All crypto assets are recorded and kept on the blockchain. Blockchain aka DLT (distributed ledger technology) is a decentralized ledger for accounts and transactions. Cryptocurrency wallets are used to store special data that grants an owner access to digital assets such as cryptocurrency and tokens. There are several types of wallets with different levels of functionality and reliability.
What are Cryptocurrency Wallets?
Special applications are used to function as a cryptocurrency wallet to send, receive and store digital money.
It could be integrated into the software within:
- Computer operating system.
- Mobile devices OS.
- Online services and so on.
Every wallet, regardless of the software and operating system, contains two types of keys:
- Public key. This is a series of alphanumeric characters that everyone can see. It is used by the owner of the wallet to receive crypto assets. The sender must use the public key as a destination to deposit or transfer crypto assets when executing a transaction.
- Private key. It is also a series of random letters and numbers that is generated using a cryptographic generator. The private key is a security mechanism used to endorse a transaction. If the transaction is not endorsed, miners will not validate it after it is sent to the network for validation.
There are few types of cryptocurrency wallets. Each one of them has its pros and cons. Some are used for keeping large amounts, while others are useful for small and frequent transactions.
Every newbie who gets involved in the world of cryptocurrency must realize and understand a very important rule of the crypto wallets security - the owner of the cryptocurrency is not the person who has the wallet installed on their computer or mobile device, the one who has an access to a private key is the real owner.
Crypto wallets Management
Two types of Cryptocurrency Wallets are actively used.
Digital Non-Custodial Wallets
This is the application controlled by private keys. The owners of these wallets can transact directly with each other. The user that has access to the private key is in complete control of the transaction.
These non-custodial types of crypto wallets include the following :
- Desktop version;
- Web-based version;
- Mobil version;
- Paper version;
- Hardware version.
These are the most popular non-custodial wallets:
- Electrum.
- Trust Wallet.
- MyCrypto.
- Wirex.
- Button Wallet.
- Exodus.
- Abra.
- MyEtherWallet.
- ZenGo.
The security of these wallets is tied to the private key and a mnemonic phrase (recovery phrase). If this data is lost, then the user will forever lose access to the wallet.
Another vulnerability is hackers’ attacks on the DNS servers of some wallets. It is recommended to keep the large amounts in hardware wallets. The next most reliable is a software wallet downloaded to a PC or smartphone.
In any case, for the safekeeping of private keys, users must choose a reliable device without an internet connection.
Custodial Wallets
They are very similar to a banking service. When choosing this option, the user is not in complete control of their assets. These wallets have a custodian who has access to the private key.
These wallets have a disadvantage in terms of the control of the assets, but at the same time have some advantages. For example, if the user loses access to the private key, then the custodian will be able to help with the access to the digital money.
Custodian wallets are mostly used by brokerage services, trading platforms, and crypto exchanges. They allow users to simplify financial transactions within the client service.
There are also separate wallets belonging to these providers
- BitGo.
- Crypto.com.
- Freewallet.
- Xapo.
The main goal of these companies is to provide a dedicated, reliable, cryptocurrency account with some additional features.
The main disadvantage of a custodial crypto wallet is the risk of losing access to funds for one of the following reasons:
- Hacker’s attack;
- Fork (development of the new version of the same blockchain);
- Authorities interference or court order;
- Technical updates (temporary access restriction).
If the main concern of the user is the safety and security of assets, then wallets on cryptocurrency exchanges and other platforms are not the way to go. This option is designed for funds that are used for transactions within the exchange itself. For example, for trading digital currencies.
Wallet types
All crypto wallets fall into one of two categories:
- Cold Wallets - wallets that have no connection to any network.
- Hot Wallets - wallets that are connected to the network.
When using a hot wallet users must follow three simple safety principles:
- Secure your keys. It is a good idea to use a password manager for a custodial wallet, such as 1Password or LastPass. For non-custodial wallets, it is worth using several reliable devices. If one is lost, the user can still have access to the keys on the other device.
- Access web wallets using the links previously saved in the browser bookmarks. It is not recommended to enter numbers manually.
- For custodian wallets always enable two-factor authentication. Without it, the account will remain very vulnerable, because the only layer of protection users have is a username and password that can be easily hacked.
With the larger amount of the assets, the more reliable wallet should be considered.
The cold storage options
If users need to store large sums of crypto assets, it is best to choose one of the wallets that are not connected to the network.
Encrypted paper wallet
First, you need to create a private key - generate a random set of numbers. These are the reputable providers: bitcoinpaperwallet.com and bitaddress.org. The generated keys will be displayed in several forms. Including the QR code.
