Welcome to day 1 of our Crypto Blueprint for Beginners. In order to own and trade cryptocurrencies, you must have a cryptocurrency wallet. This guide will tell you everything you need to know about the different types of cryptocurrency wallets, and the pros and cons of each type:
Cryptocurrency Wallet Overview
A cryptocurrency wallet is a software program that stores private and public keys and uses blockchain technology to enable users to send and receive digital currency and monitor their balance.
Cryptocurrency itself is not actually stored in a cryptocurrency wallet. Instead, a private key (a secure digital code known only to you and your wallet) is stored that shows ownership of a public key (a public digital code connected to a certain amount of currency). Your wallet stores your private and public keys, allows you to send and receive coins, and also acts as a personal ledger of transactions.
4 Main Types of Wallets
There are four main categories of cryptocurrency wallets: Hardware, desktop, online, and mobile. They each have their pros and cons which we will talk about below:
A hardware wallet is a device designed specifically to store cryptocurrencies. The user’s private keys are stored on this hardware device. The cryptocurrency transactions of the user occur online, but their keys are stored offline. Users simply plug in their hardware wallet to their computer, enter a pin, put in an address to send currency, and then confirm. This has some security advantages because hackers are not a threat, and you don’t have to worry about backing everything up.
One of the downsides of the hardware wallet is that it is small, so it is easy to misplace. You should have a designated place to store your wallet so that you always know where it is and it won’t get stolen. Two reliable and affordable hardware wallets are Trezor and the Ledger Nano S.
Desktop wallets are wallet software that is installed directly on a laptop or PC. They are only accessible from the computer in which they are downloaded. The private keys are stored on a hard drive, so it’s only possible to access the funds using the computer the wallet is installed on.
However, if your computer is hacked, or if the wallet file became corrupt with no backup available, the cryptocurrencies you own would be lost forever. When using a desktop wallet be sure to have a strong password on the computer and have backups of the wallet available. A good rule is to keep your computer with your desktop wallet offline so there is know chance of getting hacked. Some solid desktop wallets are Electrum and Bitcoin Core.
Online wallets allow you to send, receive, and store cryptocurrency through your web browser. Online wallets are typically hosted by a provider that manages the security of the private keys associated with the user’s account. Online wallets are one of the most convenient wallets because you don’t have to worry about backing them up like you do with a desktop wallet, which can be deleted by accident.
One of the main downsides to the online wallet is that you relinquish some control of your private keys, since most wallet providers will manage the keys for you. You must make sure that your online wallet provider takes security very seriously, and has no prior instances of major security breaches. Coinbase is widely considered to have one of the most reliable and secure web wallets.
Mobile wallets are cryptocurrency wallets designed for a mobile device. They can easily scan QR codes, easy to navigate, and are accessible when you are on the move. Coinbase is the most popular and one of the most secure mobile wallets at the moment. If you have a mobile wallet, be sure to take proper security precautions on your phone. Make sure to have a secure passcode to access your phone.
Check back here tomorrow for day 2. Make sure to sign up for our weekly newsletter below where you will get everything traders and investors need to know about the market in an easy to understand and bite sized chunk.