Reading the crypto market and identifying opportunities are important factors in trading cryptocurrencies successfully. But being able to stay safe and secure while facilitating these trades is just as important. In addition to pinpointing which types of cryptocurrencies, you wish to trade online, one of the first things you need to do is learn about cryptocurrency wallets.
Think about a traditional wallet that you use to store your cash, credit cards and other personal materials on the go. You keep these valuables in one place (your wallet) to keep them safe and transport them when needed. It is the same for your cryptocurrency transaction records stored on the blockchain.
Ready to get started? In this article you will learn what a cryptocurrency wallet is, how crypto wallets work, how to choose the best crypto wallet for you, and other important cryptocurrency security tips that can help keep your investments safe.
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What is a cryptocurrency wallet?
A crypto wallet is a piece of hardware or software that interacts with blockchains and lets you store or trade various types of cryptocurrency such as Bitcoin and Ethereum. Each time you make a purchase or sale, digital currency enters or comes out of your wallet. When you’re not trading, it is kept safe there. Many crypto wallets also provide oversight of your investments and the market through dashboards with important monitoring and reporting tools.
In general, cryptocurrency wallets can be broken down into two types: hot wallets and cold wallets (also known as hardware crypto wallets).
- Hot wallets. These are pieces of software that help you buy, sell and store your investments.
- Cold or hardware wallets. These are physical objects that help you keep your cryptocurrency safe.
We will discuss the benefits of each type of wallet later in this article.
Crypto wallets can also be classified based on the types of digital currency they can send and receive. To buy and sell Bitcoin, you will need a Bitcoin wallet or other crypto wallet compatible with that type of currency. The same goes for an Ethereum wallet and other types of cryptocurrency.
How do cryptocurrency wallets work?
Your cryptocurrency wallet connects you to the world of digital currency, namely, blockchains. It allows you to interact with this ledger, which records all crypto transactions and gives you access to your digital currency.
Whether a Bitcoin wallet, an Ethereum wallet or a general wallet, all crypto wallets work using the same principles via tools called keys. But, just as these are not physical wallets that you carry around, these are not physical keys that you carry around, either.
Each method of digital storage features a public address, a public key and a private key. These are quite literally the keys to securing and transacting your cryptocurrency online.
What is a public address?
A public address is an outward-facing identifier for your cryptocurrency wallet. It is the target destination for digital currency of which you buy ownership. When you purchase cryptocurrency, the seller sends a record of ownership to your public address. Usually, you provide your public address for transactions, much like you would your BSB and bank account details for a traditional money transfer through the bank.
What is a public key?
A public key is similar to your public address, but not quite the same. It verifies that you are the owner of a public address that can send and receive cryptocurrency.
A public key is a random combination of letters and numbers. An example of a public key could be: X8asDFk76z9T100zrU79xbM777.
Public keys are matched to the private key held within the crypto wallet but unlike traditional banking details, these keys do not provide any information about the wallet’s owner.
What is a private key?
A private key acts as a sort of password for cryptocurrency wallets. It is inward-facing and allows users to access their crypto wallet to buy, sell, and monitor their digital currency. Think of it as the password to your online bank account. It is the key cog of your cryptocurrency security.
What types of crypto wallets are available?
There are plenty of different crypto wallets available. The best one for you depends on your general trading habits and which provides the most security in your situation.
As mentioned above, there are two main types of wallets: hot wallets (digital) and cold or hardware wallets (physical). Both have their pros and cons, and there is not necessarily a right or wrong answer when it comes to figuring out which crypto wallet is best for you.
Hot wallets are pieces of software, which means you won’t have a physical wallet you can hold in your hands. There are many benefits of hot wallets, the foremost being greater convenience for those who trade more often. However, because they are a digital tool, there is always the risk of them being exploited by scammers and hackers.
Some types of hot wallets include:
- Desktop wallets. These are only used on your computer. This limits where you can access your wallet, but also where hackers can get their digital hands on it. However, they are still vulnerable to cyber attack.
- Mobile wallets. These are similar to desktop wallets, but are optimised for mobile phone use. The same threats apply, though fingerprint and face ID technology in today’s mobile devices can potentially make mobile wallets a little safer than their desktop cousins.
- Online wallets. These are similar to some Internet banking in that you access them by logging in through a website. That means you can access your crypto from anywhere with an Internet connection. However, like with other similar web-based platforms, these can be hacked, with more access points potentially leading to even more security issues.
Cryptocurrency hardware wallets, or cold wallets, are physical tools for keeping crypto purchase records. These can come in several forms, including a paper wallet that works in a similar way to a traditional cash wallet by holding pieces of paper or cards with codes that contain proof of crypto ownership. Other cold wallets can be USB drives or some other physical file storage system that lets you buy, sell, and monitor when they are used on a computer. These are generally a good option for those who trade less often.
The physical nature of these wallets can make them more secure because they are less likely to be accessed online by hackers. Of course, they can still be stolen or lost, and you can forget how to access them. Many people put their hardware wallets in a safe deposit box at the bank or other secure location.
How do I decide which wallet to use?
