Cryptocurrency Wallet Types Explained
By the year 2023, the global blockchain market is expected to reach a valuation of $23.3 billion.
Have you been thinking about investing in cryptocurrency and throwing your hat into the blockchain ring? Are you confused by all the different currency and wallet types out there?
If you’re unsure of where to begin, you’ve come to the right place. Read on to learn everything you need to know about cryptocurrency and cryptocurrency wallets, including tips on how to choose the right one.
What Is Cryptocurrency?
A cryptocurrency is a unique type of payment exchanged online for various goods and services.
Cryptocurrencies are sometimes called tokens, and they can be compared to arcade tokens and casino chips. You exchange real currency for a cryptocurrency, which then provides the buyer access to a specific good or service.
Cryptocurrencies work with the help of blockchain technology. Blockchain is an example of decentralized technology. It’s spread across a series of computers to manage and record transactions with greater security.
Most Popular Cryptocurrency Types
Currently, almost 16,000 different cryptocurrencies are being traded publicly. The following are some of the most popular types:
- Binance Coin
- USD Coin
Benefits of Investing in Cryptocurrency
Cryptocurrency investing has grown in popularity over the last few years. However, there’s still a lot of skepticism regarding the crypto world. For those who are on the fence about investing in cryptocurrencies, here are a few of the most noteworthy benefits to consider:
One of the most popular reasons people cite for investing in cryptocurrency is the fact that it allows them to diversify their portfolios. When you have a variety of assets, you’re more likely to see rewards with fewer risks.
Cryptocurrencies themselves are known for being quite volatile, but when they’re combined with other types of investments like stocks, bonds, and ETFs, they’re more likely to provide returns without such significant risks.
Potential for High Returns
Although there is a greater chance of facing a loss when you invest in cryptocurrencies, there is also a chance of experiencing major returns. After all, we’ve all heard of people getting rich after investing in Bitcoin or other types of cryptocurrency.
These days, with crypto becoming more widely accepted, there is a high possibility of investments yielding impressive returns. This is especially true if a particular type of coin becomes accepted by mainstream merchants, or if new blockchain technology uses are discovered.
The decentralized nature of cryptocurrency and blockchain technology is also appealing to a lot of investors.
Many crypto supporters like the idea of cryptocurrencies removing central banks from the equation. This has to do, in part, with the fact that central banks reduce the value of money over time because of inflation.
What Is a Cryptocurrency Wallet?
A traditional wallet stores your cash, credit cards, etc., and keeps them safe. A cryptocurrency wallet doesn’t hold your actual cryptocurrencies (which are technically just a group of codes, as there’s no physical item tied to cryptocurrency).
Instead, crypto wallets hold the keys to your cryptocurrencies. This information connects you to your funds and keeps them safe from others who may try to access your funds.
How Do Cryptocurrency Wallets Work?
As we mentioned above, cryptocurrency wallets store the keys to your currencies and provide maximum safety. They maintain a high level of safety with the help of two keys, which you’ll receive after you create your cryptocurrency wallet: a public key and a private key.
A public key is similar to an email address. It can be shared with anyone and allows them to send you money.
A private key, on the other hand, is more secure — similar to the password to your email account. If someone has access to the private key, your account may become compromised and you could lose the funds you’ve invested in.
Why Do You Need a Cryptocurrency Wallet?
Cryptocurrency wallets offer a lot of benefits to investors like you. The following are some of the greatest advantages they provide:
Ease of Use
Blockchain wallets might sound a little confusing at first. In reality, though, they’re quite easy to use.
These wallets are similar to a regular wallet or online account that you’d use to make online payments and handle virtual transactions. Once you’ve created your wallet (it typically only takes a few steps to set everything up) and have your keys, you’ll be able to start investing in cryptocurrencies and storing them for future use/access.
Cryptocurrencies provide a high level of security, too. They’ll help you to protect your funds and keep them from being compromised. As long as you protect your private key and keep that crucial information away from others, you’ll have no trouble guarding your cryptocurrencies and preventing loss and theft.
