Hardware, Software, and Paper: A Complete Guide to Different Types of Crypto Wallets For Every Type of User.
WHAT IS A CRYPTO WALLET?
A crypto wallet is a digital tool used to store, manage, and trade cryptocurrency assets. With a blockchain wallet, users can also engage with decentralized finance (DeFi) and trade non-fungible tokens (NFTs). The fundamental role of a crypto wallet is to safeguard the private key required for transactions on any blockchain network.
It is worth noting that the wallet does not physically store the crypto, but rather it stores the private key needed to unlock the blockchain address where the crypto is kept. The blockchain network, such as Bitcoin or Ethereum, is where the actual storage of the crypto occurs.??
To begin our discussion on the various kinds of cryptocurrency wallets, it is important to grasp the distinction between ‘public’ and ‘private’ keys.
Upon opening a crypto wallet, you will be assigned a public key and a private key. A public key, consisting of a long string of digits, enables the wallet's owner to receive cryptocurrency by encrypting sensitive data. On the other hand, a private key serves to verify both transactions and the wallet address's ownership. This is accomplished through an algorithm that can both decrypt and encrypt sensitive information.
A public key is like a mailbox in that anyone can see this address and send mail (crypto) to it.
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A public key can be compared to a mailbox, where anyone can view the address and send cryptocurrency to it. But only the owner of the mailbox, or in this case, the public key, possesses the key to open it and access the messages, much like the "private key" in cryptocurrency.
Although the private and public keys are mathematically connected, it is impossible to derive a private key solely from a public key.
It is crucial to never disclose your private key to anyone, as doing so could result in that individual stealing all of your cryptocurrency.
It's worth noting that many modern wallets utilize "seed phrases" instead of private keys. These are long sequences of random words that are connected to a private key.
CUSTODIAL VS NON-CUSTODIAL WALLETS: WHAT ARE THE DIFFERENCES?
There are two types of crypto wallets: custodial and non-custodial. A custodial wallet is one where an exchange holds the private key for the user, and examples include popular platforms like Coinbase.?
However, custodial wallets do not allow for direct interaction with Web3, as users do not have control over their keys.?
On the other hand, non-custodial wallets, also known as self-custody wallets, allow users direct access to their keys and complete control over their digital assets. This control permits direct interaction with a blockchain, allowing users to trade on decentralized crypto exchanges (DEXs) like Uniswap. In this article, we will focus on the three different types of non-custodial wallets.
Here are five examples of each type of wallet:
Custodial wallets:
Coinbase Wallet - https://wallet.coinbase.com/
Binance - https://www.binance.com/en/usercenter/wallet
Kraken - https://www.kraken.com/en-us/features/wallet
Bitpanda - https://www.bitpanda.com/en/wallet
Gemini - https://gemini.com/wallet/
Non-custodial wallets:
MetaMask - https://metamask.io/
Ledger Live - https://www.ledger.com/ledger-live/
Trezor - https://trezor.io/
Trust Wallet - https://trustwallet.com/
MyEtherWallet - https://www.myetherwallet.com/
PAPER WALLETS: HOW DO THEY WORK?
A paper wallet is a basic form of a crypto wallet, suitable for users who rarely interact with their cryptocurrencies. It is a printed piece of paper containing your private key, sometimes accompanied by scannable QR codes.?
While paper wallets are not connected to the internet or blockchain, the private key they contain represents an active key on the blockchain that can locate cryptocurrency. However, the drawback of paper wallets is that they are susceptible to damage, such as getting wet or burnt, which could result in the loss of private key and digital assets.?
Hence, it's essential to store paper wallets in a water/fireproof safe. Another disadvantage is the tedious process of transacting with blockchain networks, as a Bitcoin private key is a 256-bit string.
Here are some examples of paper wallets:
WalletGenerator.net - https://walletgenerator.net/
Bitaddress.org - https://www.bitaddress.org/
Bitcoinpaperwallet.com - https://bitcoinpaperwallet.com/
SafePaperWallet.com - https://www.safepaperwallet.com/
Paperwallet.com - https://paperwallet.com/
HARDWARE WALLETS: HOW DO THEY WORK?
