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Everything You Need to Know About Cryptocurrency Wallets

Updated: Nov 5, 2023

If you're still keeping your coins on a custodial CEX cryptocurrency wallet, you will get #rekt.


A non-custodial wallet is the surest way to have the most control over your cryptocurrency. Remember: not your keys, not your crypto.

A Ledger brand hardware wallet surrounded by coin representations of different cryptocurrencies.
Not actually a wallet for not actually coins!

The last few years in the crypto space have seen the rise and fall of many centralized cryptocurrency trading platforms. Most notably and most recently, the collapse of the FTX cryptocurrency trading platform resulted in many people's assets being lost or inaccessible as the company worked through its legal proceedings. Many users sidestepped this by offboarding their assets onto non-custodial wallets. While they may have suffered unrealized losses from the decrease in the value of coins following the event, those coins were still accessible to them.


People always say: "Not your keys, not your crypto." With so many centralized exchanges coming onto and leaving the market, it's vital to have as much control over your own coins as possible. In this article, we will explain cryptocurrency wallets, why you should have one, and some of the wallets used in different cryptocurrency ecosystems. We hope this information provides helpful tools and resources for anyone who wants to keep and maintain custody of their own assets.


What is a Cryptocurrency Wallet?


The term "wallet" is interesting in this context since a cryptocurrency wallet doesn't actually hold cryptocurrency. In the realm of cryptocurrencies, a wallet is not a physical object but rather a digital tool used to store, manage, and interact with your digital assets. Think of it as a secure vault that holds your keys (private and public) and allows you to send, receive, and monitor your cryptocurrency holdings.


Your coins live on a ledger on the blockchain, and your wallet is the mechanism that keeps your private keys private so the control over your cryptocurrency transactions remains yours. Cryptocurrency kept on exchanges in custodial wallets gives control to someone else to process transactions (hypothetically, this is done with the user's consent when the user wants to, for example, make a trade). This technology, by design, is supposed to be a trustless, decentralized system for a reason.



Different Types of Cryptocurrency Wallets


Not surprisingly, there are lots of crypto wallet buzzwords like cold wallet, hot wallet, hardware wallet, software wallet, paper wallet, burner wallet, multi-sig, gnosis safe, and the list goes on. The bad news is most blockchain ecosystems rely on a different type of wallet technology to interact with different types of blockchains. The good news is that there are essentially only three basic types of cryptocurrency wallets, and all others are subsets of one of these three types:


"Not your keys, not your crypto, fam." - Some crypto maxi internet rando

1 - Paper Wallet

It seems strange that in the age of non-custodial digital asset ownership, the safest and most secure way to store cryptocurrency is still with a paper wallet. A paper wallet, in most instances, is literally a piece of paper that contains the private key for a blockchain address, which means somebody (a hacker, for example) would need to physically be in possession of the paper wallet to extract the private key and compromise the wallet. Paper wallets are generally best for long-term storage of coins. You can also keep your paper wallets in a safe or safety deposit box for additional security.

The high security comes at the expense of ease of use. Initially, setting up a paper wallet is relatively straightforward. However, it can be cumbersome to manually key in a private key or scan a separate QR code whenever you need to make a transaction. Keeping a paper wallet on hand is also not very secure since it can be lost or stolen. They're ideal for long-term, set-it-and-forget-it storage but not for everyday use.


If it's good enough for Vitalik, it should be good enough for anyone, right?


2 - Hardware Wallet

Hardware wallets are physical devices designed specifically for storing cryptocurrencies offline. Examples include Ledger Nano S, Ledger Nano X, and Trezor. Some of the benefits of hardware wallets are that they are high security since the offline storage of private keys makes them resistant to online threats. The private keys get stored on the device, so like a paper wallet, there is a layer of separation that reduces the likelihood of compromise and mitigates the risk of malware attacks that could compromise your assets.


A picture of a Trezor and a Ledger hardware cryptocurrency wallet.
Two of the most common hardware wallets.

Some of the downsides of hardware wallets are that they can be costly. Some hardware wallets can cost more than $200. Since it is a physical electronic device, it can be lost, damaged, or stolen. We've also recently learned that because they are electronic devices, they are not impervious to being compromised. While it doesn't happen often, it is still possible to hack a hardware wallet, and malicious attackers can exploit hardware wallet ecosystems.


In short, hardware wallets are a secure intermediary step between a paper wallet and a software wallet that offers some added security without the burden of keeping keys on paper.