The best cryptocurrency wallets allow for instant transactions anywhere in the world.
There are no barriers to when or where you spend your money when you use a cryptocurrency wallet. This is something that can’t be said for traditional banks and credit unions, which may prevent you from making purchases or withdrawals at certain times or may intervene if they detect activity that they deem suspicious.
With cryptocurrencies and cryptocurrency wallets, you don’t have to worry about expensive transaction fees. In general, the fees you incur when transferring funds will be much lower than they would be with a bank or credit union, which means you get to retain access to more of your hard-earned money.
Most blockchain wallets allow transactions across various types of cryptocurrencies. This makes it simple and painless for you to convert currencies as needed.
Types of Cryptocurrency Wallets
When it comes to blockchain wallets that are based on private keys, there are two main types: hot crypto wallets and cold crypto wallets.
Hot wallets are available online and are generally considered to be more user-friendly. Private keys are stored in the cloud, which allows for faster funds transfers. They’re accessible 24-7 and can be accessed via mobile or desktop computer.
Cold wallets, on the other hand, are a little less user-friendly, but they are considered more secure than their hot counterparts. A cold wallet is a digital offline wallet. Transactions are signed offline, then disclosed online. With cold wallets, private keys are stored in a separate device or on a paper document.
In addition to being hot or cold, cryptocurrency wallets come in a wide range of other types and styles. The following are some of the different options you might want to consider for managing your crypto investments:
A hardware wallet stores the keys to your cryptocurrencies on a physical device instead of software. These kinds of wallets are similar to flash drives. They connect to the computer via a USB drive.
Because hardware wallets are not connected to the internet, they are less vulnerable to security issues. The private key never leaves the device, and if you lose it, you will have a seed phrase that helps you access your crypto in other ways, so you’re not locked away from your money.
Hardware wallets can be more expensive than other types of cryptocurrency wallets. However, many investors feel that the additional security they offer is worth the extra money spent.
Software wallets are all web-based, but they can be broken down into a few other categories:
A web wallet is accessed via a web browser. You don’t have to worry about downloading special software to get to them, and you can access your wallet anywhere, as long as you have access to the internet (and your private key, of course).
When you use a web wallet, a website will hold the keys to your cryptocurrencies. This can raise concerns regarding security and control, but the ease of use that web wallets provide is highly valuable to investors who prioritize easy access.
With a desktop wallet, you will need to download an application before you can start using it. Through this application, you’ll generate a file that holds your keys. You will also create a password to help you access them securely.
Desktop wallets allow you to be the sole holder of your key, which provides extra security and peace of mind. However, if your computer has any type of virus or malware, you could be at risk of losing your keys and becoming vulnerable to hackers. If you lose your password, you also don’t have anyone else to turn to for assistance.
A mobile wallet is similar to a desktop wallet. The only difference is that you download the application to your smartphone instead of your computer.
The great thing about mobile wallets is that they’re flexible. You can easily exchange funds on the go, and they also (in most cases) come with QR codes, which make it easy for you to buy and sell cryptocurrencies.
You will need to take extra security precautions when using a mobile wallet, just like you do with a desktop wallet. You’ll need to ensure your phone is free from viruses, and you’ll need to be careful not to lose it, as you’ll then lose access to your wallet at the same time.
A paper wallet is a simple, physical piece of paper. It’s a document that features all the data you need to access your cryptocurrencies.
Cold wallets, including paper wallets, provide some extra security because they’re not stored on a device that could potentially be hacked. At the same time, though, there’s also the risk of losing your paper wallet that you need to consider. Without that information, you don’t have access to your funds, and someone else could get ahold of it and then get your money.
How to Choose the Right Cryptocurrency Wallet
Are you unsure of which cryptocurrency wallet type is right for you? Here are some factors to keep in mind when you’re choosing between the different options:
One of the most important factors to consider is your personal cryptocurrency management needs.
