What is a cryptocurrency wallet? How does it work? How does a crypto wallet keep my digital assets safe? If these are some of the questions that keep your mind wired while trying to comprehend the complexities of cryptocurrency trading, then this simple step-by-step tutorial is just for you.
- A cryptocurrency wallet is where you store your public and private keys.
- There are many ways to store your cryptocurrency, with hot and cold wallets being the two main types of crypto wallets.
- Though both hot and cold wallets have their pros and cons, hardware wallets are becoming more and more popular. Many brands have been launched in the last few years.
- It is wise to store most of your cryptocurrency offline in cold storage and some online in a hot wallet. This way you can only spend what you need without worrying about your assets.
- Crypto wallets have different applications that go beyond the financial sector.
What Is a Cryptocurrency Wallet and How Does It Work?
So, what is a crypto wallet? To put it simply, a cryptocurrency wallet is the best way to keep your cryptocurrency secure.
How? Well, without digging into technicalities, cryptocurrency wallets are innovative pieces of software that keep your encryption keys safe and prove ownership of digital assets.
As we know, encryption keys are mandatory in the world of crypto trading. Here we should explain a bit more about the difference between public and private keys. Your public key is the one you share so people can send you money, while your private key is what you need to send cryptocurrency.
You must keep your private key safe. Why? Simply because if people get hold of it, they can steal your cryptocurrency!
Why Do I Need a Crypto Wallet?
You don’t need to be a crypto king to embrace the importance of having a crypto wallet. Before you even think about buying cryptocurrency, get yourself a cryptocurrency wallet!
Though you do not actually store your cryptocurrency in your cryptocurrency wallet but on a decentralised blockchain, a cryptocurrency wallet is mandatory to keep your money safe. Again, it’s where you store your public and private keys, which gives you access to your cryptocurrency.
Every cryptocurrency trader who wants to own a cryptocurrency should have a crypto wallet unless they are trading cryptocurrency as a CFD. If you don’t use a cryptocurrency wallet and you leave your cryptocurrency on an exchange, you run the risk of getting ‘goxxed’.
In the end, there are no locksmiths to help you retrieve your keys and access your virtual piggy bank. A crypto wallet is the only way to keep your data and assets safe!
How Do I Open a Cryptocurrency Wallet?
Now when you know that having a cryptocurrency wallet is essential to keep your cryptocurrency safe, it’s time to actually open one.
But wait! There are several things to consider before getting a cryptocurrency wallet. Here are some of the most important questions to ask yourself:
- How regularly do you use cryptocurrency? Are you looking for a safe space just to hold your cryptocurrency? Do you regularly use cryptocurrency to pay for things?
- How do you want to access your wallet? Do you want to access your wallet via a computer or a mobile? Do you prefer a printed version of your keys?
- How many cryptocurrencies do you want your cryptocurrency wallet to hold? Do you only want to hold one (for example, Bitcoin) or many?
- What services do you trust? What security and privacy features do they offer?
Once you’ve decided on a wallet that will suit your needs and crypto trading goals, you will easily find step-by-step instructions on how to get and use a crypto wallet by the provider of your choice.
How Private Are Cryptocurrency Wallets?
While getting a crypto wallet is easy, we should mention that many beginner traders ask how private cryptocurrency wallets are. After all, privacy, security, and financial freedom are some of the foundations of the crypto world!
Do not worry! Most cryptocurrency wallets are pseudonymous, which means that they are not necessarily tied to the identity of a user.
Your personal details, such as your name and address, will not be shown. In most cases, other crypto users will be able to view your public address and trace transactions (they might be able to figure out what it is you are sending).
That said, some cryptocurrency wallets may ask you for KYC (know your customer) documents. Depending on if you feel comfortable giving away such information, you may like or dislike this feature. One upside to having submitted KYC documents is that if something does happen and you lose access to your wallet, you may be able to recover it.
It’s noteworthy that it is also possible to create multi-signature wallets. This is where multiple individuals are needed to sign off transactions; this can add another layer of security to your cryptocurrency wallet and is a great option for businesses.
Different Types of Cryptocurrency Wallets
Before opening a crypto wallet, you should consider not only privacy but basic characteristics, including security. This is crucial to ensure the safety of your cryptocurrency. You don’t want to lose your digital assets after having spent a lot in trading education, crypto strategies, and self-control, do you?
First of all, we should mention that cryptocurrency wallets exist in many different forms. Some wallets are created to store certain cryptocurrencies - not every single type.
Many crypto wallets can store the most popular cryptocurrency tokens. Cryptocurrency wallets that are capable of storing Ethereum, for instance, may also be able to accept other ERC20 tokens. Similarly, cryptocurrencies that are a fork of Bitcoin may be accepted by wallets that accept Bitcoin as they are technologically similar.
