How To Choose a Crypto Wallet: Complete Guide

Olga Shirimova
February 7, 2020
How to choose a crypto wallet article featured image

If you have just started dealing with crypto, the first question you should ask is “How to choose a crypto wallet?” It’s logical: you need a crypto wallet for managing your digital funds. So, it’s a matter of top priority.
Feel like you lack basic knowledge of the topic? Then we are here to help!

How To Choose a Cryptocurrency Wallet: Getting Started

Before we explain how to choose a cryptocurrency wallet, let’s highlight some basic concepts you need to keep in mind. They are:

  • Crypto wallet is a program that stores your private and public keys. You need it to send and receive digital funds and monitor your balance.
  • It does not store any ‘real’ money, unlike the leather wallet you carry in your pocket or your PayPal account.
  • Instead, it keeps the records of all the transactions made in the blockchain network. You probably remember that cryptocurrencies have no material representation, they are just records in a distributed ledger.
  • There are different types of crypto wallets with their pros and cons. Each of them serves a particular purpose.

Now, we will explain each of these points.

What Is a Cryptocurrency Wallet

As we mentioned earlier, a crypto wallet is a special piece of software holding your private and public keys. If you need to understand what they are and how they function, read this article first. In short, public and private keys are two things you need to interact with other blockchain users and the network.

Also, your wallet allows you to see your balance for different cryptocurrencies like BTC, ETH, XRP, etc. Visually, it may be similar to your regular banking app. The difference is it does not hold any money, just an updated version of the distributed ledger. This ledger is the database that stores all the transactions in the network.

The graph, showing how the number of cryptocurrency wallets has been increasing lately.
Image source: Statista

How a Crypto Wallet Works

The number of cryptocurrency wallet downloads is increasing with every year. According to Statista, by the first quarter of 2019, there were 34.6 mln wallet users in the world. Nevertheless, many of them lack a basic understanding of how their apps work. We will explain the process without going into technical details.

Simply put, when you send your 1 BTC (or any other coins) using a wallet, you pass your ownership of this money to the recipient’s address. If his private key matches the public address you assign this money to, this person can unlock the funds and take them into his possession.

In case if the recipient has lost or forgot their private key, they will not be able to do it. If they pass this private key to another person, s/he becomes a co-owner of the funds. With this in mind, you have to take measures to protect your keys.

The difference between hot and cold wallets. Image source: Coindoo

Are Crypto Wallets Safe To Use?

The degree of security depends on what type of wallet you use and who provides it. Generally, mobile wallet apps are less secure than desktop or hardware wallets. (If you don’t understand what these terms mean, don’t worry  — we will explain each of them later in this article).

Generally, hot wallets (mobile, online and desktop ones) are less secure than cold wallets. The reason is simple  — cold wallets have no connection to the Internet. Thus, they are immune to hacker attacks by default. It does not mean, though, that you cannot rely on hot wallets.

They operate in a riskier environment but may feature a very high level of protection. As we said, a lot depends on the service provider and the security measures users implement. It’s time to see what these measures are.

According to surveys, hacks, theft, and frauds are the major concerns of crypto owners.
Image source: ETHERISC

Cryptocurrency Wallet: Security Measures

These are some tips on how to protect your digital money:

  • Set a strong password and apply 2FA (2-Factor Authentication) for login and funds withdrawal. Strong (long, complex and random) passwords are hard to hack. With 2FA enabled, you will have to enter an additional one-time code the system will generate and send to your phone. It is an extra layer of protection.
  • Don’t store the bulk of your funds online. Distribute your funds across cold and hot wallets. Store the amount you need daily in a hot wallet and most of your crypto funds in cold storage. In case of a cyber attack, the vast majority of your coins will be safe.
  • Pay attention to who provides the wallet. Well-reputed and popular wallet providers are likely to offer you a higher security level. They can afford to keep up with the progress and care for their customers. Look at the rating, check their social media pages, read reviews.
  • Backup your wallet. Locate the wallet.dot file on your PC and make a copy of it. You can print it on a piece of paper or transfer it to a USB drive or hardware storage. Make sure no one else, including kids and pets, can reach it.
  • Keep your anti-virus software up-to-date if you use a desktop wallet. Forget about freeware, the newest versions of malware are likely to bypass it easily. It’s a bad idea to save $50 and then lose much more to a hacker.
  • Use a multi-signature wallet if you manage funds collectively. It prevents one of the partners from withdrawing the money and escaping with it. With a multi-signature wallet, you need several private keys to move the money.
Types of crypto wallets with their strong and weak points.
Image source: BENZINGA

