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Cryptocurrency Wallets

What is a Cryptocurrency Wallet | How They Work and Best Wallets

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Cryptocurrency wallets store public and private keys that interact with blockchain network to keep a record of all the transactions. If you use any cryptocurrencies, you’ll need to have a digital wallet.

To store traditional currencies, you need physical wallets. Similarly to store cryptocurrencies, digital wallets are required.

 

How Do Crypto Wallets Work?

Wallets are software that can be used to view balances and make transactions. Every wallet is a bit different from the other, but in general, any wallet works with one or multiple currencies and accordingly stores one or more “public addresses.”

Public Addresses: Public addresses are cryptocurrency-specific numbers that are used to receive a specific type of cryptocurrency and can also be shared publicly. Each public address relates to that particular coin’s blockchain, and each transaction is associated with that.

Cryptocurrency wallet lets you view all the balances that are associated with an address and lets you make any transactions as long as you own that address.

The way to show that you own the address is done with a private key, which is a secret code associated with your public address.

 

What Are The Types of Wallet?

Different kinds of wallets are now being used for digital transactions. These types are based on whether the currency is stored online or offline based on the medium being used.
Some of the different kinds of wallets being used are as follows:

Full Node Wallet

In full node wallet, the private keys are under your control. Every coin that exists has this official wallet of this type.

Custodial Wallet

Custodial wallets are one in which you don’t control your private keys. Exchange wallets are usually custodial wallets.

Desktop Wallet

Desktop wallets are the most commonly used wallets. These are applications that are installed at the user’s PC, and the transaction is made using that app.

Mobile Wallet

Mobile wallets are apps that could be installed on smartphones. Almost every wallet possess a mobile app, and you could use it from your mobile to make transactions.

Online Wallet

Online wallets as the name suggest are web-based apps that could be used online. Users can create an online account. All the data is kept safe in online servers. Some of them allow proper encryption before sending it to online servers.

Hardware Wallet

Hardware wallets are one of the secure forms to store digital cash assets. They are usually in the form of USBs. They are used by plugging into the computer and once disconnected; the data is safe in the device. In this way, the data in the device could be easily transported. The drawback for these kinds of wallets is if you lose the device, you lose everything present in the device.

Paper Wallet

Paper wallets are used to store private and public keys. Users could print out QR code for both the keys. After this, you could send the currency using these keys. All the details required for data are stored on the paper wallet.

Coin-specific

Coin specific wallets are wallets that only work with particular kinds of coins.

 

Do you need a wallet for each cryptocurrency?

Some wallets are designed in a way that they can store only one kind of cryptocurrency. While others can store multiple currencies, and with some wallets, you’ll have to manage yourself.

 

 

Best Cryptocurrency Wallets

If you are interested in different kind of cryptocurrencies. You have the option of using the following type of wallets:

  • Universal wallets
  • Multi-asset wallets
  • Multi-coin wallets

Leading Hardware wallet

Trezor: Trezor was launched in 2014. It is the first bitcoin wallet. In shape, Trezor is a small-sized device that could be connected to a computer using a USB cable. Being hardware, the cryptocurrency private keys are kept safe offline. It can be safely used on a malware-infected computer.  

Trezors Cryptosteel

Trezor is one of the best wallets from a security point of view. Trezor helps protect against both physical and virtual theft.

Trezor wallet can be backed up with the 24 words generated on setup also known as a Recovery Seed.

The best way to back up your seed and never lose access to your crypto is by using Trezor’s Cryptosteel back up device.

Its effectivness is far superior to the alternative of simply using a paper back up which can easily get ruined or trashed.

Leading Custodial wallet

With custodial wallets, you have no direct control you’re your private keys.

Our number one pick is Coinbase when it comes to choosing a custodial wallet.

Coinbase: Coinbase is a secure online platform for buying, selling, transferring, and storing digital currency. Coinbase makes it easy to buy and sell digital currency. The best thing about Coinbase is that transactions between wallets, friends and with merchants are free. They are also allowing you to Earn Free Crypto with their platform that instantly puts crypto into your accounts for watching quick videos about the crypto you want to get.

Honorable Custodial Wallet Mentions

Electrum: Electrum is one of the fastest digital wallets that uses low resources. Startup time of electrum is instant. Electrum wallet is never down, and the transactions are verified using SPV. Private keys are kept offline to ensure security.

