Tutorials

What is a Cryptocurrency Wallet?

Cryptocurrency wallets are mobile and desktop applications that can be used to store your cryptocurrencies. Since your coins are entirely digital, the storage of cryptocurrencies might be a little different from what you're used to, so we've prepared an introduction to wallets that will teach you all about how they work and how you can use one.

The Basics of Cryptocurrency Wallets

Most cryptocurrencies are designed such that anyone with the right private key - kind of like a long, automatically generated password - can tell the cryptocurrency's network to move the key's associated funds. As a result, cryptocurrency storage is really just the storage of these private keys, and that's the main function of a wallet.

Technically speaking, then, a cryptocurrency wallet is any way of storing the private keys for your funds. This can even mean writing them down on a piece of paper (that's called a paper wallet, and we'll get back to those later), but most wallets also offer the functionality to sign transactions with your private key, which allows you to actually send your cryptocurrencies on the network.

Types of Wallets

As we alluded to a second ago, there are multiple types of cryptocurrency wallet. Each of them offers slightly different functionality and have their own advantages and disadvantages, but they're all the same in that their number one goal is to keep your private keys safe. These are the main categories:

Online Wallets

Online wallets are probably the fastest and easiest way to store your cryptocurrencies. They'll take care of your private keys and everything else you need to quickly send and receive coins. Importantly, there are two very distinct kinds of online wallet: with the first, your private keys are stored by the third party behind the wallet, and with the second, your private keys are stored in your browser.

The former kind is commonly seen with cryptocurrency exchanges, who store the private keys for your cryptocurrencies themselves. We suggest you stay away from these wallets, since you're not storing the private keys yourself, and the safety of your coins is only as good as the exchange.

The latter kind - where the private keys are stored on your browser - is a totally valid form of cryptocurrency wallet. In this case, though, the safety of your coins is only as good as your internet browser. If you're not sure whether there's any malware on your computer or you're looking to store larger sums, you might want to consider another option.

Desktop Wallets

Desktop wallets are cryptocurrency wallets that store your private keys on your computer. These wallets come in the form of regular applications, and they'll also handle everything to do with sending and receiving. Overall, these are a great choice in terms of usability, but you'll need to be behind your computer to make anything happen.

Similarly to online wallets, the security of desktop wallets depends on your computer. If you're using your computer every day to download files or you want to store big amounts, there are better options.

Mobile Wallets

Mobile wallets are an especially popular option for those who need quick access to their funds from anywhere. If you travel a lot or like to pay with cryptocurrency in person, these wallets will take care of all the sending and receiving while storing your keys for you on the phone.

In terms of security, mobile wallets are similar to the two we've already covered. Your keys are stored on your phone, so if it gets breached, so will your funds.

Hardware Wallets

Hardware wallets are physical devices that store your private keys off your computer and away from harm. For the sending and receiving functionality most of us need, hardware wallets can often be linked to desktop or online wallets to sign transactions. There are a handful of different hardware wallets out there, but the most popular ones are made by Ledger, Trezor, and KeepKey.

Hardware wallets are typically the wallet of choice for anyone storing a larger amount of cryptocurrency or just wanting the peace of mind associated with having your keys off a live computer or mobile device.

Paper Wallets

Paper wallets are the last category of cryptocurrency wallets. A paper wallet can be any piece of paper with your private keys written on it, but most people use software to automatically create print-outs which store the data in QR codes (square barcodes). This makes it easier to send funds down the line since you can quickly scan the codes with a mobile device.

In this case, there are two security aspects to think about. First, you need to generate the wallet without anybody accessing the private keys (which means you need to use a secure wallet generator, computer, and printer), and then you need to safeguard the paper itself. If you can do this successfully, paper wallets are as secure as any, which makes them a popular alternative to hardware wallets.

How to Get a Crypto Wallet

Now that you understand the purpose of a cryptocurrency wallet and the different types, all that's left is to find the right one for you and start using it.

Finding a Wallet

The first step to getting a cryptocurrency wallet is finding one that will work for you. Above, we outlined the various types of cryptocurrency wallet, but what we didn't mention is that different cryptocurrencies often use different wallets. To find out which wallets you can use for a chosen coin, you might have to refer to the cryptocurrency's website.

Here are some examples of wallets for the three most popular cryptocurrencies (as of November 2018):

Bitcoin

  • Online: Coinbase
  • Desktop: Bitcoin Core
  • Mobile: Jaxx
  • Hardware: Ledger
  • Paper: BitcoinPaperWallet

XRP

  • Online: Coinbase
  • Desktop: Toast Wallet
  • Mobile: Edge
  • Hardware: Ledger
  • Paper: XRPPaperWallet

Ethereum (and ERC20 token)

  • Online: IDEX
  • Desktop: Mist
  • Mobile: Jaxx
  • Hardware: Ledger
  • Paper: MyEtherWallet

Using the Wallet

The setup process for wallets can vary greatly, so we suggest you consult the wallet's instructions once you've chosen one. Generally speaking, the setup is straightforward for the web, desktop, and mobile wallets: you might just have to choose a password or save a file on your computer. Hardware and paper wallets can be a bit more involved, but the process is similar.

Then, once you've installed or set up your new wallet, it's just a question of using. Web, desktop, and mobile wallets should come naturally if you've ever used traditional banking services, since the login, send, and receive functionalities are very similar. Hardware and paper wallets might require you to set-up a second wallet (typically a web, desktop, or mobile wallet, since these have access to the internet) to spend your funds, but otherwise the rest is the same.

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