Types of cryptocurrency wallets: pros and cons

There are several types of crypto wallets. Each type has its pros and cons, depending on its design and purpose. In general, we can divide all wallets into 2 big categories — hot and cold ones. We have already explained the difference between them earlier.

Hot (software) wallets are desktop, online and mobile ones.
Cold wallets may be represented by special USB-devices or a printout of the wallet.dot file.

All of them meet the specific needs of a user. It would be good to consider each type in detail and outline its distinctive features.

Securing a Lumi desktop wallet: creating a backup and recovery phrase.
mage source: Blockduo.

Desktop

the name suggests, it’s a software you install on your PC/laptop. You cannot access it unless you have this very computer with you. This type of wallet features a relatively high level of security, as you are unlikely to lose your PC. But if the computer is attacked by some crypto-specific malware, you may lose all your funds. Again, get yourself a good antivirus, like BitDefender or CyberGhost.

Online/Web

These are cloud-based wallets. You can access them from anywhere, even if your computer is not with you. This advantage is balanced by the fact that you store your private key with a third party, which is the service provider. If something goes wrong on their side, your money is gone. Some good examples of online wallets are Lumi wallet, Bitcoin wallet, MyEther.

Mobile

This is a wallet you run on your smartphone. The main advantages of this version are that it’s very convenient to use and carry around. Normally, mobile wallets feature a user-friendly interface: when you deal with limited space you should use it wisely.

The biggest con is that a phone is really easy to lose or damage. Besides, they can steal it from you. That is why you should have all the security features enabled. Backup the recovery phrase, use  2AF and VPN, and please avoid public Wi-Fi. Among the most popular mobile wallets are Jaxx, Blockchain, Coinbase, Coinomi.

Trezor, Ledger and KeepKey hardware wallets.
Image source: BITCOIN Magazine.

Hardware

Hardware wallets look like USB-devices or calculators. Often, they feature a really cool design. They are disconnected from the web most of the time. When you need to use the funds a hardware wallet stores, you connect it to a ‘hot’ device, make a transaction and disconnect it again.

Note that your private keys are safe because they never leave the device (never go online). The cons of such type are that it’s more cumbersome to use than a mobile wallet. The most popular hardware wallet manufacturers are Ledger, Tresor, and KeepKey.

Paper

Basically, it’s just a piece of paper with all the information you need to recover access to your funds. It contains your private and public key (as a string of characters and QR code). if anything happens, you can always dig it up and use the info it contains.

A paper wallet may look flimsy compared to the other devices, but it’s very safe if you have a good hiding place. As you understand, it cannot be hacked. The biggest con is predictable — it’s not convenient to use a paper wallet on a daily basis. And it would be very unwise to carry a printout with you at all times.

How To Choose a Crypto Wallet: Main Criteria

What cryptocurrency wallet to select? To make the right choice, pay attention to several important criteria. They are:

  • What security measures the wallet provides (2AF, backup phrase; PIN codes, and other features)
  • Who controls your private key (you or the wallet provider);
  • The reputation of the provider and community around the project;
  • The type of wallet and if it meets your needs (active everyday use, or holding big amounts of crypto)
  • User-friendliness, convenience, attractive interface.
  • If it’s compatible with the OS you use.

Hopefully, we managed to shed some light on the matter!

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