3 - Software Wallet

Software wallets are the most common and accessible type of cryptocurrency wallets. They come in various forms, including desktop, mobile, and web-based wallets. Some common examples include Coinbase, Exodus, and Trust Wallet.


A picture of a desktop computer displaying the coinbase logo.
Coinbase also has a decentralized wallet!

Some benefits of software wallets are that they are easily accessible through most devices with an internet connection, are generally very user-friendly and designed for convenience, and several software wallets like Metamask support many different cryptocurrencies.


However, this level of convenience presents the potential for risk. Software wallets are more susceptible to hacking and phishing attacks, so the user must rely on the third-party wallet provider's security (which could be substandard if a wallet product is not well-developed). It is also easy to get too comfortable with a software wallet, and that could leave users vulnerable to additional risks.


Why Get a Cryptocurrency Wallet?


While centralized exchanges like Coinbase, Binance, and Kraken all offer wallet services, using a cryptocurrency wallet of your own offers several advantages.


The first and most important is control. With a self-hosted wallet, you have the most control over your private keys. You, and only you, have access to your funds. Control over and access to these funds can be especially important given the uncertainty of centralized exchanges.


Next is privacy. While most blockchains have publicly accessible ledgers where anyone can view transactions and transactional history, privacy is assumed unless you assign your identity to your public wallet address (with an ENS domain, for example). Regardless, your personal financial information is still in your control, and on-chain activity does not require KYC like most centralized exchanges, so you can maintain at least some anonymity.


Last is long-term storage. Hardware and paper wallets are ideal for long-term HODLing of cryptocurrency since they are not subject to online vulnerabilities (unless you routinely use your hardware wallet to sign metamask transactions). Centralized exchanges must report to the government and are often beholden to financiers, so if one goes kaput, your coin could go with them. Centralized exchange wallets are not a great place to keep coins long-term.


Most Commonly Used Cryptocurrency Wallets


We've composed a list of some of the most commonly used wallets for some widely used blockchains. If you're new to the game, this might help you decide which is best for you.


Bitcoin

Wallet; Ledger Nano S (Hardware wallet)

Benefits: Secure offline storage, immune to online attacks

Ease of Use: Moderate, better for more experienced users

Cost: $79 USD at the time of writing.

Note: Ledger Nano has support for many different blockchains.


Ethereum

Wallet; MetaMask (Software wallet)

Benefits: User-friendly, widely supported, browser extension

Ease of Use: Very easy, beginner-friendly

Cost: Free

Note: MetaMask supports any EVM-compatible blockchain. Check out our MetaMask write-up for more information.


Solana

Wallet; Phantom (Software wallet)

Benefits: User-friendly, designed for the Solana ecosystem

Ease of Use: Very easy, beginner-friendly

Cost: Free


Cardano

Wallet; Daedalus (Software wallet)

Benefits: Official wallet of Cardano, natively supports staking

Ease of Use: Moderate, best-suited for Cardano enthusiasts

Cost: Free


Polkadot

Wallet: Polkadot.js (Software wallet)

Benefits: Official wallet, integrates with Polkadot ecosystem.

Ease of Use: Moderate, suitable for tech-savvy users.

Cost: Free


Algorand

Wallet: Algorand Wallet (Software wallet)

Benefits: Developed by Algorand team, user-friendly.

Ease of Use: Very easy, suitable for beginners.

Cost: Free


Tezos

Wallet: TezBox (Software wallet)

Benefits: Supports delegation, easy to use.

Ease of Use: Very easy, beginner-friendly.

Cost: Free


Cosmos

Wallet: Lunie (Software wallet)

Benefits: Designed for Cosmos ecosystem, user-friendly.

Ease of Use: Very easy, suitable for beginners.

Cost: Free


EOS

Wallet: Greymass (Software wallet)

Benefits: User-friendly, designed for EOS.

Ease of Use: Very easy, beginner-friendly.

Cost: Free


Locking it Down


Cryptocurrency wallets are the keys to your financial autonomy in the digital asset universe. Understanding the differences between software, hardware, and paper wallets empowers you to choose the right solution for your needs. While centralized exchange wallets are convenient for trading, a personal cryptocurrency wallet ensures security, control, and privacy, making it an essential tool for anyone serious about their crypto journey. Remember to conduct research, choose a reputable wallet, and take security precautions to protect your digital assets and enjoy the benefits of true financial freedom in the crypto world.


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