Next, users need to encrypt the key so that strangers cannot use it, even if they find a paper with numbers. For encryption, it is recommended to use the BIP38 method. During the procedure itself, the user will need to enter a key phrase. It is used for encryption and can be used to decrypt the key.
It is recommended to use a long-phrase not related to the user's data, which can be accessed by hackers. The encrypted key is printed out and stored in a safe place. Make sure to make multiple copies.
In addition, the key can be generated in any software wallet or written down on a piece of paper. Make sure no one has access to this paper. If this paper wallet falls into the hands of fraudsters they will be able to empty the wallet.
Hardware wallets
These are small devices, usually looking like a flash drive. They are designed for one purpose only - the security of private keys.
To transfer assets, the hardware wallet must be connected to the computer. Then by using a special application, a transaction is created. The transfer is signed using the private key on the device. During this process, the hardware wallet is not displayed on the network.
The only disadvantage is the high cost of the gadget itself.
Hot storage option
Users who are constantly engaged in crypto transactions will resort to these options:
- Software wallets. Is cross-platform desktop storage that provides fast access to crypto assets. These applications are downloaded to computers and smartphones. Since they are connected to the Internet, they need to be well protected - use a complex password and multiple factors of authentication.
- Mobile wallets. These are applications designed for smartphones and tablets. Their main goal is to accommodate cryptocurrency transactions via a mobile phone anywhere in the world. A QR code is often used to confirm these transactions.
- Web wallets. Suitable for storing small amounts. They are mostly used by those who are just starting to explore the world of cryptocurrencies. All functionality is on the Internet, users do not need to download anything. These wallets provide convenience but sacrifice security. The main advantage of web wallets is the high speed of transactions.
There are also multi-currency wallets. They enable users to conduct transactions with different coins and tokens in one interface. Multi-currency wallets can be both cold and hot.
When using any wallet, users should always remember that private keys must be protected.
Security of the private keys on the network
It is very important for those who have large amounts of crypto assets and constantly conduct transactions. The main idea is to optimize the offline signature process for frequent online translations.
To use this method, users will need 2 computers:
- A hot wallet is installed on the first PC. The computer is connected to the internet, but there are no private keys stored on that PC.
- Private keys are stored on the second PC. It is not connected to the internet. This computer will have special software installed that has the function of the digital signature of transactions.
Any small laptop will work for this purpose as long as it is not connected to the internet.
These are the steps to make those transactions:
A transaction is created in a hot wallet on a PC connected to the network. At this stage, the transfer amount and the recipient's address are entered. This transaction has not been signed by a key.
The unsigned transaction is copied to the computer that is not connected to the network. Then the transaction is signed using the private key.
Then a signed transaction is copied to a PC that is connected to the Internet and the crypto assets are sent to the receiver's address.
By following these steps, a that is not connected to the internet acting as storage and is not visible on the network. Hackers are not even going to try to hack it, since this PC is not connected to the Internet.
It makes sense to use this method to store large amounts. To prevent the loss of the keys in the event of a cold PC hard drive failure, it is recommended to save copies on other devices not connected to the internet.
This option is not as user-friendly as a desktop wallet, but it is significantly more secure. Downloadable apps are a good option for medium-sized translations.
The best software wallets for Bitcoin
Many downloadable wallets are dedicated to BTC. Below are some of the best options.
Electrum
Download this wallet from the official site - https://electrum.org/#home.
Electrum – is a multi-platform application. It can be installed on any operating system. Users have access to interfaces for both PC and mobile devices.
The wallet itself is free, and there are few versions for bitcoin forks:
- Dash.
- Bitcoin Cash.
- Litcoin.
The Electrum wallet is a "thin" wallet - you don't need to download the entire blockchain to your PC to transact with the cryptocurrency. Fast data processing is ensured by decentralized servers.
After installing the application on the PC, the software will prompt you to select the appropriate server. You can use any option from the list or suggest your own. A high level of security is maintained by storing all private keys with the owner of the wallet.
Еlectrum wallet has some other advantages:
- Two-factor authentication (2FA) for an added layer of security
- Supports hardware wallets
- Ability to sign transactions offline (if the user has “cold” and “hot” PCs);
- Encryption of user’s data on the PC;
- Ability to import, export private keys;
- Restore access with the seed phrase;
- Manual settings for the transaction fee;
- The interface supports multiple languages.
The seed phrase is generated at the time of installation. Make sure to store it in a safe place. Users can print the seed phrase in the QR code format.
Armory
This wallet is dedicated to the ВТС. It is an open-source code that supports the high-security autonomous protocol Glacier.
