With investors now putting an increasing amount of their wealth into cryptocurrencies, the need for safe and secure storage becomes increasingly important. On top of this, investors also want to make sure they can access their funds as and when they want to.
Balancing the need for security and accessibility depends on your own investment goals and habits. To help you in choosing a crypto wallet solution, we have put together this article that helps detail the types available and the key concepts involved. We will also give our verdict on what the best crypto wallets currently available are.
Why you need a crypto wallet
A crypto wallet is effectively a key to access your cryptocurrency. Whereas the leather wallet in your back pocket may hold your money directly, cryptocurrency never truly leaves the blockchain it is associated with. Instead, crypto wallets keep track of private and public keys and the associated on-chain wallet associated with those funds.
Each wallet has completely unique address that is comprised of both letters and numbers. There are 3 elements to a crypto wallet that you need to be aware of:
- Public key: similar to a bank account number, can also be thought of as a mail box in that anyone can put something into it without having access to the contents.
- Private key: similar to a pin code, can also be thought of as the key to the mail box to access the contents.
- Wallet address: a “hashed” version of your public key to allow people to send or exchange crypto.
Crypto wallets simplify the use of these elements, streamlining the process of trading and accessing crypto on a blockchain.
Types of crypto wallet
There are three types of crypto wallet solutions available: software, hardware, and “paper”.
Considered “hot,” these wallets are actively connected to the internet. This makes funds a lot easier to access with wallets such as MetaMask having browser integration and even mobile apps to facilitate fund access and trading anywhere, anytime.
These wallets can be “hosted” such as those on exchanges like Coinbase, or self-custodial (like MetaMask) where users are the ultimate owner of their own coins.
To create a disconnect between your wallet and the internet some people opt for hardware wallets. These store your private keys offline, on the device itself which looks similar to a USB storage drive.
They are considered a “cold” storage solution, with the device acting as an intermediary bridge or firewall between your private key and the internet. These are sold by companies such as Ledger and Trezor.
Paper wallets are analogue, written, engraved, or otherwise physically stored copies of your private keys. This can be simply a piece of paper with a private key written on it or a metal plaque with a seed phrase engraved.
Investors tend to use paper wallets when storing crypto for a long time and keep it in a secure location such as a safe or a deposit box in a bank.
Safety vs utility
The safest type of crypto wallet is a paper wallet. Completely “cold,” there is no chance for a compromised computer or bad actor from accessing your funds unless they hold the physical piece of paper etc. A paper wallet makes use of the fact that crypto is never really stored off-chain but is simply represented by wallets.
That said, hardware wallets are a good compromise between security and usability. With a lot of users trading regularly, a paper wallet proves inconvenient. Hardware wallets, however, afford considerably security while also allowing the purchase and exchanging of coins, through secure integration with other platforms.
Hardware wallets are also compatible with multiple blockchains, unlike some software wallets. For example, MetaMask is only compatible with Ethereum and Ethereum-based blockchains. This means users may need to use multiple software wallets to store their crypto, introducing added risk factors.
Best crypto wallet
Considering hardware wallets offer the best compromise between security and utility, for those with even a moderate amount of wealth invested in crypto they are worth the expense.
Out of the current crop of hardware wallets on the market, the standout devices are the Ledger Nano S and the Ledger Nano X. Both wallets offer unrivalled security and feature a sleek design. The integration with various crypto platforms makes the purchasing, sending, receiving, and exchanging of coins extremely easy. With support for over 1800 coins, you can also (virtually) keep all of your cryptocurrency investments together using just a single wallet.