Newbie starter pack: Types of wallets
Which one to choose?
If you are storing your bitcoins somewhere on Binance or any other exchange and you still have them safe and sound, luck is certainly on your side. But you don’t want to rely merely on luck when it comes to your money, right? If the question of choosing a crypto wallet for your funds is giving you a headache, here’s a quick and comprehensive guide on the most popular types of wallets.
Essentially, all crypto wallets have the same structure. A wallet is simply a combination of a public address and your private key to it. What makes each wallet different is how this data is stored and what measures are taken to protect it.
The first two major groups of wallets are simply that: offline and online or else, cold and hot wallets.
The type names speak for themselves. Offline wallets do not connect to the internet all the time, so your personal data is inaccessible from online. Online, or web-hosted wallets, are always connected to the internet and you basically trust your data to a third-party platform. Thus you have to rely on additional security measures they provide.
Here are basic wallet types that are most frequently used nowadays.
Hardware wallets
A USB device that can be connected to your computer or phone. You can physically carry it around, put it in a safe deposit box or keep at home under your pillow. Some of the most popular models are Ledger NanoX, Binance DEX, Trezor and others. If you’re into sleek gadgets, it’s a really neat accessory, but it’s also the safest way to keep your bitcoin. Yes, the device itself can be stolen, but you will only lose its cost, which is around $150–200, depending on the model. The coin you kept on it is easily retrievable.
Pros:
- Ultimately safe
- You only pay one time for the device
- If the device is stolen, you will safely get your BTC back
Cons:
- Quite an uncomfortable way to store coin for active use
- The device is costly
Conclusion: A must if you’re planning to keep a significant amount of coins for a long time.
Desktop and mobile wallets
These are applications you can install on your computer or mobile phone. In desktop apps, your private key is kept in a wallet.dat file locally, on your computer. Mobile apps use QR codes for both public addresses and private keys. Because both your mobile phone and your desktop or laptop computer connect to the internet and can be subjected to malware attacks, fraudulent applications or viruses, it’s always recommended to take additional security measures. Encrypting your wallet with a password and creating offline backups of the wallet.dat file is a way to go about it. Some of the most popular desktop wallets are: Bitcoin Core, Multibit, Exodus, Coinomi. Most popular mobile wallets include Jaxx, Mycelium and others.
Pros:
- Practical and easy to use
- Intuitive, user-friendly interface
- Pretty safe if you stick to basic security measures
- Great for day-to-day storage and trading crypto
- Support multiple coins
- Work with anonymizers and TOR network for added privacy
Cons:
- Largely depend on your device safety
- If you need a physical repair, go only to a trusted service
- Must have backup in case of damage or being stolen, otherwise you might not be able to retrieve your coin (unless it’s an HD wallet)
Conclusion: most universal type of wallets, relatively safe, can meet all your everyday cryptocurrency needs, but requires a bit of responsible handling.
Paper wallets
At first thought, the concept of a paper wallet contradicts the very idea of digital currency. The paradox here is that a paper wallet, which is literally your private key and public address stored on a piece of paper, is the safest way to keep your coins. But, the safest from online attacks only. In fact, paper wallets are as safe as your other cash is. Can still be stolen, so it’s probably best to keep them in a bank safe deposit box.
Pros:
- Literally impossible to hack, since they are absolutely cold storage
Cons:
- All dangers of physical theft apply
- Very inconvenient to use and require some tech background
- The amount of coin within a wallet cannot be divided. If you generate a paper wallet for 5 BTC and then want to send 1 out, you’ll first have to send all five out elsewhere where it can be split.
Conclusion: considered quirky by most and have better alternatives for almost all functions.
Web wallets
A web wallet is generally a third-party online platform that will host your private keys and public addresses for a small fee or even free of charge. They are hot wallets, always connected to the internet, and you need a web-browser to access them. Essentially, web wallets are a magnet for all types of hack attacks, so it’s advised to take a serious survey of security measures a web wallet offers before putting any trust into it.
Still, they are widely popular because of their ease of use and access and a multitude of functionalities they offer. Most exchanges have an inbuilt wallet within their infrastructure.
Pros:
- Helpful for daily trading and small transactions
- Easy exchange between cryptos or even a direct exchange integration
- Additional privacy measures, can be used with TOR browser
- Support multiple coins
Cons:
- Not good for long-term storage of large amounts as they are susceptible to phishing, malware and any type of hack attacks on the platform, as well as on your computer
- If your account or wallet platform is compromised, it may be impossible to get your money back
- A fraud site can mask as a web wallet
Conclusion: can be used for daily crypto activity, exchange and quick transactions, but best in combo with a hardware or a good desktop/mobile wallet.
