What is a crypto wallet, what's the difference between software, hardware and paper wallers, and how do you get one? We answer all these questions today!
Daniel Coll, November 2nd, 2020
ShareLove this blog? Why not share it with the world?
Cryptocurrency is now bigger than ever, and there is such a bewildering array of crypto wallets, exchanges and other products and services, that it can be quite daunting to the newcomer. So, let's make things a bit clearer.
(By the way, don't skip this section even if you already know as there might be a couple of aspects you'd missed or weren't sure of).
First off, we're taking Bitcoin as the starting point, but most of what follows applies to the other cryptocurrencies such as Litecoin, Ethereum, and the ever increasing range of other digital currencies as well.
It's perhaps easiest to think of a Bitcoin wallet as an analogy of a real-life physical wallet, purse or money bag. There are various designs you can get, but the main theme running through them is that the money should be kept handy and safe.
A Bitcoin wallet does the same. You can hold your Bitcoin or other cryptocurrency even down to the smallest units (a bit like cents or pennies, but the smallest unit of a Bitcoin, one Satoshi, is way smaller – at one hundred millionth of a single Bitcoin) and use it to securely make payments online (or even offline). Since many crypto wallets are available on your smartphone, you can literally keep your wallet in your pocket as in the old days – and the security features are much more sophisticated than hoping it gets handed in somewhere if you lose it!
Of course, you don't hold actual coins in a crypto wallet. There is a common axiom in the Bitcoin world that 'if you don't control the keys, you don't control the coins', which refers to the main issue regarding the security of cryptocurrency. A good digital wallet is a place to securely hold private keys, which are one half of the equation when making a crypto payment (the other half being the public key which is visible to all as its name suggests – public/private key pairs are generated simultaneously each time a payment is made).
The top cryptocurrency wallets can be divided into three main groups: software wallets, hardware wallets and paper wallets. There are pros and cons to all three methods, but for beginners, software wallets are usually the quickest and easiest to use, so we'll start with those.
Please note that most software wallets include downloadable software normally an app for your phone, which can be more secure and giving you direct online access at all times.
Copay, from Bitpay, is one of the most user-friendly and universal crypto wallets out there. It is available on iPhone and Android, as well as most operating systems for your desktop computer, including Mac OS, Windows and Linux. It is open source, so glitches are often fixed quickly. It’s secure, with a shared account feature which requires two signatories (a bit like a joint bank account in the old days). Worth a look for newcomers and the more experienced in crypto user alike.
Blockchain Wallet is one of the most trusted and well-established of the cryptocurrency wallets. It is highly secure, with two-factor authentication, a multi-signature (multisig) capability, a hierarchical deterministic (HD) model (which allows for a more streamlined backup system of public/private key generation, and is both more secure and faster) and is open source.
It is also very easy to use so suits beginners. It supports Bitcoin Cash and Ether cryptocurrencies too.
Bitcoin Core is the 'official' Bitcoin wallet in that it was one of the first, developed at the same time the cryptocurrency first emerged by Bitcoin founder Satoshi Nakamoto. Unlike most of the other software wallets, it is for the desktop only and is 'full node'. This means it records and stores a copy of the entire blockchain transaction, making it very secure and trustworthy. A downside is that it can be a bit slow and has fewer features than some of the new kids on the block.
Breadwallet, or simply 'Bread' or even 'BRD', was originally developed as a Bitcoin-only wallet for the iPhone but is now available to Android too. It is ideal for beginners as it is easy to use and install. It is highly reputable and is based in Zürich, Switzerland.
Green Address is available on iOS, Android and Google Chrome, so it can be accessed on your desktop computer as well. It has an HD wallet, two-factor authentication and is very secure. It can also double up as a hardware wallet.
Hardware Wallets are more expensive than software wallets (most software wallet downloads should be free) because they involve purchasing a physical piece of equipment on which to store your Bitcoins, some of them simply a more complex type of USB stick. They are most useful for larger sums of money – think of them as more like a safe hidden away at home rather than a pocket wallet – and so aren't really for beginners, but we'll look at couple of the larger players.
Trezor is perhaps the most well-known hardware wallet and is actually a tiny computer which generates private keys for making payments. It does this offline, so it is very secure. There are extra security protection features such as being able to generate a password, but the existing 24-word seed system with Trezor is already very secure. It can be used both online and offline for additional security and has an attractive dashboard with which you interact. Unless someone is literally looking over your shoulder when you use Trezor, it is highly secure when used offline.
Ledger Nano is similar to Trezor in that it is screen-based but differs by using a smart-card rather than being an actual computer. It is also very secure, and there is a cheaper variant (Ledger HW1) as well as Ledger Unplugged, which is a credit card-sized wireless device.
Finally, we'll mention what seems like the easiest to use, the paper wallet, on which private keys are printed out for storage offline (called 'cold storage'). These predate the hardware wallets and in their own way are the most secure, in that there is no possible way they can be hacked into.
The downsides are mostly obvious – since they are made of paper they can be destroyed by fire, flood, animals and children. So, for larger sums, special storage which avoids these hazards is needed, and it is possible, if unlikely, that an opportunist criminal photographs your paper wallet over your shoulder. They are also not as quick to use as the more tech-based solutions.
Financial services provider? Find out how Veriff can help you verify new customers paying with cryptocurrency for safe and secure relationships going forward.
Need excellent identity verification for your cryptocurrency?
Get identity verification which prevents fraud, guarantees compliance, increases conversion and ensures you always know your customers.