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How to choose the best cryptocurrency wallet

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Cryptocurrency is a new digital way to make and use money. And like with paper money, it requires a wallet. 

Cryptocurrency was created to help offer an alternative to banks. After all, banks manage your debt and your savings. How likely are they to offer you ways to pay off your debt faster when they know how much money you have? 

The term wallet helps you better adapt to a new way of spending, saving, and investing. For more background about cryptocurrency click here

A crypto wallet manages your private and public keys. Those keys help you manage your cryptocurrency, complete transactions and protect privacy. Your cryptocurrency does not live in your wallet. It will always live on the blockchain. But since that’s all online, you do need to protect yourself. 

The key ideas to consider when selecting your wallet are ease of use, security of your currency, and what helps you most effectively manage your money. For a deeper dive into crypto wallets click here

There are three types of wallets: paper, software, and hardware wallets. 

The paper wallet

A paper wallet is a printout of your public and private keys. This can be the full number, the mnemonic phrase, or a QR code that represents your keys. You can control how many times you print out a paper wallet. But, anyone with your private key can potentially clean out your account, so you’ll want to be discreet. The nature of crypto is to decentralize money so using these codes means anyone in the world can use crypto. But this also means anyone in the world can potentially target your wallet. By keeping it completely offline you can protect yourself. 

The pros of a paper wallet 

The benefits of a paper wallet are that your keys are not online. This would be considered a cold wallet. Cold wallets are less likely to be hacked or exposed. The appeal of cryptocurrency is it is, after all, that it is decentralized. But this means you can’t call Bitcoin or Ethereum customer service if you make a mistake or someone steals your money. While your public key will exist on the blockchain, keeping your private key offline can be the best way to keep it protected. It means there are fewer ways a hacker can try to access it. But…(and there’s always a but)! 

The cons of a paper wallet

How easy is it to lose a piece of paper? Your partner sees a list of random words and tosses it. Maybe your child colors over the QR code or damages one of the words in your mnemonic key. Well, now your money is gone. There are countless stories of people losing money due to lost private keys, passwords, or wallets. 

According to the New York Times, 20% of the Bitcoin in circulation, valued at about $140 billion, is just lost. If you’ve seen the HBO series The Stewardess, a book was used to store a mnemonic key for millions of dollars. 

Another challenge of paper wallets is that they can be more cumbersome than software or hardware wallets. At times, you may have to manually enter your keys. There are QR codes to facilitate this. But any time you have to manually enter characters, especially long strings of numbers, it does increase the potential margin of error. You’ll want to be careful because one wrong number could transfer all of your money to a random person in Kuala Lampur. 

Hardware wallet

A hardware wallet can be a key fob or a small USB device that you plug into your computer. You simply plug them in when you are buying, trading, or selling crypto. These devices will store all of your public and private keys. They also let you use your cryptocurrency more readily. 

Each hardware wallet may work differently. These are often referred to as cold wallets or cold storage. They provide you with a way to use your keys that keep your wallet off the Internet. 

The pros of a hardware wallet 

The benefit of a hardware wallet is security. It is not directly on your device which adds greater layers of security. This means that you have the ease of using your wallet to access your keys while not having to worry about it being a file on your computer that can be hacked. These are perfect for storing large amounts of money as they have additional security besides being cold. 

The cons of a hardware wallet

These are often the most expensive wallets because you’re essentially paying for a whole new electronic device. 

Like with a paper wallet, there is a potential for losing your hardware wallet. If you lose your hardware wallet and you do not have all of your private and public keys backed up, you can potentially lose all of your crypto. By design, they’re often small and portable to be discreet. But smaller and more portable also means they are easier to lose track of. 

Software wallet

A software wallet can be an app, web interface, web page, or program on your desktop that allows you to manage your cryptocurrency. Many crypto programs will help you set up a wallet that lives online. Most software wallets are hot. They live on the Internet or are internet accessible. 

The pros of a software wallet 

The pros of a software wallet are how easy it can be to use. If you’re new to crypto, a paper wallet can be a bit confusing. If you’re trading tens of dollars, a hardware wallet may be a big investment. A software wallet can be a nice way to start. 

Crypto can be volatile and the time it takes to validate transactions can vary. So speed can be a big factor. Software wallets allow you to focus on the transaction and not on your keys. They also mean you can potentially run transactions on your phone or tablet if you’re traveling and your software wallet is an app.

The cons of a software wallet

The biggest con of a software wallet is that they’re “hot.” This means that there’s the potential that someone could acquire your private key. Even if your private keys are stored on a private server by the creators of your software wallet that can put your currency at risk. 

A crypto-thief might just wait until your crypto wallet has a certain amount then just clean out your account. If you have a software wallet you may want to have more than one for safekeeping. 

Finding the right wallet for you is about finding one that matches your needs but also helps make your life easier and your money safer. So even if you’re working with a completely digital currency, you want a wallet that aligns with who you are and how you want to manage your money.

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