallet on a computer you share with others, and you most definitely should not use it on a computer with malware. Finally, you may also need to avoid using public Wi-Fi to mitigate the chances of being hacked.
b) Mobile wallets
You can also store your wallet’s public and private keys on your smartphone. This type of wallet is best when you want to buy or sell crypto on the fly. Unfortunately, some variables lend this wallet insecure, such as losing your phone or getting hacked through many wireless connections such as Wi-Fi and Bluetooth.
Still, you can take measures to protect your investment by enabling 2-factor authentication, creating a wallet backup, and using a pin or password to protect the wallet. If you use a mobile wallet, it is best to only store a small amount of crypto for small transactions or for paying bills.
c) Web extensions
The last type of wallet is an online app or web extension from markets, betting sites, or popular crypto exchange platforms like Coinbase, Kraken, Gemini, Binance, and Crypto.com. While web wallets make transactions convenient, they are not very secure since they operate through the internet. In addition, they are custodial wallets, meaning you do not have independent custody of the wallet keys.
If you use a web wallet, it is best to store only a little amount of crypto. This is because of too many insecurity loopholes such as internet connection hacks, website hacks, and device malware or hacks. It is also best to look for websites or exchanges that guarantee maximum security through strong passwords, 2FA, and even hot wallet insurance.
Factors to Consider Before Choosing Your Best Crypto Wallets
One thing about all crypto wallets is you use them to transact online. So, since you connect any wallet online, it is vital that you observe various factors before you choose them. The main are security, ownership, exchange integration, and supported coins.
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Security is of imperative consideration with every move you make in the cryptocurrency industry, including choosing a wallet. Some of the best security features to look for in a wallet are the type of storage (hot and cold), customer service when you buy a wallet, strong passwords, and backups and recovery.
Always look for extra security features like 2FA and pin/password app protection. In addition, also look for authentication notifications every time a log-in or transaction takes place.
As you choose your best crypto wallet, understand what will happen if you lose the wallet or device or forget your credentials. Doing so will help you choose a wallet with the best security, backup, and easy recovery features.
Backup and recovery features include a seed phrase, which is a phrase that contains 12 random words. The seed phrase is linked to your wallet keys and should help you recover your portfolio if you lose the device or wallet credentials. Of course, you should also store your seed phrase in a very secure phrase.
Then, choose a wallet from a company with excellent customer reviews and one that offers help through email, phone, and chat. In addition, choose a wallet with an easy-to-use interface to keep your crypto business seamless.
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You can choose between custodial and non-custodial wallets. As seen above, you do not independently own the wallet keys with a custodial wallet, while you do own the keys with a non-custodial wallet.
If you choose a non-custodial wallet, understand the security measures you have to keep, including password protection and seed phrase provision. On the other hand, only choose a custodial wallet from a reputable brand to avoid losing your investment if the brand suffered any losses or security threats.
Furthermore, it is absolutely important to choose a brand with verifiable insurance for all crypto they hold, as it guarantees a refund of your investment if the company goes under.
3. Exchange Integration
Before choosing a wallet, understand how easily you can link it to your exchange platform. The process includes linking your wallet to your DApp or a decentralized exchange to guarantee seamless asset and funds transfer with every transaction.
4. Supported coins
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Here’s the thing; the best hardware wallets are costly, and software wallets have transactional fees. So, before you decide which wallet to use, understand if it supports the coins you want to invest in. For example, some wallets only support Bitcoin or a single token, while others support up to 100 coins.
So, you can choose a wallet that supports one coin if that’s what you want to invest in or one that supports a larger portfolio when you need to invest in more than one coin. The latter is especially important so you can avoid keeping up with different security requirements for many wallets.
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