Blockchain.com (formerly Blockchain.info): Blockchain.com supports various currencies like bitcoin, bitcoin cash, and Ethereum. This wallet is known for showing graphical data charts and stats and the critical market information.

Non-custodial wallets

These wallets include blockchain wallet and MyEtherWallet where you control your private keys directly but use the wallet as an interface.

Popular Software wallets

When it comes to software wallets that are used widely you’ll see Coinomi and Exodus. They both have desktop and phone apps.

 

Transaction Fees

The transaction fee for cryptocurrency transactions is smaller as compared to the usual bank transfer fee.

Sometimes the fee is for certain types of transactions that are to be paid to network miners as a processing fee. On the other hand, some transactions have no fee at all. Some wallets also allow you to set your fee.

A median transaction of 226 bytes would have a fee of 18,080 Satoshis. If you choose a low fee, the transaction made by you may get lower priority in the system. Thus you will have to wait for hours to complete the transaction.

If you want to speed up the transaction, you have the option to pay more transaction fees. In this way, the transaction could be done in minutes. In short truncation fee for wallets is not something you should worry about.

The fee is small, or there is the option for you to choose the fee you prefer to pay for the transaction. So you are mostly under control of things when it comes to transaction fee attached to transactions.

 

Are Cryptocurrency Wallets Secure?

Cryptocurrency wallets are generally built to be secure, but the specific security differs from wallet to wallet.

Usually, like your usernames and passwords, the security of your wallet comes from you using best practices.

It’s a good practice not to keep more crypto than you need at one time in a single wallet that you frequently use.

You could use Google authenticator for extra layers of protection, in this way you will be able to encrypt your wallet.

Some Additional tips for keeping your wallets secure:

  • There are a lot of scams happening related to cryptocurrency wallets. Some software is just malware that lures the users to install them. Users enter their credentials and end up losing their saved currency from the wallet. It is better to check for trusted service providers. If you don’t know the proper source, it is advised not to use that wallet.
  • Use a strong password and two factors authentication. This will make ensure a double layer of security.
  • You should never share your private keys or wallet credential with anyone. It is also advised to keep the credentials safe offline. In case you end up losing the online credentials in case of an accident, you will have an offline saved record to be used again.

If possible, use your wallet offline and never enter your credentials in other then the secure wallet, you use.

Recommended Crypto Tools

 

Anonymity of Transactions

Bitcoin is a decentralized currency. This is one of the reasons for its popularity. People trust more when they know that the system is anonymous, to a certain point.

In cryptocurrency transactions, usually, the user personal details are not required. The system is safe and secure, but there aren’t any particular personal information required.

Thus the user feels safe while making the transaction with anonymity. Although, you should always use an extra layer of security to protect your identity as tracking you is not easy but possible.

We found the ultimate identity security suite in Proton Mail and Proton VPN. They are based in Switzerland where they have strict privacy laws and have some amazing features to keep your identity safe and secure. We found nothing that can compare to Proton for a complete online identity protection bundle.

Bitcoin uses a unique address and keys to identify a transaction. If the keys match to the individuals just like the bank account number, the transaction is added to the system.

 

Thefts and Scams

Whichever wallet you choose there is always the risk of theft and fraud attached.

To avoid scams and thefts:

  • Create backups: Put your private keys and Recovery Seeds in a safe environment: in case of any failure on the hardware of software end you might end up losing everything. It is always advised to keep backup to prevent loss in case of an accident. Cryptosteel by Trezor hardware wallet also offers an indestructible steel recovery seed storage to keep your recovery seeds safe. You don’t want to chance losing your crypto to human error or natural disaster.
  • Wallet Encryption: If your wallet is encrypted, it could prove vital in case of theft of hardware being stolen.

 

Final Thoughts on Cryptocurrency Wallets

Although there are many digital wallets available online, they are an essential part of the cryptocurrency ecosystem, and you should choose wisely.

Using a trusted wallet, the security tips from above and storing your Recovery seeds offline will significantly lessen the chances of you having issues.

To help with your decision, we battle-tested multiple tools and services to create a list of Recommended Tools For Crypto. Every recommendation is to help protect your investment as well as your identity. Do miss these recommendations as the wrong choice could cost you time and your investment.

About the author

I am the Founder of FutureofCrypto.io, a Crypto Investor, Crypto Researcher, and Enthusiast! I have been involved in the crypto space for several years and enjoy the hunt to find a low market cap coins that have huge upside potential!

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