Some more obscure cryptocurrencies might only be supported by wallets that have been created by their developers.
Oh, and let’s not forget that some cryptocurrency wallets may be able to store fiat currencies, which can be an attractive investment option for some traders.
Hardware and Software Crypto Wallets: Pros and Cons
Even though there are different types of crypto wallets, it’s a well-known fact that the two main types of cryptocurrency wallets are hardware and software wallets (cold and hot wallets, respectively).
Cold wallets are usually downloaded on a hardware device (for example, USB), while hot wallets are usually accessed via the internet (online or managed via a computer or a mobile device).
You might be surprised to know that there are also paper wallet generators that can be printed on paper.
1. Online Cryptocurrency Wallet
Online crypto wallets are very popular in the crypto world. These cryptocurrency wallets work online via a browser.
As you can guess, online wallets are hot wallets, which means they are connected to the internet. Every time you want to access your cryptocurrency you need to be online.
While this makes them easier to use, it does mean that online crypto wallets are less secure. Being connected to the internet makes it easier for hackers to steal some of your cryptocurrency.
2. Desktop Wallet
Desktop wallets are cryptocurrency wallets that you can install on your computer or laptop. As a result, a desktop wallet can work as both a hot wallet when it is connected to the internet and a cold wallet when it isn’t.
Like online wallets, desktop wallets are suitable for traders who make online transactions. However, before you sign up for any desktop cryptocurrency wallet, you need to make sure your crypto wallet is compatible with your operating system.
There are also some safety issues that you should consider; if you have your keys in an unencrypted form or if you fall victim to false upgrade notices and scams, your money may be stolen.
3. Mobile Wallet
As you can probably guess, mobile cryptocurrency wallets are essentially apps that you can download on your phone. Just like desktop wallets, they can act as both a hot wallet and a cold wallet. Mobile wallets may come with the ability to scan QR codes to make payments.
As such, mobile wallets are more practical than other types of cryptocurrency wallets. After all, you can take them anywhere you go, which means that it is easier to go out and purchase items on the street with cryptocurrency.
Nevertheless, if you decide to use a mobile cryptocurrency wallet, you need to be extra careful with your phone. If you lose your phone, then you’ll lose your wallet and access to all your cryptocurrency. This is also true if you break your phone. A great way to keep your mobile wallet safe, especially in case of theft, is to have a fingerprint scanner.
4. Paper Cryptocurrency Wallet
A paper cryptocurrency wallet is a form of cold storage. The idea here is that data are stored offline and, ideally, cannot be stolen.
These wallets can generate keys printed on paper or as QR codes. To be more precise, most paper wallets provide two QR codes, one for your private keys and one for your public keys (which can be printed onto a piece of paper).
Once you take your wallet offline, you should find a suitable place to store it. Instead of keeping it under your mattress, consider a safety deposit box in a bank. This can be inconvenient for someone who regularly uses cryptocurrency, though. Paper wallets are way more suitable for investors who want to hold cryptocurrency for a long time.
5. Hardware Cryptocurrency Wallet
Last but not least, let’s look at hardware or cold crypto wallets. Hardware cryptocurrency wallets have become very popular recently, with several being released in the last few years. In simple words, hardware crypto wallets are wallets that usually take the form of a USB or other hardware device that can be plugged into a computer. In most cases, you will just need to plug them into a PC, enter a PIN, and then you can send cryptocurrency.
This option is useful for those who don’t mind carrying their cryptocurrency wallet with them and have access to a computer. That said, you can also store your device in a safe, just as you would with a paper crypto wallet.
Though cold wallets are considered safer than hot wallets, hardware wallets are not perfect. They may get infected with malware or viruses when connected to a computing device. Also, in contrast to hot wallets, if you lose your device and don’t have a stored hard copy of your data, it’s hard to retrieve your data and you may lose your assets.
How to Keep Your Cryptocurrency Wallet Safe?
Given the different options crypto traders have, choosing a cryptocurrency wallet may be tricky. And as stated above, each crypto wallet comes with different safety concerns. So how to keep your cryptocurrency wallet safe?
Perhaps the safest option is to keep your cryptocurrency wallet offline in cold storage. That said, this option does make cryptocurrency management a little more complicated.
Thus, to enhance both safety and usability, the best way to keep your cryptocurrency secure and efficient is to use both cold storage and another wallet. Put most of your cryptocurrency in cold storage while keeping a smaller amount (an amount that you intend to use) in an online wallet.
As a general practice, don’t leave your wallet open on any device - mobile or desktop - always close it when you do not need it.
