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5 types of cryptocurrency wallets: how to choose the best one?

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At first glance, a cryptocurrency wallet may seem to be something very complicated for non-geeky people and even scare them off. The long and illegible mix of digits and numbers that a bitcoin wallet address represents is surely not as convenient as a customary bank card number.

However, since the cryptocurrency craze began and the demand for a user-friendly and secure place to store bitcoins grew significantly, many companies have developed different solutions, each one striving to improve the user experience. In this article, we are going to discuss five main types of cryptocurrency wallets and give some advice on which wallet to use in different situations.

What is a Bitcoin wallet?

First, let’s define what cryptocurrency wallets are and how they work. Just like with a regular physical wallet, a bitcoin wallet is designed to store and use your digital funds, be it BTC, ERC-20 tokens or any other cryptocurrency.

To be more exact, since Bitcoin is just a piece of code, it is not stored anywhere. To access your coins, you need to have a combination of a public address and a private key, and this is exactly what cryptocurrency wallets are made for. Your Bitcoin wallet stores the private keys from your funds and uses them as a secret passphrase to confirm a transaction on the blockchain.

Not only hardware wallets

The bitcoin wallets can be classified into five main groups. Each of these wallet types has a different level of security basing on how they cooperate with your private keys. Before you get yourself any cryptocurrency wallet, define for yourself how exactly you are going to use it and what security features are crucial for you.

1. Web wallets

These are the cryptocurrency wallets that can be accessed online via a web browser, such as Chrome, Mozilla, Internet Explorer, etc. These ‘hot wallets‘ are very convenient for non-tech-savvy users as they are very similar to usual online bank accounts.

But online wallets also have their drawbacks and they are considered to be least secure, because the private keys are kept online and are a juicy target to all sorts of hackers. If you store a solid amount of funds on a web wallet and use “password123” as an enter-phrase think of inventing something more secure and preferably set up two-factor authentication. Otherwise, one day you may see that your funds are gone for good.

Examples of web wallets:

  • MyEtherWallet
  • MetaMask (works only for coins based on Ethereum and ERC-20 tokens, as well as the previous one)
  • Coinbase (previously known as Gdax)
  • CEX.io
  • Bitstamp
  • BitFinex

Advantages

  • Accessibility:  You can access your wallet from any device in case the internet connection is available.
  • Fast transactions: The online wallet doesn’t need to connect to a server, that’s why the funds are delivered instantly. The funds’ delivery time only depends on how much the BTC or Ethereum blockchain is overloaded in a given moment of time.
  • Multi-currency support: Some of the web wallets allow storing different cryptocurrencies on them, such as Litecoin, Bitcoin Cash,  Decred,  Zcash, Ethereum Classic, Dogecoin and other altcoins, as well as exchange them between each other.

Disadvantages

  • Low security: You may fall victim to phishing, hacks, DDOS attacks and other sorts of online fraud. Consider setting up two-factor authentication to protect yourself.
  • Your funds are controlled by a third-party service.: This service can freeze them at any time with no explanation, just like a traditional bank, or go bankrupt.

2. Mobile wallets

In the era of smartphones and tablets, creating a mobile version of an app has become some sort of a mannerly thing for software developers. The possibility to access your funds on-the-go via a mobile bitcoin wallet comes really handy, especially when you use cryptocurrencies as means of payment rather than an investment target.

However, such wallets also have a low level of security and mobile devices are a favorite target of pickpockets.

Examples of mobile wallets

  • Mycelium
  • Coinomi
  • Electrum
  • Jaxx
  • BreadWallet
  • CoPay (comes with multi-sig option that provides higher security)
  • Ethos (a universal wallet that supports BTC, ETH and 150+ other altcoins)
  • Infinito Wallet (another universal wallet with
  • Newly also blockchain-based smartphone from Sirin labs

Advantages

  • Convenience: You can pay with bitcoins through a mobile app in a retail store or send funds to a friend or a business partner on-the-fly.
  • Fast transactions: The funds are delivered very quickly as this is the number-one purpose of creating such apps.

Disadvantages

  • Low physical security:  If your mobile is stolen you may say farewell to your bitcoins.
  • Low online security: Spending coins online is not safe either since mobile apps are mostly internet-based and can easily be hacked or become a target to cyber threats.
  • Limited functionality: Typically, mobile wallets offer fewer features than their web alternatives due to the limited capacity of mobile devices.

3. Desktop wallets

Desktop cryptocurrency wallets or software wallets are surely more secure than their mobile and online alternatives. If you are careful while browsing the internet, never visit porno websites, don’t click on suspicious links in your mailbox and have a reliable antivirus, then the chances of your funds being hacked are running on empty.

