All about Wallets here on YourCryptoLibrary!

Wallets

On this page you’ll learn more about cryptocurrency wallets, we cover the following items: What is a wallet, what are the different types of wallets and which one is most suitable for you?

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What is a wallet?

A wallet is a place where you can store your digital currency. You need a wallet when, for example, you have purchased your first Bitcoin or Ethereum and want to store it somewhere. The purchase is done through a trading platform, also called an exchange (or broker). You can leave your cryptocurrency on the exchange, but this is less secure than storing it in a (digital) wallet of which you hold the private key.

A wallet always consists of a ‘public key’ and a ‘private key’. The public key is can be shared with others safely and can be seen as your deposit address and can be used to view your wallet’s balance. The private key should never be shared with anyone, as it provides access the wallet. It’s basically your password.

Cryptocurrency wallets can be divided in four different categories:

Hardware wallets

Software wallets

Online wallets

Paper wallets

Hardware wallets

We consider hardware wallets to be by far the safest choice to store your cryptocurrencies. A hardware wallet is a physical device that stores the key (private key) on the device itself. A hardware also known as a ´Cold storage´ wallet. 

A cold storage wallet is a wallet that stores the digital currency offline. Access to the digital currency can only be obtained by logging in to the physical device where the cryptocurrencies are stored.

Because the security measures taken in a hardware wallet are very advanced, it is virtually impossible for malicious parties to steal your Bitcoin or other cryptocurrencies.

There’s two main hardware wallets our team has personally been using. These are the “Ledger Nano S” and the “Trezor Hardware Wallet’’. Both hardware wallets support many different cryptocurrencies.

In terms of price, the Ledger Nano S is a bit cheaper than the Trezor. Both provide clear instructions on how to get started, making it very easy to store your cryptocurrency safely.

Software wallets

Software wallets are wallets that you can install on your computer or smartphone. Software wallets are digital wallets, enabling you to access your cryptocurrency at anytime, anywhere. You would say that this is very beneficial, but at the same time it’s also riskier and subject to e.g. hacks or phishing websites.

There’s software wallets designed particularly for one blockchain network, or cryptocurrency. However, there are also many wallets that support multiple cryptocurrencies. Examples of multi-currency software wallets include Atomic WalletTrust WalletExodus and Jaxx.

Online wallets

For online wallets, parties such as exchanges enable you to store your cryptocurrencies with them. Examples of online wallets are therefore mainly exchanges such as Coinbase, Binance, KuCoin, BitMax and many other exchanges.

An online wallet offers you the opportunity to manage many different cryptocurrencies in one place. In addition, it is convenient to store your cryptocurrencies on an online wallet when you plan to hold them only for a short time, or trade with them. This way you can directly buy or sell cryptocurrencies, without having to send them from a hardware or software wallet to an exchange first.

Advantages

  • You can access your cryptocurrency anywhere, anytime
 
  • Besides storing crypto, you can directly buy and sell your cryptocurrency
 
  • Ease of use
 
  • Typically available for both mobile and desktop

Disadvantages

  • Your cryptocurrencies are stored with a third party. It’s incredible important you do research to the parties you store your cryptocurrency with, as as a rule of thumb: not your keys, not your crypto!
 
  • In case something happens to the third party (e.g. bankruptcy, a hack, shutdown of the exchange), there’s a chance of losing your cryptocurrency.

Paper wallet

It is actually exactly as it sounds. The idea of a paper wallet is that you put your private key on a piece of paper and then make sure that this private key cannot be found anywhere else. At this point nobody can get hold of your private key unless they manage to get hold of that piece of paper. It is advisable to keep this piece of paper in a safe place.

Furthermore, a paper wallet works exactly the same as regular wallets. The moment you want to send cryptocurrency to the wallet you can just send it to the public key of the wallet. The public address also enables you to view your balance without having to first access the wallet. When you want to sell or transfer the contents of your paper wallet you have to create an online wallet and use your private key to access your funds.

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Conclusion

Four different types of cryptocurrency wallets have been discussed. 

We consider a hardware wallet to be the safest option, followed by a software wallet, followed by digital wallets. Paper wallets are safe, but are more subject to be lost.

Which of the three options you can best choose depends very much on your situation. If you plan on buying a few cryptocurrencies and not look at them for a long time, a hardware wallet sounds like the best option for you. Whereas if you’re a trader, digital options may be best for you.

For traders, we would recommend to only keep a certain amont in a digital wallet. The rest would be best of stored in a hardware wallet.

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