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12
Dec
crypto wallet

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What is a cryptocurrency wallet?

A crypto wallet is a digital wallet for storing cryptocurrencies. A crypto wallet must be managed carefully to protect its contents from cyber criminals. There are many different crypto wallets on the market. A cold wallet is the safest option, but you must also pay for this additional security.

There is a crypto wallet suitable for everyone on the market.

What is a crypto wallet?

A crypto wallet is a digital wallet for storing cryptocurrencies. Crypto wallets enable self-custody, which means controlling crypto independently. You can use a crypto wallet to send and receive cryptocurrencies, and no one can stop you.

A crypto wallet can be a mobile app, a program installed on a computer, or a web service accessed via a browser.

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.

ledger nano x

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 crypto wallet is designed to manage cryptos stored on a specific blockchain address. Most wallets can also combine funds of several addresses into one balance.

In practice, a crypto wallet offers a graphical user interface to the blockchain. Without wallets, sending cryptos would be very difficult for a basic user.

Cryptos are stored on the blockchain

Blockchain is a decentralized database and the backbone of cryptocurrencies. Blockchain has information on how much funds are stored at a certain address. A crypto wallet is a bit misleading because it does not contain cryptocurrency.

A crypto wallet contains the keys to manage the cryptos at a given blockchain address.

Cryptocurrencies are always stored in the blockchain, not in a wallet. Your wallet app broadcasts a message to the network and tells other participants that you own the coins at a particular address.

Most cryptocurrency wallets are free mobile apps, computer software, or browser-based services. Cold wallets typically cost between 50 and 200 euros depending on the model. A small investor will be fine by starting with free wallets.

A crypto wallet requires careful use

A crypto wallet must be managed carefully to protect its contents from cybercriminals. The same applies to traditional wallets, but additional factors should be considered before using a crypto wallet.

Diligence starts with transactions. Cryptocurrencies must first be transferred from a crypto exchange into your wallet. In other words, you have to withdraw coins to the correct address. Countless beginners have made mistakes by sending the coins to the wrong address.

Many amateurs are confused by cryptocurrencies running on different networks. For example, stablecoins are actively used in 5-6 networks (Ethereum, Tron, BNB Chain, etc.). Crypto exchanges might offer half a dozen different networks for withdrawing your coins.

If you are unsure what network to choose, withdraw with a tiny amount first or contact customer support. Don’t post help requests on social media because you’ll reveal your wallet address to others.

It is crucial to take care of your wallet recovery keys.

Recovery keys refer to a list of 12 or 24 words given to you during the installation phase of the wallet. Every mobile app, desktop wallet, and cold wallet asks you to generate these codes when a new wallet is created.

The picture below has the recovery sheet of Ledger Nano X.

ledger recovery sheet

If your phone or computer breaks down, you can use these words to restore your wallet to another device.

Remember: Anyone can clone your wallets and steal your funds if your backup sheet falls into the wrong hands. It is impossible to recover your coins if they are lost.

Do not store backup codes on your computer or mobile device. 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 crypto wallets on the market. Next, let’s go through what a typical crypto wallet is like.

Cryptocurrency exchanges

The first option is to keep the cryptocurrencies in the place where you bought them. This means the crypto exchange.

Many beginners feel anxiety about storing backup codes and making transactions. This is understandable. Storing your cryptos in an exchange is fine when starting your crypto adventure.

Five years ago, cryptocurrency exchanges were not as reliable as today. The major players in the industry are now subject to strict regulations.

Even if the risks of losing funds have decreased, we do not recommend keeping cryptocurrencies on exchanges for longer periods. This is only acceptable in the beginning when your portfolio is small.

Learn how to use a cryptocurrency wallet and store your cryptos yourself. This skill will surely be useful to you in the future!

Mobile and desktop wallet

The most commonly used type of crypto wallet is the mobile app. Using a mobile device to manage cryptocurrencies is increasingly popular, and many young people no longer have a computer or laptop.

When utilized correctly, a mobile wallet is a secure option for most crypto investors.

Trust Wallet (shown in the image below) is one of the most popular mobile wallets on the market. It is the so-called universal wallet that supports hundreds of different cryptocurrencies.

trust wallet

Read more about this wallet from our Trust Wallet guide.

Another popular mobile wallet is MetaMask, which is often used in the Web 3, i.e., for DeFi apps. MetaMask also works on a computer as a Chrome browser extension.

Exodus is an example of a desktop wallet that is also available on mobile. Coinomi is also a popular wallet for computers. The difference between desktop and mobile wallets is mainly that one is used on a computer and the other on a mobile device.

However, the mobile wallet has one significant advantage: QR code scanning. 

It is possible to do it with the camera of a mobile device. Scanning the QR code is an easy way to extract the address of the receiving wallet without the risk of typos. A mobile wallet is, therefore, much more convenient if you need to make a lot of transactions.

Crypto and blockchain-specific wallets

Crypto wallets like Trust Wallet and Exodus are so-called universal wallets. They support hundreds, even thousands, of different cryptocurrencies. Such options are quite sufficient for the majority of investors. In addition to these, there are also blockchain-specific wallets.

Wallet apps don’t support every new cryptocurrency in the market. This is why every cryptocurrency project has a wallet supporting the apps and NFTs built within its ecosystem. Solana’s Phantom app is a good example of this.

Generally, each cryptocurrency has a wallet made by the same company (or group) developing the ecosystem.

Most investors use universal wallets. If you are invested in many cryptos, it’s not practical to download a wallet for each crypto. You typically need to download a blockchain-specific wallet for staking. Universal wallets support staking, too, but for very few coins.

A cold wallet is the best crypto wallet

A cold wallet is the safest option, but you must also 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 300 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. Investing 100-200 euros in a hardware wallet can be justified if your crypto investments are thousands of euros.

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, their firmware updates are also regularly released for the devices. You must know how to install these via the management software.

A cold wallet is not necessarily the most suitable option if you are bad with technological devices and don’t even know how to install mobile apps.

Summary of crypto wallets

There is a crypto wallet suitable for everyone on the market. Whether you are a small investor or a billionaire, you’ll find a storage solution that suits your needs. There are mobile wallets and computer software. When your portfolio increases in value, you can switch to a cold wallet and have maximum security.

A beginner can get started by keeping the coins in a crypto exchange. However, we recommend learning about self-custody from the beginning. You can use a crypto wallet if you know how to use an online bank. 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 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 carefully familiarizing yourself with the risks, and tried wallets with smaller amounts first.

Antti Hyppänen

Antti Hyppänen is the founder and editor-in-chief of AboutBitcoin.io. Antti has written articles about cryptos since 2017. He follows the crypto market every day of the year and is responsible for the daily operations of AboutBitcoin. Antti is not a maximalist regarding any cryptocurrency but looks at the industry objectively. Antti’s investment profile is “buy & hold,” i.e., he does not trade or use leverage. His crypto portfolio consists of mainly Bitcoin and Ethereum. Antti also follows macroeconomic events. In addition to cryptos, his interests include gold, silver, and the US stock market.