The best cryptocurrency wallets – how do they work and which one to choose?

Thinking about starting your cryptocurrency adventure? Then you will need a reliable wallet to store and trade cryptocurrencies. There are many to choose from and some are extremely similar. Which cryptocurrency wallet to choose?

Cryptocurrency wallet – what is it and what is its purpose?

Cryptocurrencies, also known as virtual currencies or just crypto, are an example of alternative money that is not recognized by most countries in the world. However, this does not change the fact that cryptocurrencies have gained immense popularity as an alternative form of capital investments. 

It is not money in the classical sense of the word, but a distributed, encrypted accounting system that stores data on the possession in a conventional currency. A cryptocurrency wallet is a node of this system unambiguously related to other wallets. Only the owner of the correct private key has access to the funds of a given wallet. 

It is not possible for the same unit to be issued by another person. A cryptocurrency wallet in the form of a web application or physical dedicated device for connecting to a computer that stores private keys that give access to crypto assets. The only difference is that a physical wallet allows you to store currency outside the Internet. A cryptocurrency wallet is therefore not a set of units of a given currency, but an electronic form of access to funds. The cryptocurrency wallet also allows payment transactions.

Security

Cryptocurrency is not an officially recognized legal trading option. Therefore, they are not subject to regulations and legal safeguards that exist in most countries in the world. Nevertheless, they are quite well protected against theft or unauthorized use within the system in which they operate. 

The additional security of the cryptocurrency wallet is called “seed”. It is a collection of English words that allow you to regain access to the currency in the event of a failure of the equipment on which you keep your wallet. In the case of a virtual wallet – e.g. an application, security is usually a strong password, PIN code and access key. 

How does a cryptocurrency wallet work?

To understand how a cryptocurrency wallet works, you need to know the essence of digital assets: bitcoins, XRP (Ripple cryptocurrency), ETs (Ethereum currency) or other cryptocurrencies. We need to know that these assets never leave their system (blockchain networks). The cryptocurrency wallet does not store virtual coins, but is a method of accessing assets – it clearly indicates the owner of the purchased cryptocurrencies.

Related: Revolut in a nutshell – what is Revolut, how does it work and is it worth it?

Basic types of cryptocurrency wallets

As mentioned earlier, cryptocurrency wallets can be both a software wallet and a hardware wallet. In theory, there are also paper wallets, i.e. access keys written on a piece of paper, but this method is outdated and we will not pay much attention to it later in this article. 

There is also a common division between cold wallet and hot wallet. Cold wallets operate on the basis of a physical device or some other form of physical storage of the access key and may function outside the Internet. The advantage of such a solution is security and full control. 

The disadvantages include the risk of losing the cryptocurrency wallet in the event of damage to the carrier (hardware), the possibility of physical theft, the price of the devices and a limited number of cryptocurrencies in which you can invest on the basis of one wallet. Hot wallets are web solutions or applications that are stored in the cloud. 

The advantages of such a solution are obvious – greater availability related to the price of the wallet itself and versatility (the ability to trade many cryptocurrencies, the ability to connect to many exchange systems). The disadvantages include the possibility of losing the key in the event of a security information leak or as a result of an attack by cybercriminals. It is therefore necessary to set the highest possible level of security and alternative methods of regaining access to the cryptocurrency wallet.

Hardware wallet and other methods of storing cryptocurrencies

The hardware wallet is a small device that is usually connected to the computer via a USB port, but also via Bluetooth. A cryptocurrency wallet in a physical form is the safest method of securing your funds, because only a person who has a physical possession of a specific device has access to them. 

The crypto hardware wallet market is dominated by Trezor and Ledger. The latter produces slightly more budget but still reliable devices. Hardware wallets look like little portable flash drives with tiny LCD screens. They cost from several dozen to several hundred dollars. 

They differ not only in price, but also in material and possibilities. Such accessories also communicate with our computer or mobile device via a USB port or Bluetooth wireless connectivity.

How to set up a cryptocurrency wallet?

In the case of a hardware wallet, the situation is very simple. It is enough to purchase the device (preferably from an official distributor), connect it to a computer, and then follow the instructions described in the user manual. 

At this stage, it will be necessary to generate a SEED key – a unique string of words that will allow you to regain access to the wallet in the event of a hardware failure. For Ledger devices, these are 24 words in English. Virtual wallets are set up by installing dedicated software on a computer, a phone application and setting the required security keys. 

