Keen to invest in crypto? Then you’re going to need a crypto wallet.
A crypto wallet allows you to store, send and receive digital currencies. Some wallets are designed for specific types of crypto, whereas others cater for multiple currencies within one wallet.
A wallet has a public key, which is a sequence of letters and numbers that form the wallet address. This key is used to send crypto. A private key is used to access and control funds connected to the wallet, similar to how a PIN is used for a bank card.
Types of crypto wallets
Crypto wallets can be broadly split into two main categories—hot wallets and cold wallets. Any wallet that connects to the internet is a hot wallet, while cold wallets are stored offline—safe from hackers.
There are a number of different types of wallets to choose from.
These wallets are downloaded and installed on your computer. A recovery sentence and private key enable you to re-install your wallet if required. While these wallets are easy to set up and use, it’s essential to have a strong firewall plus up-to-date antivirus and anti-malware software for your computer to protect your crypto.
These run as an app on your smartphone, making crypto access convenient. A private key is stored on the device. The ability to scan other wallet addresses saves time on transactions. Keep your phone safe though, so others can’t access your crypto. Some apps have passphrase backup for your wallet.
Online wallets are simple to use. Most need only an email and password to set up. They can’t be lost and are accessible from any computer with internet access. On the downside, you may not have total control of your private key—the wallet provider may own it. Also, platforms maintaining thousands of wallets can be vulnerable to hackers.
4. Hardware wallets
Hardware wallets are cold wallets and as such are regarded as being very secure. Your private key is kept on a USB stick or device that plugs into your computer. Transactions are carried out online, then the key is removed to protect against hacking. There’s a risk of losing the USB, but most are PIN protected. According to Finder, hardware wallets can be expensive though, often $150 or more.
5. Paper wallets
This option requires you to print off private and public keys to use as a wallet. While this cold wallet is secure from malware or hackers, it can be lost or stolen. These wallets can also be confusing for newcomers, with transfers requiring use of software wallets and QR codes.
Choosing a wallet
So, given how many types of wallets are available, how do you choose one?
Here are some tips:
- Decide on the functionality you need. You might want a currency-specific wallet for example, or a multi-crypto one. You might want to be able to exchange currencies within the wallet.
- Look for security features such as 2-factor authentication.
- Although many wallets themselves are free, check transaction fees and other ongoing costs.
- Browse user and industry reviews of products and companies, and check if there have been any security breaches.
Whichever wallet you choose, the main thing is to keep it secure! Make sure you create a strong password, keep a backup and enable the available security features.