However, there’s a risk of your hard drive crashing and your BTC funds being gone together with the software wallet. Also, the desktop crypto wallets usually provide you with a mnemonic phrase that is required if you reinstall the software or want to access your funds from another device. So you will have to find a safe place to keep this phrase and make sure that no one ever gets access to it.

Examples of desktop wallets

  • Exodus
  • Multibit
  • Armory
  • Bitcoin Core

Advantages

  • Convenience: Installing a desktop wallet is no more complicated than any other piece of software, the interfaces of popular crypto wallets are intuitive and user-friendly.
  • A higher level of security: The funds can only be accessed from a PC where the crypto wallet is installed. The highest level of cryptocurrency security with software wallets can be achieved if you use your old laptop with no access to the Internet.
  • You are the only one to control your funds: Your private keys belong to you and no one can ever block your account.
  • Multi-currency support: Most of the digital coins develop their own software wallets that are designed for storing only this type of currency. But there are also multi-coin wallets that support many different currencies and allow to convert them between each other (BTC, ERC-20 tokens, Litecoin, Bitcoin Cash and others).

Disadvantages

  • Security threats when going online: Your PC is vulnerable to viruses and other types of online malware, so there is always a risk of catching something unpleasant that may steal your digital currency.
  • Your hard drive may die: This is a possible scenario for old PCs. So unless you back up your PC to the cloud you may lose all your funds in a blink of an eye.

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4. Hardware wallets

For those who are keen on storing large amounts of crypto long-term, hardware wallets are the best solution from the security point of view.

A hardware wallet is a USB-like hardware device that is designed for storing your private keys in the so-called ‘cold storage’. Typically, cold wallets come with a screen and a few navigational buttons that can help you send your funds even if you don’t have a device with the internet connection at hand to plug the wallet in.

Examples of hardware wallets:

  • Ledger Nano S
  • Trezor

Advantages

  • Security: Since hardware wallets represent offline devices, they come with a set of security features and they can never be hacked or infected. Even if you plug a wallet into an infected PC, it has a built-in protection.
  • Recoverable funds: Even if you lose your hardware wallet you can still recover your funds using the offline backup of your wallet. This feature is offered both by Trezor and by Ledger Nano S that we’ve mentioned above.
  • Multi-currency support: Most popular hardware wallets support from several dozens of cryptocurrencies up to several hundred. They work fine with Bitcoin and a number of Ethereum-based cryptocurrencies as well.

Disadvantages

  • Costs: Security has its price. The hardware wallets typically cost $70-$150 (with Trezor, the costs may go up to almost $400 for the ultimate package), but for a serious cryptocurrency investor, this should not be a problem.
  • Not beginner-friendly: Hardware wallets have a complicated interface and fewer features than web apps.
  • Often sold out: During the market uptrend, when all the cryptocurrencies were on the rise, bitcoin addicts found it difficult to get hold of hardware wallets as the demand for them exceeded the offered amount.

5. Paper wallets

With paper wallets, you can be sure that no hacker will ever compromise your funds. This type of wallet is the best choice for those who strive to get the highest level of security, but they require some technical skills, so they will not work for every newbie. It doesn’t matter if you are going to store Bitcoin or Ethereum, the paper can handle any cryptocurrency and can be considered a truly universal wallet.

You can get yourself a paper wallet with the help of special services. Simply print your private keys and public addresses on a piece of paper and use it whenever you want to send or receive crypto funds. You can use a generated QR-code for your convenience so as not to make a mistake while typing the keys.

Advantages

  • Security: A paper wallet is the most secure way to store your crypto.
  • Price: Printing one page on a printer costs literally nothing.

Disadvantages

  • Not for newbies: Creating and using paper wallets requires advanced technical skills.
  • Treated with caution: Paper can easily be crumpled, torn apart or burnt, so you have to take additional precautions for ensuring your wallet’s durability.

Conclusion: so how to choose a crypto wallet?

With cryptocurrencies, there is no third-party to control your money, you are the only one in charge of your funds’ security. Selecting the right bitcoin wallet for storing your cryptocurrency is very important as it should meet your requirements, whether you are a long-term investor or want to make use of bitcoins in your daily life.

If your aim is to make money on long-term investing then the hardware wallets such as Ledger Nano S or Trezor would be the best solution since they provide the highest level of security. For those who simply want to pay with bitcoins in a shop, web wallets such as Coinbase and mobile crypto wallets with in-built pay-pass options provide a better choice. If you are an ICO investor and need a universal cryptocurrency wallet to store your tokens then you should look for something that will support the blockchain that the project uses.

Thoroughly check the options that we’ve described in this article and decide yourself which cryptocurrency wallet suits your needs best.

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