This wallet has two useful features:
- multi-signature;
- Cold storage.
The user is in complete control of the transactions.
This wallet is compatible with many operating systems and supports both types of Bitcoin addresses Legacy (the older type) and Segwit (the newer type).
Bitcoin Core
This is the original wallet designated exclusively to Bitcoin storage. It could be download by following this link: https://bitcoin.org/en/download.
There are versions for different operating systems.
- Bitcoin Core is a decentralized wallet that provides users complete control over their transactions. Unlike Electrum, this wallet can only be used after downloading the entire bitcoin blockchain to a PC.
- After installing the application, you need to launch it and adjust some settings:
- Choose a directory for the blockchain download. It is recommended to choose the same location where the wallet is installed.
- Uncheck or check the box to reduce the blockchain volume. When you install it, all previous transactions will be deleted. Only 2 GB of data will remain.
After you complete and confirm these actions the synchronization will take place
The Bitcoin Core advantages are:
- Settings for the transaction fee;
- Compatible with the Tor browser;
- Supports the Bech32 addresses;
- One of the highest levels of privacy and security;
- Compatibility with multiple platforms;
- The user retains complete control over the crypto assets;
- Complete autonomy of Bitcoin node.
The only disadvantages are: there is no mobile version available, and users must download the blockchain on their computer.
MyCelium
This is a BTC wallet designed for the iOS and Android operating systems. There is no PC version. The app can be downloaded from Google Play and Apple Store
The wallet interface has white tabs on a black background. This design allows users to access any section of the menu very quickly.
The private key for the wallet is generated automatically during the installation process. The user can immediately back up the copy of the key.
A copy of the private key will allow the user to restore access to the wallet on a new device in case if the old one is lost or damaged.
In MyCelium you can find:
- Transaction history;
- Account management feature;
- Address book.
All this allows managing bitcoin transactions quickly and conveniently. Users can add new addresses using a QR code.
The MyCelium wallet is well suited for day-to-day cryptocurrency transactions. The extended functionality allows users to customize the application..
Multi-currency wallets
Users who have different coins and tokens and want to keep those in the same wallet have an abundance of viable options.
Guarda
This is a multi-currency non-custodial wallet (https://guarda.com/). It is a high-security wallet with a user-friendly interface.
Guarda enables users to store and transfer crypto assets. In addition, it has very useful features, such as:
- multi-signature;
- Builtin exchange;
- Staking;
- supports 50 blockchains;
- supports over 400 tokens;
- Provides users with complete control over crypto-assets;
Proof-of-Stake is the more advanced consensus in comparison to Proof-of-Work algorithm. PoS technology allows the creation of new blocks on the blockchain with special nodes. As the result, there is no need to purchase expensive equipment.
Guarda is a multi-currency wallet. It provides a mobile version as well.
Exodus
It is an anonymous multi-currency HD wallet for the storage of crypto assets (https://www.exodus.com/). Users can download the wallet on their PC or mobile devices.
Exodus has some really strong advantages:
- Supports over 100 crypto assets;
- Builtin exchange for tokens and coins;
- The mobile application allows users to monitor the market on the go;
- 24/7 customer support;
- Synchronizing mobile app with pc version installed on the users’ computers;
- Private keys are encrypted and saved to the users’ computers;
- Restore access by using a seed phrase that contains 12 words;
- Free deposit and withdrawal. Users only pay miners commission.
Exodus has few disadvantages:
- To use a seed phrase users must make a deposit;
- The software is a proprietary code, not open-source;
- Does not support many languages;
- Users can not set the commission rate.
The software is easy to install - users need to click on the "download" button on the official website and select the appropriate option.
After launching the installation process, the app is automatically installed on a mobile phone or PC. To enter the wallet, you will need to click on the icon that appears. This will open a menu in English. The site can be translated into other languages using a google translator, but the interface will only support the English language.
For a seed phrase, the user has to click on the Backup section. The user must create a password and confirm it by clicking Next. After that, the interface window will load, and a seed phrase will be displayed. Each word is assigned a number. This combination of random English words must be written down and stored securely.
After clicking next, a window will appear to check your seed phrase. The user will have to choose one of the 4 words to match the word in the seed phrase.
Click the Finish button to complete creating a seed phrase.
In the setting section, you can add and remove cryptocurrencies. The list of the available digital assets in the wallet is pretty extensive. Users can change the interface theme in the settings as well..
To gain access to advanced settings, click press the combination Ctrl + Shift + D. This function is used to customize settings of the wallet:
- Set the data feed services for the cryptocurrency ranking and pricing;
- Message settings;
- Review the application files on your PC etc.
