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How do cryptocurrency wallets work?

What is the best cryptocurrency wallet?

Take a look at the different types of wallet, their pros and cons and what features the best cryptocurrency wallet should have.

If you’ve recently acquired, or are looking to acquire, cryptocurrency, you need to know how best to store your funds. The answer is simple: get a cryptocurrency wallet. But with so many options available on the market, which is the best one to choose? Below, we take a look at the pros and cons of each so you can choose the best cryptocurrency wallet.

Hardware wallets

Hardware wallets are arguably the safest method of keeping your cryptocurrency safe. Your keys are generated offline which prevents hackers from compromising them. This shouldn’t be taken as sovereign, though – hardware wallets do have their flaws.

Pros

  • One of the most secure methods for keeping your crypto safe in the long run.
  • Ideal if you have large amounts of crypto with no immediate plans to spend the full amount.
  • Easily available in shops,
  • Plug-and-play approach to accessing your funds gives you more control,

Cons

  • Battery operated so availability may be limited,
  • Increased chance of being lost or damaged in comparison to software wallets,
  • If the device is not perfectly made at the manufacturing stage, it leaves room for the wallet to be compromised. This is known as imperfect implementation meaning that hardware wallet usage requires implicit trust in the manufacturer.
  • Hardware wallets use Random Number Generators (RNGs) to generate keys which is seen as controversial. Some doubt the validity of the ‘random’ generation of keys. If it turned out that they were not actually random and there was a sequence that generated them, in theory, a hacker could crack this sequence and access your cryptocurrency.

Web wallets

Web wallets are incredibly easy to set up and use. All that’s required is a WiFi connection and your login credentials. However, you need to be aware of the risk of cybercrime that’s inherent with storing their cryptocurrency in an online wallet. It could be victim of a DDOS attack, for example, which prevents you from accessing your funds as the server goes down. Best practice would be to never use a public WiFI connection to send, receive or deposit funds and this can be easily manipulated by a third-party.

Pros

  • They offer the fastest way to process transactions without any server lag.
  • Ideal for working with small amounts of crypto.
  • Privacy can be improved with external anonymity applications such as TOR.

Cons

  • Incredibly susceptible to malware and hacks.
  • You are trusting your private keys and information to a third party.
  • Not many web wallets allow users to manage multiple cryptocurrencies.

Mobile wallets

Mobile wallets have similar benefits and risks to web wallets. Usually available through an App Store or Google Play store, you can download your wallet, complete the registration process and start using it within minutes. Your choice is provider is paramount, so choose a wallet that’s regulated and supported by a 24/7 customer support team. That way your funds  stays safe and your questions will always be answered.

Pros

  • Quick and simple to set up and use. As with all applications on mobile phones, the ease of use and simplicity is a great attraction to many.
  • Additional features that other types of wallets don’t offer, such as uploading in multiple currencies.
  • Instantly send and receive funds with anyone using the same wallet.

Cons

  • Phones can be compromised by viruses, key loggers, and malware, like any other device.
  • Transaction can be tracked through your digital footprint.
  • Payments are tied to your phone so accessibility is based on whether you have it with you.

Desktop wallets

Desktop wallets are quite a popular choice because you can download them directly onto your computer. In doing so, you have the additional security of retaining control over the wallet since it is not hosted. However, you need to make periodic backups in case your computer malfunctions or becomes infected with a virus.

Pros

  • Suitable for beginners.
  • Considered one of the better options for ‘cold storage.’ Cold storage refers to the storage of funds offline.
  • Usually, these users would have another wallet that has their spending funds.
  • You are not trusting your private keys to a third party.

Cons

  • If you are connected to the internet, you are still at risk of being compromised by a hacker.
  • You need to make periodic backups.
  • Susceptible to viruses and malware attacks.

 

So, what is the best cryptocurrency wallet?

In the end, there are pros and cons to all types of cryptocurrency wallets. Truthfully, there is not a stand-out wallet that is entirely safe and secure. An ideal method to remedy this would be to utilise a combination of wallets, because when you spread your holdings you also spread and filter the amount of risk involved. Before you choose which wallet you want to use, be sure to do your own research and find the most suitable one for your needs.

If you want to find out more about wallets or protecting your cryptocurrency in general, read some more of our dedicated guides. 

 

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