The best cryptocurrency wallets

The cryptocurrency market has grown enormously in the last decade. Buying, storing and selling digital assets is now extremely simple with physical or digital cryptocurrency wallets. Below we will try to introduce you to the most popular solutions.

Coinomi

Coinomi is an example of a universal cryptocurrency wallet in a web browser version and a mobile version for a smartphone with Android or iOS. Coinomi is so universal that it will be perfect for any novice user who wants to start their adventure with cryptocurrencies. 

This wallet allows you to store multiple tokens and is currently integrated with over 1,700 cryptocurrencies. It also has its own exchange, ShapeShift, where you can easily buy cryptocurrencies. Coinomi is praised for its clean interface as well as its high level of security. So far, no system user has been able to steal any token. 

Users’ private keys are stored locally on the device, not in the cloud on software servers. This is a very big advantage of the platform. However, losing or destroying the device on which our tokens are stored can make life difficult. The aforementioned recovery seed will come in handy – a string of words that will help you get emergency access to the wallet in the event of losing tokens. 

The creators of Coinomi took care of the privacy of their users. The wallet address is changed with each transaction. The user’s actual IP is also hidden behind Coinomi’s servers. Finally, it is worth mentioning that Coinomi is a completely free solution.

Coinbase Wallet

Coinbase Wallet is the older brother of Coinomi, which has been in development for nine years. Behind the wallet are the creators of Coinbase, one of the most popular cryptocurrency exchanges in the world. The Coinbase cryptocurrency wallet app is available for both Android and iOS platforms. 

Within Coinbase Wallet, transactions in most of the available cryptocurrencies in the world are possible. Interestingly, in order to install the cryptocurrency application and actively use the wallet, you do not need an account on the Coinbase exchange. This cryptocurrency app is also free. There is no commission when transferring crypto between Coinbase wallets. The usage fees only apply to cryptocurrency transfers between the wallet and the exchange.

Wallet security is fairly standard, but still effective. Access to the wallet is secured with a PIN code and a biometric sensor (fingerprint). Optionally, you can enable two-factor authentication. 

The page with frequently asked questions is very extensive. However, it is not possible to talk to a consultant neither by chat, nor via a hotline. Only contact via email or social media is available.

Electrum

Electrum was originally released as a dedicated Bitcoin wallet. Currently, on the basis of its open source code, there are wallets that support transactions also in other cryptocurrencies. However, it is Electrum that is currently recognized as the best Bitcoin wallet. 

The advantage of Electrum is its “lightness” – to use it, all you need to do is download a small client application for Windows, Linux, Android or OSX. Blockchains are stored on external servers (this is the “lightness” of the wallet). Meanwhile, transactions are signed locally. Thus, Bitcoin wallet servers do not have access to users’ private keys.

Even though the Electrum wallet app is free, cryptocurrency transfers are subject to transaction fees. If you still don’t know which Bitcoin wallet to choose, most likely Electrum will be your first choice.

Exodus

Cryptocurrency Wallet Exodus is another solution that allows transactions on many types of cryptocurrencies through dedicated desktop software or in the mobile version. Interestingly, Exodus can be integrated with a hardware Trezor cryptocurrency wallet. Exodus enables transactions of over one hundred cryptocurrencies. It is integrated with the ShapeShift exchange. 

Even though the app has an English menu, Exodus is praised for its ease of setup and operation. This is another example of a lightweight crypto wallet that runs on an efficient server-client infrastructure. The desktop or smartphone application is a light client terminal. Most of the data is stored on efficient remote servers.

The main security in the event of loss of access to the wallet is again SEED – a specific string of words, the entry of which will unlock access. However, there is no two-factor security here.

ZenGo

This wallet differs from the alternatives in that it deviates from securing the wallet in the form of private keys and seed keys. ZenGo uses biometric security – face recognition – instead of private keys. The security system is distributed between the client device and the server. 

Biometric security is extremely convenient for the user who has one click to access the contents of the wallet. Another advantage of ZenGo is incredibly fast technical support – the consultant is also available basically with every “click”. Even though the ZenGo wallet requires constant access to the Internet, the website also offers Chill Storage – the ability to regain access to funds even after ZenGo servers fail. 

The only downside ZenGo users point out in the reviews is the number of currencies available – only thirty cryptos can be traded at the moment.

Do you think it is worth investing in cryptocurrencies? Or maybe you are already actively operating in this ecosystem? If so, be sure to let us know which cryptocurrency wallet you recommend!

Main picture source: marketrealist.com