Deciding which type of wallet to use depends on a variety of factors, including:
- How often you trade. In general, hot wallets are better for more active cryptocurrency traders. Quick login ability means you are only a few clicks and taps away from buying and selling crypto. Cold wallets are better suited for those looking to make less frequent trades.
- What you want to trade. As mentioned earlier, not all wallets support all types of cryptocurrencies. However, some of the best crypto wallets have the power to trade hundreds of different currencies, providing more of a one-size-fits-all experience.
- Your peace of mind. For those worried about hacking, having a physical cold wallet stored in a safe deposit box at the bank or somewhere at home, provides the safest, most secure option. Others might be confident in their ability to keep their hot wallets secure.
- How much it costs. It is important to investigate the costs associated with each wallet. Many hot wallets will be free to set up, but charge a fee each time you trade. Meanwhile, cold wallets, like any piece of hardware, will cost money to purchase.
- What it can do. While the basics of each cryptocurrency wallet are the same, additional features can help set them apart. This is especially true of hot wallets, many of which come with advanced reporting features, insights into the crypto market, the ability to convert cryptocurrencies and more. Security features can also be a good differentiator.
Tips for keeping your wallet secure
You might have the best Bitcoin wallet on the market. Or you could have a state-of-the-art cold wallet in which to store your investments. But it is not going to matter much if you don’t keep your wallet secure.
Here are some cryptocurrency security tips that can be the key to protecting your investments.
- Keep your private key private. This is pretty basic, but it could literally be the key to keeping your account secure. As with email, bank account and other key login information, don’t share your private key with anybody else.
- Keep your cold wallet secure. Again, just because it is obvious, does not make it any less important. A cold wallet is not something you want to just leave sitting around your place. Lock it up in a secure location.
- Have a backup plan. Maybe you can give a backup of your crypto wallet to somebody you trust, or keep it locked away elsewhere.
- Don’t get phished. As cryptocurrency trading has become more popular, the phishing methods hackers have used for years have started targeting traders. Beware of any communication prompting you to act quickly or urgently. And never provide your private key or other security information via email or SMS. If in doubt, contact your wallet provider to double check.
- Mind the network. One of the advantages of the best crypto wallets is being able to use them anywhere with an Internet connection. But public networks can be dangerous and not secure. Resist logging into public networks to save your data. In the long run, it might end up being very costly.
What are some popular crypto wallets?
Think you know which type of cryptocurrency wallet would suit you best and ready to make a decision? Here are some of the best options, depending on which type you are after.
When it comes to cryptocurrency hardware wallets, two stand out above the pack.
The Ledger Nano series is great for those looking to invest in a variety of cryptocurrencies, with support for more than 700 coins and tokens. Its small jump drive makes it easy to store and transport, while it also features an extra layer of security and a LED screen and physical buttons that help make buying and selling easier.
When talking about the best hardware wallets, it is also difficult to miss the Trezor One. Its sleek, tech-savvy design is matched by its excellent security. It can also support more than 700 types of cryptocurrencies and has a reputation for interfacing well with popular operating systems such as Windows and iOS.
Atomic Wallet and Exodus are two great choices if you are planning on logging into your computer to use your crypto wallet.
Atomic Wallet can accommodate 500 different types of tokens and coins. It also gives users the power to perform atomic swaps, allowing crypto transfers without the use of an exchange, which can help to keep fees down.
Exodus is another awesome desktop crypto wallet. It has built a great reputation for being user- friendly, so it is great for crypto newcomers. Its gorgeous interface makes for a comfortable experience for those learning the ropes.
If you want crypto trading at your fingertips 24/7, these are three of the best mobile crypto wallets.
Our eToro Wallet supports more than 120 cryptocurrencies and features in-app conversion functionality with support for up to 500 different crypto pairs. Security is provided by an unlosable on-chain private key service that allows for quick recovery backed up by a fully regulated platform.
Jaxx is one of the better mobile Bitcoin wallets out there and can also handle Ethereum and several other popular cryptocurrencies. It is compatible with most major mobile devices, with extensions for Google Chrome and Mozilla Firefox.
Edge shares a lot of the same characteristics with other wallets on this list. It gets high marks for security, ease of use for newcomers and accommodates the most popular cryptocurrencies. However, it is not compatible with desktop use.
If heading to the web is more your speed, MyEtherWallet (MEW) and blockchain.info can do the job for you.
MyEtherWallet is one of the most respected Ethereum wallets out there. It is open source, so any developer code changes are completely transparent. MEW lets you trade Ethereum and Ethereum-related tokens via the web, but does not work with other types of currencies.
blockchain.info is your path to the Blockchain Wallet that has proven to be one of the most popular storage methods in the world of crypto. Two-factor authentication keeps it secure, and a simple interface makes it suitable for newcomers.
Having a crypto wallet you can not only use to buy and sell whenever you want, based on your investment habits and lifestyle, but also trust to keep your digital investments secure, is one of the most important aspects of trading. With the eToro platform, you can buy and trade the most popular cryptocurrencies in the world while also taking advantage of our award-winning social trading features, cutting-edge market insights and easy-to-use tools.