Hardware wallets are physical devices designed to securely store private keys for cryptocurrency. They can be connected or disconnected from the internet and provide a high level of security compared to paper wallets.
These wallets use a hardware device, such as a USB drive, to store private keys. They have features of both hot and cold wallets and allow users to safely store their private keys offline.
In addition, hardware wallets allow users to sign and confirm blockchain transactions by simply plugging their device into a computer.
Here are five popular examples of hardware wallets:
Ledger Nano X: https://www.ledger.com/products/ledger-nano-x
Trezor Model T: https://trezor.io/model-t/
KeepKey: https://shapeshift.com/keepkey
BitBox02: https://shiftcrypto.ch/bitbox02/
SafePal S1: https://www.safepal.io/safepal-s1
SOFTWARE WALLETS: HOW DO THEY WORK?
Software wallets are a popular and efficient type of wallet that includes browser extension, mobile app, and desktop app wallets.
These wallets are always connected to the internet, which allows users to quickly interact with DeFi protocols for activities such as staking, swapping tokens, and trading on decentralized exchanges.
However, this constant connectivity also makes software wallets the riskiest type of wallet, as they are vulnerable to cyberattacks and other security threats.
If an unlocked device with a software wallet is lost or misplaced, it could easily be accessed by someone else, making it important to safeguard the wallet with a password.
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Let’s explore the different types of these online wallets.?
3 TYPES OF SOFTWARE WALLETS
There are three primary types of software wallets.?
Web wallets (browser-extension wallets)
Web wallets come in the form of a web browser extension. The software that powers a web wallet is stored on your internet browser, which can introduce security risks.??
If you want to swap crypto on a crypto exchange, you simply need to visit that protocol's website and connect your wallet. The transaction is set up on the protocol but confirmed on the wallet. A browser extension wallet is the fastest and most user-friendly way to interact with blockchain technology.???
Web wallets are frequently targeted by malware, so it is important to have a healthy computer before downloading one. Security measures, such as scanning your computer before downloading browser extension wallets, can help to mitigate risk.??
Mobile wallets
Mobile device wallets are a type of cryptocurrency wallet where the private keys are stored on the user's phone. This type of wallet is available as a mobile application that can be downloaded from the Google Play Store for Android or the Apple App Store for iPhones.
Mobile wallets typically come with a built-in browser that allows users to access decentralized applications (dApps) and interact with DeFi protocols. While convenient, mobile wallets are vulnerable to security risks such as hacking, loss or theft of the device, and malware attacks.
Here are five examples of mobile wallets:
Trust Wallet: https://trustwallet.com/
Mycelium Wallet: https://mycelium.com/
Edge Wallet: https://edge.app/
Jaxx Liberty: https://jaxx.io/
Atomic Wallet: https://atomicwallet.io/
Desktop wallets
A desktop wallet is exactly the same as a mobile wallet with one exception: your private key is stored on a desktop application rather than a mobile application.??
2-factor authentication is recommended for both mobile and desktop wallets.?
HOT WALLET VS. COLD WALLET: WHAT ARE THE DIFFERENCES?
Sometimes, people refer to a wallet as simply a ‘hot’ or ‘cold’ wallet.
Hardware wallets share features of both hot and cold wallets. When a USB flash drive is not connected to the internet, a hardware wallet is considered a cold wallet. Once that USB gets plugged into an internet-connected computer, it becomes a hot wallet.