Another advantage of the Exodus wallet, that users can receive mined coins. There are no limits on the deposit of mined assets.
Trust Wallet
This wallet was created by a professional developer named Viktor Radchenko, and later it was acquired by the Binance exchange. Today it is one of the most popular wallets in the world (https://trustwallet.com).
The Mobile version of the Trust Wallet is a multi-currency wallet. Users can operate with many crypto assets, such as:
- Ethereum.
- Bitcoin.
- Solana.
- Polkadot.
- Cosmos.
- BNB and so on.
TrustWallet supports 53 blockchains and over 1600 assets.
Trust Wallet provides a lot of benefits to users:
- Securely stores assets, and even NFT tokens on Ethereum blockchain;
- Users can follow the price charts of selected crypto assets;
- Exchange the assets within the application;
- Trade crypto assets at the high speed;
- Complete control of the private key access;
- Supports Web3 browser for decentralized applications.
Trust Wallet is one of the most convenient multi-currency hot wallets. The Binance exchange is responsible for the security of the application.
Jaxx
Another popular open-source multicurrency wallet that can be installed on PC and smartphones. There is also a web version (https://jaxx.io/).
The application supports a large number of crypto assets. Inside Jaxx there is a cryptocurrency conversion function. This is very convenient since users are not required to log out to exchange their crypto assets. No need to use any crypto exchanges.
Choosing Jaxx, you need to take into account one limitation - the user cannot create a separate account for each device. But if the user does not require more than one account, then Jaxx wallet will be one of the best options - all 3 types of storage are easily synchronized.
Jaxx uses the best cryptographic solutions to protect user data. Private keys always remain with the owner of the wallet. Data is continuously backed up. It allows recovering Jaxx in the event of failures or attacks. If a user has lost access to the wallet, it can be restored by using a seed phrase that was created during the first installation of the application.
Customer support is available 24/7. The average request processing time is 50 minutes. There is technical support available as well.
The disadvantages of the wallet include:
- High fees for the crypto assets exchange;
- Does not support other languages;
- Delay in the transactions of some coins and tokens;
- Does not support transactions with fiat currencies.
Jaxx's interface is simple and allows users to effortlessly deposit and withdraw cryptocurrency.
BitPay
It is a mobile multicurrency application that works great even on the least advanced smartphones (https://bitpay.com/wallet/).
BitPay wallet has many advantages:
- Supports multi-signature;
- Supports separate wallets for different devices;
- Open source;
- Supports 2FA for an added layer of security;
- Supports multiple crypto assets;
- Supports transactions with fiat currencies;
- Provides a high level of security with encryption and multi-signatures, and private keys;
- Provides crypto payment solutions for businesses.
The BitPay wallet supports other languages.
Infinito
Infinito is the first multi-currency wallet designed for smartphones. It is considered one of the safest and most convenient on the market. (https://www.infinitowallet.io/).
The Infinito provides an intuitive user-friendly interface, that is easy to navigate even for novice users.
Added layers of security ensured by multi factors of authentication such as:
- Password;
- Face recognition;
- Fingerprint.
The application supports a huge number of digital assets - more than 2000 coins and tokens.
During installation, the wallet prompts to select the user’s level:
- Beginner. In this case, a new wallet is automatically created. It also suggests creating an account, but users can skip this step.
- Experienced. In this case, you can choose to create a new wallet, import a private key, or add an exchange wallet using the secret key and API.
The seed phrase will not be generated automatically during installation.
Regardless of the user level, the mnemonic phrase must be created and saved in the settings, as well as the copy of the private key.
Coinomi
It is a multi-currency wallet that supports the anonymous storage of crypto assets (https://www.coinomi.com/en/).
All data is encrypted, IP addresses are hidden. The information is shuffled according to a special algorithm, and as a result, dozens of false addresses are formed, which makes it difficult to track the owner of the wallet.
More than 1,700 coins and tokens are supported, including Bitcoin and Ethereum.
These are advantages of Coinomi:
- Provides a great optimized environment for transactions, exchange, etc.
- Builtin exchange.
- No useless settings and tools (news feeds, price charts, market depth indicators, etc.).
- Dynamic commission setting.
- Passwords are generated and stored only on the client-side. The Coinomi network does not have access to user accounts, so hacking the application will not allow attackers to steal cryptocurrency.
The disadvantages include the lack of two-factor authentication and multi-signature, as well as the slow technical support and customer service.
Conclusion
There are a lot of options with different solutions on the cryptocurrency market that allow you to maximize the security of assets, and at the same time provide useful functionality. Each user may choose the best wallet according to their preferences and needs.
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