What cryptocurrency wallet should you use and how do you use it?
You should actually have several different types of cryptocurrency wallets based on how you plan on using your cryptocurrency. You should also consider having a software wallet, a hardware wallet, and possibly a paper wallet.
As I was getting started using cryptocurrency, the topic of wallets were one of the most confusing topics for me. The technology and user experience with cryptocurrency wallets are rapidly evolving and knowing the differences can be confusing. Here are a few things I have learned about wallets that may be helpful for you.
Why Do We Even Need A Cryptocurrency Wallet?
When you use cryptocurrency you need a place to store them, keep track of them, and protect them. These are the main jobs of a cryptocurrency wallet.
Did you know that cryptocurrencies are not actually stored in your wallet?
Cryptocurrencies are not a physical item. They are actually digital data being exchanged and stored through private and public keys. Each of these keys are actually a series of numbers about 30 digits long that get validated with each transaction. Wallets keep track of your private and personal keys which are exchanged and recorded after a transaction on a blockchain ledger. When your Public and Private keys match what is recorded on the blockchain ledger your balance changes accordingly. With that being said wallets are important and play an important role in your experience with cryptocurrency.
What Kinds Of Wallets Are There?
Software Wallets (Desktop, Mobile, Online)
There are three different kinds of wallets. Software, Hardware, and Paper. Let's take a look at how they differ.
Desktop Wallets: These wallets are downloaded directly onto your laptop or PC. You would probably want a desktop version if you are not planning on doing much day to day trading. For example, if you were just going to buy and hold crypto assets, and not use them often, Desktop Wallets may be a good option. They are limited in the fact that you cannot access your cryptocurrency unless you are at that computer, but they are very secure as long as no one steals your computer. I personally use Exodus Wallet for my desktop Wallet.
Online Wallets: You would want to use an online wallet if you are planning on buying and selling cryptocurrency often. Online wallets are stored in the cloud and can be accessed from any device. For example, I use online wallets with Coinbase, Binance, and Kucoin for my normal transactions and trading. Generally, you should only store smaller amounts of cryptocurrency on these types of wallets. This is because they are centrally located within a third party location and have been somewhat susceptible to hacks in the past.
Mobile Wallets: Mobile wallets are good if you would like to exchange cryptocurrency with your friends or buy products from a store. These wallets are stored on your phone and are usually more user friendly than some of the other wallets. They have less data storage but better user-ability and quicker transactions with QR code scanning.
There are many different software wallet products out there, and there are hundreds more being worked on as we speak. If you are just getting started out using cryptocurrency, the names of companies I have listed in my resource page should work just fine for you. You don't need the most advanced wallets to get started. All you need is something that you can get started with and that you can feel secure with.
But What If I Want Something More Secure?
Software Wallets work well in most cases. However if you hold large amounts of cryptocurrency and want maximum security, you will need a better wallet.
Hardware Wallets: The biggest advantage of these wallets is that you can store them offline in a secure location such as a safe or safe deposit box.
When I first started buying cryptocurrency, my biggest concern was that someone could hack my account and take my cryptos. It comforted me to know that I could detach my money completely from potential online hackers. Hardware wallets basically allow you to store your private and public keys in an encrypted USB drive. They usually cost a little bit of money (usually $50-$100) but it is well worth it for more comfort and security. When you need access to your funds just plug in your USB hardware wallet and continue with your transaction. There are many reliable hardware wallets but the one that I have used personally is the Nano Ledger.
Paper Wallets: Paper Wallets are simple and secure. You can either print your public and private keys on a piece of paper or print the QR code on a piece of paper. Both of these would allow you to make transactions if you needed to but your data would be stored offline. Just be sure to store these in a location that would be safe from fire, water, and other elements. If you lose these, you lose your money.
Another way you can use paper wallets is by using software that will track and generate private keys for you as you need them. I have never used this kind of paper wallet software so I cannot give good advice on it. However there are plenty of online resources explaining how these would work if you are interested.
How Should I Choose My Wallets?
Here are a few questions to ask yourself when choosing the right wallet for you.
1) How Often will you be making transactions? If you are exchanging often you will probably want software type wallets. If you are holding cryptocurrency long term you will probably want Hardware storage.
2) How many different cryptocurrencies do you plan on using? Some multicurrency wallets are able to store hundreds of different types of cryptocurrencies. Others cannot.
3) How readily do you need access to them? Mobile or Online Wallets work best for quick access.
4) How will you be using cryptocurrency? Purchases? Investment? Business?
5) Are there costs or fees to buy or use the wallet? Software wallets are usually free to download. Hardware wallets usually cost between $50-$100. There are usually no fees to use wallets, only transaction fees when transactions are made.
6) How user friendly and convenient are they to use? Are you techy or not techy? Some wallets are easier than others to use.
7) Are they Hot or Cold Storage Wallets? Hot wallets mean funds are kept online. Cold Storage means they are kept offline.
TIP: NEVER LOSE YOUR PRIVATE KEYS! THERE IS NO WAY TO RECOVER YOUR MONEY ONCE THESE KEYS ARE LOST.
What Wallets Do I Recommend?
***The following list is recommendations based on wallets that I have used and feel comfortable recommending. Some of these I am proudly an affiliate for and others don't even offer affiliate compensation. This is intended as a resource to help someone brand new get started in the most simple and reliable way possible.
In Addition, I found this great comparison chart with a few of the top Cryptocurrency Wallets that you may find helpful. (These are not direct recommendations from me.)
Crypto Wallet Comparison Chart
How Do You Set Up Your Wallet?
Each different wallet may have a different type setup procedure but most have similarities to their set up process. This is a quick basic guide of how most of them work.
These are generally set up through 3rd party providers like Coinbase, Binance, Kucoin, Exodus, etc. and there is often a few required pieces of data.
Step 1: Go to website and click Sign Up.
Step 2: Provide email address, password and 2 factor authentication.
Step 3: Insert bank account or credit card card information to enable the purchase of cryptocurrency. Or fund account by exchanging cryptocurrency to your new wallet from an existing wallet.
Step 1: Plug in USB cord to computer and USB Drive.
Step 2: Set Up Recovery Phrase (Usually around 20 words that you should write down). ***Very important to keep this safe and secure.
Step 3: Transfer cryptocurrency from your software wallet to hardware wallet.
This may be a bit oversimplified but I wanted to give you the basic idea to get you started. Usually there are great instructions that come with the device that will walk you through the specific set up process.
I have found that owning the correct wallet for my needs is one of the most important pieces to feeling secure with my cryptocurrency holdings. I hope this article has been helpful in getting you off to a great start. Just remember that this technology is rapidly advancing so there may be better options as time goes on. For now, just get started. Just find some wallets that you think may best fit your needs and don't be to overwhelmed by all the options .
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