Finally here is the list of popular wallets for some of the most popular blockchain platforms with links to their websites:
Bitcoin (BTC): Bitcoin Core (https://bitcoincore.org/), Electrum (https://electrum.org/), Ledger Live (https://www.ledger.com/), Trezor Suite (https://suite.trezor.io/), Exodus (https://www.exodus.com/)
Ethereum (ETH): MyEtherWallet (https://www.myetherwallet.com/), Metamask (https://metamask.io/), Trust Wallet (https://trustwallet.com/), Ledger Live (https://www.ledger.com/), Exodus (https://www.exodus.com/)
Binance Smart Chain (BSC): Binance Chain Wallet (https://www.binance.org/en/smartChain), Trust Wallet (https://trustwallet.com/), TokenPocket (https://www.tokenpocket.pro/), Ledger Live (https://www.ledger.com/), MathWallet (https://www.mathwallet.org/)
Cardano (ADA): Yoroi (https://yoroi-wallet.com/), Daedalus (https://daedaluswallet.io/), Ledger Live (https://www.ledger.com/), AdaLite (https://adalite.io/), Exodus (https://www.exodus.com/)
Solana (SOL): Sollet (https://www.sollet.io/), Ledger Live (https://www.ledger.com/), Phantom (https://phantom.app/), MathWallet (https://www.mathwallet.org/), Exodus (https://www.exodus.com/)
Polkadot (DOT): Polkadot{.js} (https://polkadot.js.org/), Ledger Live (https://www.ledger.com/), MathWallet (https://www.mathwallet.org/), Polkawallet (https://polkawallet.io/), Trust Wallet (https://trustwallet.com/)
XRP (XRP): Ledger Live (https://www.ledger.com/), Exodus (https://www.exodus.com/), Toast Wallet (https://toastwallet.com/), XUMM (https://xumm.app/), Guarda Wallet (https://guarda.com/)
Dogecoin (DOGE): Dogecoin Core (https://dogecoin.com/), MultiDoge (https://multidoge.org/), Exodus (https://www.exodus.com/), Ledger Live (https://www.ledger.com/), Guarda Wallet (https://guarda.com/)
Terra (LUNA): Terra Station (https://station.terra.money/), Ledger Live (https://www.ledger.com/), MathWallet (https://www.mathwallet.org/), Terra Station Mobile (https://station-mobile.terra.money/), Midas Wallet (https://midasprotocol.io/)
Chainlink (LINK): MyEtherWallet (https://www.myetherwallet.com/), Trust Wallet (https://trustwallet.com/), Ledger Live (https://www.ledger.com/), Exodus (https://www.exodus.com/), Metamask (https://metamask.io/)
WHICH TYPE OF CRYPTO WALLET IS BEST FOR ME?
Choosing the best crypto wallet for you depends on various factors. One of these factors is your level of interaction with blockchain technology.
How often do you plan on interacting with blockchain?
If you plan to hold popular cryptocurrencies like BTC or ETH for a long duration, a cold storage wallet, such as a USB flash drive, may be the best option for you.
This type of wallet keeps your crypto offline and not connected to the internet, ensuring that it is not vulnerable to hacking. On the other hand, if you plan to frequently interact with decentralized finance applications and swap cryptocurrencies, a software wallet may be a better choice. Desktop and mobile wallet applications offer the best security within the software wallet category.
Do you tend to lose or forget things easily?
Another factor to consider is your ability to keep track of your possessions. If you are prone to misplacing things and generally disorganized, a custodial wallet may be a suitable option for you. Unlike non-custodial wallets, if you forget your password credentials for a custodial wallet, you can recover them through your broker.
Here are five examples of popular wallets that fit into different categories:
Ledger Nano X (cold storage wallet): https://www.ledger.com/products/ledger-nano-x
MetaMask (software wallet): https://metamask.io/
Exodus (mobile wallet): https://www.exodus.com/
Coinbase (custodial wallet): https://www.coinbase.com/
Trezor Model T (cold storage wallet): https://trezor.io/model-t/
Today's Mood :)
As a product growth manager in the crypto and blockchain space, I've spent more time staring at charts and graphs than I care to admit.
But I still find time to indulge in my other passions, like trying to explain crypto to my grandma (who still thinks Bitcoin is a type of laundry detergent) and convincing my friends to invest in Dogecoin (because if Elon Musk is doing it, it must be a good idea, right?).
In all seriousness, though, I'm passionate about helping people understand the potential of this exciting technology, and I'm excited to keep bringing you the latest news and insights from the world of crypto and blockchain.
Brian