A CRYPTO WALLET is a digital wallet for storing cryptocurrencies. A crypto wallet must be used carefully to keep its contents safe from cybercriminals. There are many different crypto wallets on the market. A cold wallet is the safest option, but you also have to pay for this additional security. There is a suitable crypto wallet on the market for every type of investor.
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What is a crypto wallet?
A crypto wallet is a digital wallet for storing cryptocurrencies. A cryptocurrency wallet enables self-custody meaning controlling your cryptos independently without any third parties. You can use a crypto wallet to send and receive cryptocurrencies and no one will be able to stop you.
A crypto wallet can be a mobile app, a program installed on a computer, or a web service accessed via a browser. In addition to this, there are also hardware wallets that look like USB sticks. The Ledger Nano X shown in the picture below is one of the most popular hardware wallets. It is widely popular among novice and professional investors.
Wallets like the Ledger Nano X are called cold wallets. Its opposite is a hot wallet. They have one significant difference. A hot wallet is a wallet that is constantly connected to the internet, while a cold wallet is kept offline. It is only turned on to confirm transactions.
We have published a comprehensive guide to the Ledger Nano X for beginners. The article goes through the installation of the device step by step and introduces its functionality.
A cryptocurrency wallet enables the management of funds at a specific blockchain address. You can send and receive cryptocurrencies. In addition, many crypto wallets know how to combine funds from several different addresses into one balance.
A crypto wallet is a graphical user interface (GUI) to a blockchain. Without wallet software, transactions would be very difficult to make for the average investor.
Blockchain, which is the backbone of most cryptocurrencies, is a decentralized database. It has information about how much funds are at a certain address. A wallet is a misleading term in the sense that the wallet doesn’t actually have your cryptos. A wallet actually has the keys to managing the coins at a given blockchain address.
Cryptocurrencies are always stored in the blockchain – not in wallets. The wallet software declares to the network that you have the right (the keys) to send coins from a certain address.
Most crypto wallets are free apps, computer software, or online services. Cold wallets typically cost between 50 and 200 euros, depending on the manufacturer and model. A small investor can use the free options until the portfolio has grown to thousands of euros. That is when it makes sense to invest for example 100 euros in a cold wallet.
A crypto wallet requires careful use
A crypto wallet must be used carefully to keep its contents safe from cybercriminals. In a way, the same applies to traditional wallets, but there are a couple of additional factors that should be taken into account before using a crypto wallet.
Diligence starts with transactions. Cryptocurrencies must first be transferred from the crypto exchange to your wallet. In other words, you have to make a withdrawal from the crypto exchange to the right address. This is not difficult in theory, but countless beginners have made mistakes in withdrawals.
These days many amateurs are confused by the fact that cryptocurrencies run in different networks. For example, stablecoins are actively used in 5-6 different networks (Ethereum, Tron, BNB Chain, etc.). This means that crypto exchanges might offer half a dozen different networks to withdraw your coins to.
If you are unsure what option to choose, make a withdrawal with a small amount first or contact customer support. Be careful not to post anything on social media, because you might reveal your wallet address to others. After that, anyone can check the balance and find out your transaction history.
When a crypto wallet contains coins, it is important to take care of recovery keys. This refers to a list of 12-24 words that were given to you during the installation phase of the wallet. Every mobile app, desktop wallet, and cold wallet asks you to generate these backup codes when a new wallet is created. The picture below has the recovery sheet of Ledger Nano X.
You can use these words to restore your wallet to another device if, for example, your phone or computer breaks down. If they fall into the wrong hands, anyone can clone your wallets elsewhere and move the funds out. It is impossible to recover your coins if they are lost.
Do not store backup codes on your computer or mobile device – even as an image! Keep them on paper in a safe place. You can also split the paper in two and store each part in a different physical location.
Different types of crypto wallets
There are many different types of crypto wallets on the market. Next, let’s go through typical cryptocurrency wallets. Since are so many options to choose from, investors should look for a wallet that suits their individual needs. There is no one wallet that is perfect for every use case.
The first option is to keep your coins in the exchange where you bought them. This is not a recommended long-term solution. However, many beginners feel uncomfortable about the idea of storing backup codes and making transactions. Therefore it’s understandable that you might want to store your first purchases in an exchange.
In this case, you should start with Finnish services such as Coinmotion and Northcrypto. They are safe, reliable, regulated, and easy-to-use options. We recommend learning about self-custody as soon as possible and moving at least some of your funds out of exchanges.
A cryptocurrency wallet is most often a mobile wallet or a desktop wallet installed on a computer. These are safe options when used correctly. The most popular mobile wallet is Trust Wallet.
Exodus is an example of a desktop wallet that also has a mobile version. Coinomi is also a popular wallet for mobile devices and computers.
Browser wallets can also be placed in the same category. They are often add-ons for Google Chrome. The most popular of these is the Web3 wallet MetaMask, which you need for using DeFi applications.
The wallets mentioned in this article are so-called universal wallets. They support hundreds, even thousands of different cryptocurrencies. They meet the demands of the majority of crypto investors. The biggest issue for wallet providers is the intense speed for launching new cryptos. It takes some time to make a popular new coin available.
There are also wallets built for specific cryptos or blockchains. Each crypto project has usually the “official wallet” that supports its blockchain and coins & NFTs launched on it. Solana’s Phantom wallet is a good example of such. These “official wallets” have also the staking option if it is a Proof of Stake blockchain. You should always research this option first before using a universal wallet.
A Cold wallet is the best crypto wallet
A cold wallet is the safest option, but you also have to pay for this additional security. A cold wallet stores all your keys offline, making them inaccessible to hackers. The prices of cold wallets vary between 50 and 500 euros, depending on the device.
A cold wallet is arguably the best cryptocurrency wallet. However, buying one doesn’t make sense with portfolios of a couple of hundred euros. If your crypto investments are in the thousands of euros, investing 100-200 euros in a hardware wallet can be justified.
Ledger Stax shown in the video below is a novelty from the French company Ledger. It has a nice touch screen, about the size of a debit card.
Using a cold wallet requires a bit of technical know-how. The device is not difficult to use, but it is good to have experience with using mobile apps or computer software. For example, there are firmware updates also released for the devices at regular intervals. You must know how to install these via the management software.
If you are really bad with technological devices and don’t even know how to install mobile apps, a cold wallet is not necessarily the most suitable option for you.
Summary of crypto wallets
There is a suitable crypto wallet on the market for every type of investor. Whether you’re a small investor or a billionaire, you’ll find a self-custody option that fits your needs. There are mobile wallets and computer software available for free. When the size of your portfolio increases, you can switch to a cold wallet and increase the level of security.
A beginner can get started by keeping the coins in the crypto exchange where they were bought. However, we recommend learning about self-custody from the beginning. If you know how to use an online bank, you can also use a crypto wallet. A cryptocurrency wallet only requires some extra care and dedication.
The most important thing with crypto wallets is the backup codes, i.e. recovery keys. Recovery keys are created during the wallet installation phase. This refers to a list of 12–24 words that should be stored on a piece of paper. These recovery keys enable restoring your wallet to a new device if your mobile phone breaks or gets stolen, for example.
If someone else gets access to your recovery keys, they can clone your wallet and empty its contents. Don’t begin self-custody before you have carefully familiarized yourself with the risks and tried wallets with smaller amounts first.