You’ve probably heard stories about how the last cryptocurrency bull run turned many people into overnight millionaires. By December 2017, the price of Bitcoin had surged by 1400% to more than $19,000. Of course, cryptocurrencies were down in 2018 but many market participants are hopeful that the market will return to bullish ways this year.
If you are interested in exploring the possibilities for making money with cryptocurrencies, you probably already know that you’ll need a cryptocurrency wallet. This piece provides detailed explanation for navigating the complexities surrounding the choice of a cryptocurrency wallet.
Image Source: Bitcoinist
What is a cryptocurrency wallet?
A cryptocurrency wallet is simply a computer code created to help users store the private and public keys for the storage, transfer, and receipt of cryptocurrencies. Cryptocurrency wallets as the name imply also serve the dual function of helping you keep tabs on your cryptocurrency balances. Cryptocurrency beginners often confuse how cryptocurrency wallets work with how pocket wallets work; however, their operations are different in that cryptocurrency wallets don’t store cryptocurrency in the same way that a pocket wallet stores your banknotes.
To begin with, cryptocurrencies are digital money or computer code; they don’t exist in a physical form or in any single location. Crypto wallets are simply records of transactions stored on a blockchain. Some cryptocurrency wallets are designed to be used with a single Blockchain; hence, they can only be used to “store” a single cryptocurrency. Some other wallets are compatible with different blockchains and they could be used to “store” different cryptocurrencies.
Buying your first cryptocurrency wallet
Choosing a cryptocurrency wallet is no simple feat and it is certainly not a decision to be taking mindlessly. In fact, some people are often stuck by a decision paralysis that causes them to leave their crypto on the exchange where it was bought instead of moving it into a personal wallet.
Below are some key pointers for deciding on the type of cryptocurrency wallet you need.
To begin with, cryptocurrency wallets can be broadly classified into two classes namely; hot wallets and cold storage wallets. A hot wallet simply makes your cryptocurrency accessible like a checking account and it is best-suited for use if you conduct frequent transactions with cryptocurrencies. A cold wallet is more like a savings account, your coins are kept offline, and it usually takes some effort to access the coins. Hot wallets are user friendly, but they can be easily hacked. Cold storage wallets are somewhat cumbersome but they offer better security.
An overview of different kind of wallets
They are devices under the cold storage wallet category. They are offline and are generally considered the most secure way to store cryptocurrencies. Some of the most popular hardware wallets include Ledger Nano-S which costs about $95 (Pro Tip: avoid the temptation to buy from eBay); Bitbox is relatively cheaper at around $58; Trezor Model T will set you back about $159; and you can expect to spend about $45 on a KeepKey Wallet.
They fall under the category of hot wallets. They are simply applications on your desktop, smartphone, or webapps. They are frequently connected to the internet to provide ease of access to your cryptocurrencies. Some of the most popular software wallets include Electrum, which charges a flat rate transaction fee of 0.2 mBTC for sending Bitcoin. Other popular wallets include Bitcoin Core, Exoudus, and Mycelium.
Physical wallets provide a stronger layer of cold storage in because cryptocurrencies stored in physical wallets are completely undigitized and in hard copy. The idea of physical wallets is quite simple, you’ll simply generate a paper wallet for printing out your public and private keys. Once you’ve printed out your public and private keys, your cryptocurrency can’t be stolen in a digital heist or hack.
The only way to lose cryptocurrency stored in a physical wallet is if someone steals the printed paper, if you lose the printed paper, or if the printed paper becomes damaged. Blockchain.info, Wallet Generator, and Bit Address are some of the most popular paper wallets in the market right now.
Hardware wallets will typically cost you money to buy whereas other alternatives such as software wallets and physical wallets tend to be free. However, the offline nature of hardware wallets makes them more secure than software wallets because they are less vulnerable to hacks.
Paper wallets are cheap and secure against digital theft, but you’ll need to make multiple copies to mitigate against loss or damage. The multiple copies of a physical wallet could however increase the risk that of your private and public keys falling into the wrong hands.