You can also add more layers of security to your wallet, such as long and complex passwords with a good variety of alphanumeric and non-alphanumeric characters. Consider wallets that require or give you the option for two-factor authentication, or wallets that require a password prompt every time you make a transaction.
You should always be on the lookout for genuine updates for your wallet as well. As hackers are usually ahead of the game, you also need to stay up to date as well.
Another vitally important thing is to stop boasting about your cryptocurrency holdings. This is highly risky. Let’s not forget that overconfidence is not a good trait in trading.
As a matter of fact, there have been cases of people being attacked for their cryptocurrency. In September 2019, a Bitcoin investor from Oslo, Norway, escaped a robbery for his cryptocurrency assets - which is a reminder of how careful you need to be when telling others about how much cryptocurrency you own.
Last but not least, we should mention that some financial experts recommend converting cryptocurrency to fiat money for extra safety.
Best Cryptocurrency Wallet of 2022
While you should also do your research before choosing a crypto wallet, based on different characteristics and user reviews, we present some of the best cryptocurrency wallets in 2022.
- eToro: The eToro Wallet is an easy-to-use, multi-crypto, secure digital Wallet. The wallet is easy to buy, store, receive, and transfer over 120 cryptocurrencies, and change any of more than 500 pairs
- Coinbase: The best crypto wallet overall, with both software and online wallets available.
- Trezor: The best hardware wallet so far. It supports Windows, Linux, Max and it even offers Android wallet apps for cold storage.
- SoFi: The best option for beginners in the crypto world who often need more guidance when storing their crypto assets.
- Edge: The best mobile wallet for multi-currency storage.
- Exodus: The best desktop wallet that supports multi-coin exchanges.
- Bitaddress.org: This is a great open-source platform and one of the best and easiest to use paper wallet generators.
How to Buy Cryptocurrencies Directly from the eToro wallet?
Our tutorial is based on global broker and exchange eToro, as the platform allows you to invest in and trade cryptocurrencies without paying any commissions. In this section of our cryptocurrency Wallet guide, we are going to walk you through the process of opening a cryptocurrency trading account, making a deposit, and buying cryptos.
Step 1: Open a Cryptocurrency Trading Account
eToro customers can buy cryptocurrencies directly from the eToro wallet by using a credit card and bank wire.
Visit eToro website, click on open an account and enter your personal information. You also need to confirm your email address and mobile number.
eToro have proven themselves trustworthy within the industry over many years – we recommend you try them out.
Step 2: Deposit Funds
In terms of deposit methods, eToro supports: Debit Card Credit Card Bank Transfer Skrill Paypal Neteller Select Cryptocurrency to Buy If you know which cryptocurrency pair you wish to buy, enter it into the search box at the top of the page.
Step 3: Select Cryptocurrencies to Buy
If you know which cryptocurrency pair you wish to buy, enter it into the search box at the top of the page.
Other Uses of Crypto Wallets
Cryptocurrency wallets are fundamental parts of the crypto trading environment. Yet, they have some impressive applications far beyond the financial sector.
Interestingly enough, cryptocurrency wallets can store not only Bitcoin, Ethereum, and other major crypto players, but different tokens for goods and services with digital values, such as tickets, raw materials, and art.
Experts believe that in the future, crypto wallets may be even used to store identities, medical data, tax information, and voting records to give users control over their data.
In the end, the cryptocurrency industry has taken the world by storm, with crypto wallets being real game-changers!
Want to learn more about the amazing world of cryptocurrency and blockchain technology? Want to learn how to trade digital assets and become a successful crypto trader? Then sign up to our cryptocurrency trading course and check out our crypto partner eToro where you can buy, store, and sell, or trade CFDs, more than 90 cryptocurrencies.
Do you prefer owning cryptocurrency or trading CFDs? Which crypto wallet would you choose?
Can bitcoin wallets be hacked?
Just like with fiat money, your bitcoins can be lost or stolen. Though cold wallets are considered safer than hot wallets, they are not perfect. Hackers can access your cryptocurrency using different methods, such as hacking your device, installing keyloggers or Trojans, and using browser extensions to extract data. Some hackers may also bypass your two-factor authentication, publish fake ads or wallet services, and send you phishing emails. Make sure to use antivirus software, keep your devices and PINs safe, and be vigilant about scams and frauds.
Is there a wallet that can support all cryptocurrencies?
Though there are numerous multi-currency wallets out there and technology keeps evolving, there is no single crypto wallet that can support all cryptocurrencies. For some cryptos, you even have to get their respective wallet.
Can third-party wallets steal my cryptocurrency?
Any company that you’ve entrusted with your data and funds may turn to malicious behavior or collapse. Thus, always look for established wallets, learn more about the technology they provide, and read reviews to choose the best crypto wallet out there.