For example, think about whether you need to quickly access your wallet daily, or if you’ll only be accessing it on occasion. If the former is true, a software wallet might be more beneficial. Otherwise, a hardware or paper wallet may be sufficient.
Consider costs, too.
If you’re looking to spend the least amount of money possible, a software or paper wallet may be more cost-effective than a hardware one. If you don’t mind spending more in exchange for greater security, though, a hardware wallet could be a better choice.
Of course, security also needs to be a top priority. Hardware wallets are typically considered the most secure option. At the same time, though, software wallets and paper wallets can also be secure, especially if you do your research beforehand and choose a web wallet or other type of wallet that has a good reputation.
Do you need to be able to access your crypto funds anywhere, or will you always be checking on them from a computer?
If you care about portability and on-the-go accessibility, a mobile wallet or web wallet will likely serve you best. If this isn’t a top priority, you may prefer a hardware wallet or paper wallet instead.
For those who are new to the crypto world or who don’t consider themselves particularly tech-savvy, a web wallet may be the best choice. These wallets are often the easiest to access and they allow you to get everything set up (and access your funds) very quickly.
If you’re interested in holding more than one cryptocurrency, be sure to choose a wallet that supports multiple currencies. Hardware wallets are some of the best options for this, but other types of wallets offer multi-currency support, too.
Don’t forget to read reviews online when weighing your options and making a final decision. Then, choose one that is known for handling multiple currencies well.
Most Popular Cryptocurrency Wallets
If you’re ready to pick a cryptocurrency wallet, consider these popular picks. Whether you’re leaning toward a software wallet, hardware wallet, or anything in between, all of these wallets are good choices:
Coinbase is a web wallet created by the crypto exchange service with the same name.
This is one of the most popular online wallets. It’s accessible via iOS and Android apps, as well as via web browser, and is considered a good choice for beginners. It’s covered by FDIC insurance for up to $250,000, too.
The Blockchain wallet is a popular alternative to Coinbase. It’s accessible via any web browser, as well as the wallet’s official mobile applications.
Blockchain is unique because it uses a multi-factor authentication system for extra security. It also lets you secure your funds with a 4-digit password.
Ledger Nano S
The Ledger Nano S is a popular hardware wallet that works similarly to a USB drive and is easy to use with a variety of computers. This wallet supports more than 700 different coins and tokens and is known for being a highly secure choice.
The Trezor One wallet is an alternative to the Ledger Nano S. It has a slightly more modern design but offers very similar features. This includes the ability to support over 700 coins and tokens, along with a wide range of security features.
If you’re looking for a mobile wallet, Copay is a great choice. It has a positive reputation and is backed by one of the world’s leading Bitcoin payment firms.
You can download the Copay app on Android and iOS devices, and it comes with desktop app options as well.
Speaking of desktop apps, Electrum is a light and fast desktop cryptocurrency wallet.
Not only is the Electrum wallet easy to access and offers a variety of security features, but it also integrates with lots of hardware wallets, including the Trezor One and Ledger Nano S. One of the only downsides is that Electrum only supports Bitcoin.
Exodus is another user-friendly, secure, and convenient desktop cryptocurrency wallet. It has a modern, stylish interface that is easy for beginners to navigate. It also supports several different currencies, including Bitcoin, Etherum, Zcash, Dash, Litecoin, and more.
Guarda is an up-and-coming all-in-one cryptocurrency wallet that’s accessible via web, mobile app, desktop app, and a Google Chrome extension. Currently, this wallet supports nearly 50 coins, including popular options like Bitcoin, Dash, Ethereum, EOS, Ripple, and Litecoin.
Do You Have More Crypto Questions?
At this point, are you feeling better prepared to tackle the world of cryptocurrency? Do you have more questions about cryptocurrency or cryptocurrency wallet types?
If you want to learn more about these complicated concepts and how you can incorporate them into your business, our team at Alpha Bravo Development is here to show you all the ropes. Contact us today to learn more about our services or to get a quote for your next crypto-related project.