Which Cryptocurrency Wallet

Cryptocurrency Wallet Types

You need a wallet to store your cryptocurrencies in, however the choice of cryptocurrency wallets can be overwhelming.  In the real world the wallet you select will have different properties and therefore specific advantages and disadvantages.  For example if you go for a super cool snakeskin example it may look cool but it will be expensive and non too animal friendly.  It’s same with cryptocurrency wallets, each wallet type will have its own distinct properties and associated set of advantages and disadvantages.  This post will run through each type of wallet and the pros and cons of each.

For those totally new to this topic remember that cryptocurrency wallets allow you to store your private key allowing you to authorise and also receive transactions.  If you want to read more on the basics take a look at out beginners guide to wallets

Remember each wallet type is filling the same basic function it’s just how it does it that varies so read through the following list to understand which is the best wallet for yourself.

Desktop

Desktop wallets are software applications installed on your desktop PC, Mac or Linux system. Example Exodus

exodus desktop cryptocurrency wallet

Screenshot courtesy of Exodus

Pros

  • Convenient – The wallet is already on your machine connected to the internet just click and go, good for online purchases
  • Easy to use –  Some desktop wallets such as Exodus have an excellent reputation for usability.  Desktop wallets can be one of the easiest choices for beginners
  • Key ownership – You own the keys on your own device and do not need to trust third parties

Cons

  • Online –  Since your desktop machine is connected to the internet this provides a direct route in for hackers to attack your wallet
  • Viruses – Should your machine become infected with malware or a virus this could potentially capture information from your online wallet and send it back to hackers
  • Locked to device – Funds can only be accessed from a single device, the desktop on which the wallet is installed. If the desktop was faulty or stolen and the wallet was not backed up the keys would be lost

Mobile

Mobile wallets are an app on your mobile device.  The advantages and disadvantages are very similar to the desktop wallet but reflect this wallet type is more portable due to the nature of a mobile. Example Mycelium

Mycelium cryptocurrency mobile wallet

Screenshot courtesy of Mycelium

Pros

  • Convenient – The wallet is already on your mobile connected to the internet and is even more convenient than a desktop device since you can take it with you to the shops to spend crypto
  • Easy to use –  Like their desktop cousins mobile apps such as Mycelium have an excellent reputation for usability.  They are arguably even easier to use than the desktop apps since features such as QR code scanning and the ability to take devices to retail outlets adds to the experience.
  • Key ownership – You own the keys on your own device and do not need to trust third parties

Cons

  • Online –  Since your mobile is connected to the internet this provides a direct route in for hackers to attack your wallet. Arguably worse than a home desktop since you will likely be connecting to multiple hotspots and other untrusted networks
  • Viruses – should your mobile device become infected with malware or a virus this could potentially capture information from your wallet and send it back to hackers
  • Device theft / loss – Losing or having your mobile device stolen is an all too common experience. This creates additional risk in terms of exposing your keys and heightens the need for a backup of your wallet.

Hardware

Hardware wallets are pieces of hardware designed specifically to store cryptocurrencies on. These devices usually come in a USB format which you can then plug into your computer like you would a USB drive. Example Nano Ledger S.

 

Pros

  • Security – Purpose built for storing cryptocurrencies they offer strong security never exposing your private key
  • Recoverability – Most hardware devices are setup using mnemonic phrases as defined in the BIP-39 standard. This is a series of 12-24 words used to setup the device, should you ever lose the device you can use this series of words to recover it
  • Trusted – Purpose built and well respected, arguably the safest way to store crypto

Cons

  • Expense – Hardware wallets are probably the most expensive wallet option with a typical device costing around $100.  The cost will probably negate using this device if you are trading small amounts but obviously if you are storing large amounts of crypto cost becomes less of a concern
  • Convenience – Devices such as the Ledger Nano S are well designed but it is not as simple as having a icon on your desktop or app on your mobile which you can launch at will
  • Loss – Hardware devices are generally small, there is a risk of loss through misplacement. Ensure you have your backup phrases safe should this occur.

Paper

Paper wallets are simply a print out of your private key on a piece of paper

Pro

  • Cold storage –  True cold storage your private key is stored on a piece of paper which of course is totally inaccessible from the internet
  • Cost –  Creating a paper wallet is a free process using sites such as bitcoinpaperwallet

Cons

  • Private key visibility – The private key will be printed and visible to anyone that finds the paper wallet. To work around this use a paper wallet generator that follows the BIP-38 standard and allows a passphrase to be set to encrypt the key
  • Risk of loss damage – A paper wallet could easily be lost or damaged by fire, water etc. Risks can be somewhat reduced by storing in a fireproof safe and keeping offsite copies
  • Ease of use – Not as simple as software wallets. Requires some thought putting into where they are stored, paper used and backups.
  • Risk when used – Although paper wallets can be created and stored offline they will need to be used for transactions from an online system.  If this online system is compromised the private keys will be exposed

Online

An online wallet is one in which your wallet is accessible through a web browser.

Pro

  • Accessibility – the greatest accessibility of any wallet type.  Access your funds from anywhere, any time so long as your device can get online
  • Less management – If you manage your own keys you will need to be proactive in keeping your PC protected, making updates to the software etc.  By keeping it online this is a managed service where all this is done for you

Cons

  • Attack surface – arguably the greatest attack surface for hackers since the wallet can be attacked from anywhere with an internet connection
  • Ownership of keys – You do not have direct ownership of your private key you are putting your trust in a third party, should the site cease to exist you lose access to your funds.
  • Risk – Being centralised, online and not owning the private keys makes this wallet type carry the highest risk

Conclusion

Broadly wallets can be divided into two types hot wallets and cold wallets.  Hot wallet describe those wallets which are connected to the internet permanently such as desktop, online and mobile wallets. Cold wallets describes wallets which offer offline storage and includes hardware and paper wallets. As you read through the article you’ve probably noticed that hot wallets offer a greater ease of use and convenience but at the cost of security vs cold wallets.  Therefore it is sensible for most users to have a small amount of spending money in hot wallets which can be easily accessed and then the greater proportion of their funds in the safer cold wallets. To find a suitable wallet for your cryptocurrency you can use our wallet finder tool.

No matter which type of wallet you choose you need to remember this contains your private keys which allows you to authorise transactions on the blockchain.  If you lose your wallet and the private keys within it you will lose access to your funds and effectively your money will be lost. Treat your wallet with respect and make sure you keep it backed up and with a strong password.  

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