Choosing a cryptocurrency wallet is your first step to sending or receiving cryptocurrencies like Bitcoin, Ethereum, Dash, or Litecoin. In this article we discuss the 5 different cryptocurrency wallet types, and the advantages and disadvantages for each.
Related Cryptocurrency Terms
Before we begin looking at each of the cryptocurrency wallet types, there are a few additional cryptocurrency terms you’ll need to understand first.
Hot Wallet vs Cold Wallet
The difference between a hot or cold wallet is simply whether or not they are connected to the internet.
Hot wallets are less secure cryptocurrency wallets because of the risk internet access poses to your privacy and security, however they are much more user-friendly.
Cold wallets are used for the “cold storage” of cryptocurrencies, and are stored offline for improved security. They’re more like a real-world safe or a vault than a leather wallet you carry with you for day to day transactions.
You will likely use cryptocurrency wallet types that are connected to the internet and wallets that aren’t, depending on your needs –a hot wallet for small day-to-day transactions, and a cold wallet for long term holding.
Public and Private Keys
Put very simply, cryptocurrency is represented by an entry in the blockchain associated to a public key.
In order to move currency around, exchange it, make a purchase with it, or convert it back to FIAT money, your private key is required to unlock it. Typically, your private key is stored within your wallet, or online.
If you lose your private key, your cryptocurrency is lost. This is why it is very important to consider how your private keys are stored.
In other words, Bitcoin or other cryptocurrencies don’t get hacked –the devices that store private keys do. Some wallets keep these private keys offline, and other wallets or exchanges often hold them for you online.
This is why it is up to you to decide how you want your private key to be managed, and you decide this when you choose your cryptocurrency wallet type.
A multisig cryptocurrency wallet, also known as a “multisignature” wallet, refers to cryptocurrency wallets that require input from multiple parties in order to complete a transaction.
Consider it like a shared bank account, where all parties need to enter their PIN or order to complete a transaction. A multisig wallet is ideal for use by families and businesses alike.
Some wallets only hold one type of cryptocurrency, while others will allow you to store multiple types of cryptocurrencies in one place. For example, a wallet like Exodus can store several currencies such as Bitcoin, Ether, EOS, Dash, and others.
Additionally, some wallets will also allow you to convert “cryptocurrency A” into “cryptocurrency B”. So if you would like to take your Bitcoin and convert it to Ether, you can do this inside specific wallets that havee this feature. This is accomplished through an integration with a third party called ShapeShift.
If your multi-currency wallet cannot convert the cryptocurrencies that it contains, you will need to take additional steps to accomplish this online. This is why it is important to look for ShapeShift integration for your hot wallet before you get started.
The 5 Cryptocurrency Wallet Types
Cryptocurrency wallets can be divided into five types and each comes with varying levels of security to ensure the safety of your private keys; online (web), mobile, desktop, hardware, and paper wallets.
Now that you have a little foundation of related terms, let’s take a look at the 5 different types of cryptocurrency wallets, their advantages, and their disadvantages.
1. What is an Online Wallet? (Web Wallet)
Online wallets are typically cryptocurrency wallets that you access via your web browser. In some cases people refer to all hot wallets as online wallets, but that only gets confusing when we start to discuss individual platforms that your wallet resides on, such as mobile or desktop wallets. Do not put the bulk of your crypto onto these wallets –trust me.
If you don’t know what a “honeypot” is, understand that online exchanges and online wallets are incredibly attractive to hackers and they work much harder to f*ck with them. It happens, you’ve been warned.
- Fastest way to complete transactions (no lag between locations of app and server)
- Ideal for holding small amounts of cryptocurrency
- Some are able to manage multiple cryptocurrencies, transfer amounts between them, or be directly integrated into an exchange
- TOR network can be used for more privacy
- Users are susceptible to phishing scams, malware, insider hacking, DDOS attacks, and outdated security measures
- Your wallet is “out of your hands” and coin information is stored on a third-party
- Your computer is open to malware, keyloggers, and viruses (never use an internet café, never view porn, keep your software updated, get Avira or AVG and MalwareBytes, read org and keep up with the latest geek news).
Examples: Exchanges like Bittrex or QuadrigaCX, and online wallets like Coins.ph and GreenAddress.
2. What is a Mobile Wallet?
Mobile wallets provide access to your cryptocurrencies wherever you are with your mobile device and provide additional features above and beyond wallets that are completely internet-based, however they also come with additional security risks.
- More practical and easier to use than other wallets, great to accept or send payments on the fly
- Additional features above and beyond both online and hardware wallets like QR code scanning
- TOR network can be used for more privacy
- Phones are incredibly insecure devices –nothing will save your crypto if your phone has been maliciously compromised or rooted, not even wallet app encryption
- Your phone is open to malware, keyloggers, and viruses
Examples: Jaxx, BreadWallet, Mycelium, and CoPay.
3. What is a Desktop Wallet?
A desktop cryptocurrency wallet is considered somewhat more secure than both an online (web) wallet and mobile wallet, however that depends on your commitment to online security.
In cases where you use an older laptop, completely offline, on a clean operating system install –you could consider this a really effective cold storage method. Like phones, most people have an older laptop floating around and this could be a great use for it.
- Incredibly easy to use crypto wallet
- If “never been kissed” by an internet connection this is a great cold storage solution
- Private keys not stored on a third-party server
- TOR network can be used for more privacy
- If connected to the internet there are security and privacy caveats
- Computer repair people! If you rely on the Nerd Squad, they could make away with your coins
- If you forget to back it up and your computer dies, you’re f*cked
- Your computer is open to malware, keyloggers, and viruses
- Some wallets ask for really strange privacy permissions (security certificates)
Examples: Exodus, Multibit, Armory, and Bitcoin Core.
4. What is a Hardware Wallet?
Hardware wallets are slightly less user-friendly cryptocurrency wallets than web wallets and desktop wallets, but they’re easier to work with than paper wallets and more secure than hot wallets (most of the time). Say that 10 times fast!
Some require batteries, some don’t. Some have screens which mean you don’t need an insecure computer to back up your private keys, some don’t. Some handle hard forks better than others (Trezor had a short-lived issue during the BCH fork, Ledger Nano had no issues –any issue during a hard fork can be an emotional rollercoaster), and they all are often sold out, so snatch one up while you can if they’re available.
They are great for storing large amounts of cryptocurrency you don’t need to move around often, and they offer more control.
- If it has a screen, it’s the most secure way to store crypto long-term
- Stronger security than all other wallets, for the most part
- Cumbersome for some beginners to use, but an absolute must for large quantities of cryptocurrencies
- Often sold out, Amazon is your best bet
5. What is a Paper Wallet?
Before hardware wallets, paper wallets were the defacto standard for cold storage of cryptocurrencies. There are paper wallets and then there are secure paper wallets.
- One of the most hacker-proof crypto wallet choices
- Not stored on a computer
- Private keys not stored on a third party server
- More effort required to move cryptocurrencies around
- More technical understand required
Examples: BitAddress.org and Bitcoin Armory can help you create and print your paper wallet.
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There’s no “my dad is stronger than your dad” when it comes to any cryptocurrency wallet –just as there isn’t with altcoins themselves. What do you want to accomplish with your wallet? Let the purpose dictate the solution, enough said.
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