So, you bought some Bitcoin or Ethereum or other crypto and you think your job is done. You left the coins in the same place where you bought them but I have news for you: this may not be the best way to store your crypto.

Let me explain…

Typically, the service you will use when buying your first crypto will most likely provide a wallet (account) for you to keep your coins there and that’s alright for a start but most certainly not in the longer term.
Most of the services I reviewed and posted previously have super security and some of them even have insurances in place to protect you from losses but they also come with certain risks.
For instance, in most cases they are controlling your private keys and that means you’re not in full control over your capital. After all, the main reason Bitcoin exists is to give you full ownership of your money. I know you’ve heard that but really, take notice, as this is important.

 

There have been many examples of such custodial services freezing accounts for allegedly “suspected money-laundering activity” and the best solution for the longer term is to move your coins to a wallet that gives you full ownership of your crypto. I have been talking a lot about hardware wallets and why they are my top choice for long term safekeeping but let’s start with the different types of wallets and what they are best for so you can make an educated and well-informed choice for yourself.

Types of Crypto Wallets:

Exchanges | Web Wallets | Desktop Wallets | Hybrids | HW Wallets | Paper Wallets

  1. Exchanges

A wallet on an exchange would typically provide you with the some level of security. Some are better than others but they aren’t immune to fraud. In fact, these are the least secure custdials of your money since they are very attractive to hackers of all kinds, but you would need to hold your crypto on them at some point because this is where you buy and trade them. Just remember, never keep your coins on an exchange for longer than a couple of months. If you aren’t trading actively, every day or every week, there’s no need to keep the coins on these exchanges. There are few reasons why this is not safe. See Disadvantages below.

Examples: Bittrex, Binance, Coinbase, Kucoin, Bitpanda, Gemini, Kraken and many others

Advantages:

  • Ease of use 
  • Access from anywhere – desktop and mobile (in most cases)
  • Instant trading – when you need to act fast, your coins are already on the exchange ready to trade.
  • Useful for splitting your coins in an event of a hard fork (most exchanges would credit you the newly formed forked coins when there is a hard fork)

Disadvantages:

  • Can get hacked – just like any other online account, they are vulnerable to fraud. There are many examples of exchanges being taken out of business due to massive hacks. Most recently Cryptopia lost over $100 million in users funds and went into liquidation without being able to refund any o its customers. Other notorious cases include Bitfinex and MtGox – the first crypto exchange.
  • They hold your private keys
  • No “dividends” – many cryptos, like Neo, Ark and Nem reward you in some way for holding them. But you only get these rewards if you hold them in your own wallet. Binance and Kucoin
  • Phishing scams – exchanges are constantly targeted by phishing scams. It’s not just stupid people who fall for these scams. Many experienced users get caught out too. This is more dangerous than straight-on hack because this way it’s your own account that is being compromised and the fraud is occurring from within your account making it seem like it’s a genuine activity, so the exchange is not liable to recover anything to you.
  • Delisting of cons – this is a problem for any long term holder of altcoins. These can be delisted at any point, if they fall out of fashion and there isn’t much liquidity. 

  1. Web wallets 

A web wallet is hosted online and is always connected. These are most of the website-based services where you are connecting with your login details and access them anywhere, quick and easy. These are all company-run services like exchanges and trading platforms and many of the mobile phone apps too. These are good for “on-the-go” type of usage, perhaps you need fast access to some of your crypto, so you can have small amounts in such a service but I don’t use them for anything more than a few hundred dollars. You will recognize them for the lack of having a seed phrase and private keys – as I said, they are holding this information. If you need to find out more about private keys, just click on the term to open my post where I explain these in detail.

Examples: Coinbase, Blockchain.com, Crypto.com

Advantages:

  • Ease of use – again, setting up your web wallet is usually as simple as setting up an email address.
  • Some of these pay you interest on your deposits – see the Crypto App
  • Access from anywhere with internet connection.
  • More control than an exchange – you can usually download your private keys and store them yourself for additional security.
  • Usually free.

Disadvantages:

  • Can and do get hacked.
  • If the service goes down and you don’t have your private keys, your crypto is gone.
  • Some web wallets don’t give you access to your private keys – so they are no safer than an exchange and you ultimately have no control over your cryptos.

  1. Desktop wallets

This is a program or app that runs on your computer as a standalone software. Typically you have more security with these, they are often hybrid-type of wallets in a way that they connect to the blockchain only to retrieve your latest data and execute transactions but they don’t have to be always connected and in most cases they do provide you with a seed phrase (mnemonic phrase) and private keys, making it possible for you to use these with a different software later down the line, should you choose to do so.

Examples: Exodus, Jaxx (desktop version), Metamask, MyCrypto, Mycelium

Advantages:

  • More control than a web wallet – you have your own copy of the wallet stored on your own computer or phone.
  • Relatively easy to access.
  • Usually free.

Disadvantages:

  • Can and do get hacked / phished by malicious software on your computer.
  • You need your computer or phone on you to access it.
  • If you lose/break your computer/phone you lose all your cryptos along with it.

  1. Hybrid Wallets

These are similar to web wallets but they have more advanced privacy features and give you ownership of your private keys and mnemonic (seed) phrase which means you are able to be in full control of your coins. They can be website based or application-based.

Examples: Jaxx (mobile app), Blockchain.com, Coinomi, MyEtherWallet

Advantages:

  • Privacy
  • Multiple coins supported
  • Advanced Security due to not staying constantly connected 
  • Full control of your assets

Disadvantages:

  • In the case of loss of password or seed phrase you don’t have a chance of recovery
  • Possible phishing risks (if your device is compromised, there is no chance to reverse any damage or claim refunds etc.)

  1. Cold Storage / HD Wallets & USB sticks 

Cold storage refers to those wallets that are not connected to the internet. A cold wallet is stored on a device that isn’t connected to the internet. A hardware device which is protected by its own password and extra layers of security.
These are regarded as the most secure storage solutions to date. I am personally a huge fan of the Ledger Nano X , Cobo Vault Pro and I also like Trezor T for their capacity of storing a great variety of coins. KeepKey is another good one but only stores about 5 coins and I haven’t seen much new developments on it for a while.
You can also use a USB with a wallet you create yourself. You can download your wallet file from myetherwallet.com for instance (for Ethereum and their tokens) and store that file on a USB stick, this would then be a cold wallet. The USB stick isn’t an internet enabled device. It doesn’t have to necessarily be stored on a USB stick. You could put the wallet file on a memory card or an “air gapped” computer (a computer that has never and will never be connected to the internet). In this regard, the Cobo Vault devices are great because they are air-gapped by default.

Advantages:

  • Very secure – it can only be hacked if someone gains access to the physical device.
  • Easy to hide and safely store – you can store them in a safe, just like money or gold.
  • Easy to copy – just copy the wallet file on to another USB and store it at another location. But don’t make too many copies and lose track.
  • Easy to encrypt – you can encrypt the USB stick with VeraCrypt or similar for an extra layer of protection.
  • Private
  • You have complete control – only you have access to your private keys.

Disadvantages:

  • Easy to lose – this can be overcome with multiple copies so it’s not a big deal
  • Slower to use than a hot wallet – you need to plug in your USB or hardware device and load your wallet every time you use it. Only Ledger Nano X has bluetooth connectivity via your mobile (so use that one).
  • Loss of your seed phrase and password can result in not being able to use it.
  • You need it on you to access it – if you need to move your cryptos in a hurry and don’t have your device with you, you can’t do anything.
  • Not very cheap and certainly not free.
  • A little more complicated to set up and use.

  1. Paper wallet

This is just the private key of your wallet either written down or printed out on paper. Some cryptos have paper wallet generators you can use to make these wallets. You can find these on their official websites. For Bitcoin the process is very simple, you can see my tutorial about it in this post.

Advantages:

  • Fairly secure – unless someone gets access to the piece of paper these wallets can’t be hacked.
  • Easy to hide and safely store – you can store them in a safe, just like money or gold.
  • You have complete control – only you have access to your private keys.
  • Private – you don’t have to register it with any details about you.

Disadvantages:

  • Not encrypted – if someone finds your paper wallet they don’t need a password or anything to take everything in it.
  • Slow to use – if you want to move your cryptos you need to type the whole private key in every time you use it.
  • You need it with you to access it – unless you’re really good at remembering very long strings of random characters.
  • Easy to lose or damage.

Should you use one?

If you just plan on holding your cryptos for a long time and not trading them, this is the cheapest and easiest option. You simply generate your paper wallet, send your cryptos there and forget about it.

You can check if your cryptos are still on the wallet easily with your public key. For instance, to check the balance of your ether wallet, you just put your public key (not your private key!) into etherscan.io.

Just as with a cold wallet, if you’re trading regularly, a paper wallet isn’t really any safer than a web or desktop wallet. You still need to type in your private key every on your computer time you use it. If your computer has malicious software on it, you could still lose your cryptos.

One good tip if using a paper wallet is to write it down with one or two digits changed (so long as you can remember which ones you changed!). That way, even if someone finds it, they won’t get access to your cryptos.

Seriously, just use HD wallets and eliminate all the worries and other risks.

These are the most sophisticated type of cold storage. They are essentially tiny computers cased inside USB sticks. The three leading companies are Ledger, Cobo and Trezor and they are all very well regarded.

 

Hardware wallets give you all the advantages of a cold wallet or paper wallet, with the speed of a desktop or mobile wallet. They are also much more secure than any of the other types of wallet and very easy to use. But they cost around £100. I have video tutorials for the Ledger Nano S which is my personal choice due to the variety of alt coins it supports and overall functionality.

Your private keys are stored, encrypted, on the device. So no one can see them. Even the computer you connect your wallet to when you use it to trade can’t see them. So in theory, hardware wallets cannot be hacked.

And if you lose it, or even if someone steals it, it’s not the end of the world.

If someone finds your hardware wallet they still need your pin code to use it. And with every wrong attempt the time they need to wait before they can try again doubles. After a few wrong attempts they are locked out for years. This means they can’t be cracked by a password cracker.

But what if you lose it?

When you set up your device you also create a “passphrase” of 24 or so words. This is known as mnemonic or seed phrase and it’s what will unlock your blockchain data forever.
You write these down on paper and store them like you would a paper wallet. This passphrase can be used to restore your wallet if you lose or break your device. You can use this phrase with other software providers later or just a new device and that means that your assets will never be lost.

Honestly, if you have the money – and if you have the spare cash to invest in cryptos you really should – just get one of these. You can also just scroll to the bottom of this page and use the banner that I have there – this is the wallet I use the most.

They are faster, easier to use and safer than all the other methods, and they can store a large variety of different cryptos. So you don’t end up trying to keep track of multiple different wallets for your multiple different holdings and support Bitcoin, Bitcoin Cash, Litecoin, Ethereum and all Ethereum tokens. The Ledger Nano and Cobo are pretty much the only ones that support Ripple (at the time of writing).

Just don’t forget to safeguard your passphrase.

wallet-512

15 thoughts on “Crypto Wallets – Complete Guide (Bitcoin, Ethereum, Ripple and other crypto wallets explained)

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