The cryptocurrency market has risen sharply over the past few years and the surge in demand of cryptocurrencies, along with increasing cases of coins getting stolen, made it necessary for the market to innovate and find new ways for the users to protect their digital assets. This is where crypto wallets come into the picture. In this detailed article on best cryptocurrency wallets in 2021, we will tell you about the meaning of a cryptocurrency wallet, different types of software wallets being used nowadays, how they work, key points to remember when choosing them, their pros & cons and the best ones available in 2021.
Our List of the Top Cryptocurrency Wallets
The present-day crypto marketplace is inundated with all kinds of crypto wallets, with each one marketed as the best. This article will shortlist some of the best cryptocurrency wallets available in the market today, based on several factors, including security, customer reviews and cost. You can go through them below, along with their corresponding features and benefits.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet can be termed as a hardware device, a software program, an online platform or a piece of paper that enables you to easily store private and public keys associated with cryptocurrencies.
Although you’re free to pick various brands, types and designs, the basic purpose of a physical purse/wallet remains the same—to keep your money safe and handy. The same is accomplished with the help of a crypto wallet. While you can opt from multiple varieties, a cryptocurrency wallet’s basic purpose is to keep your cryptocurrencies safe.
Types of Cryptocurrency Wallets
Cryptocurrency wallets can be categorised into multiple groups based on how they are used and the level of security they provide. All of them have their own respective pros & cons. It all boils down to which one you find the easiest to use, how good a job it does at protecting your private keys and how well it meets your overall requirements. Let’s throw some more light on these popular crypto wallet types.
A hot wallet is a digital crypto wallet that is connected to the internet. It enables the user to easily send, receive and store a cryptocurrency, thus making it a handy tool for anyone who indulges in frequent cryptocurrency transactions. However, because hot wallets stay connected to the internet, they’re more vulnerable to theft and hacking attempts compared to cold wallets which stay offline. Almost all the well-known desktop, mobile and web wallets fall into this category.
A cold wallet is a physical device used for storing cryptocurrency-related information inside it. What sets it apart from a hot wallet, and is also its biggest selling point is that it’s not constantly connected to the internet and is, therefore, more secure than its online counterpart. You can connect your cold wallet to the internet (not paper wallets though) whenever you wish to execute a transaction. Both paper wallets and hardware wallets fall into this category, with the latter being more popular owing to their ease-of-usage and accompanying customer support.
Hot vs Cold Wallets
As highlighted above, when it comes to hot vs cold wallets, their biggest difference is that while the former is connected to the internet, the latter isn’t. There are various reasons why someone might prefer their cryptocurrencies to be disconnected or connected to the internet. Hence, it’s not uncommon for people to own multiple crypto wallets. Unlike the hardware-based cold wallets, the good ones among which are often above the $100 mark, hot wallets are usually free-of-cost and can hold multiple cryptocurrencies. Furthermore, hot wallets can be either custodial or non-custodial in nature, but cold wallets are almost always non-custodial wallets.
Many consider a hardware wallet to be the most secure way of storing cryptocurrencies. It is a physical device, usually the size of a USB drive, with its own buttons and OLED screen to navigate through its interface. The main purpose of a hardware wallet is to safely store your public and private crypto keys, and enable you to interact with crypto blockchain whenever you need to send or receive the cryptocurrency. This device stays offline and is only connected to the internet when you need to transfer funds to anyone. The only way you can access the contents of a hardware wallet is by entering its private pin, making it almost impossible for any hacker to obtain your keys. Majority of good crypto hardware wallets cost upwards of $100 and allow storage of multiple cryptocurrencies.
A crypto paper purse or paper wallet is nothing but a piece of paper that contains printed information about a cryptocurrency’s public address and private key. While it may give the impression of being the safest form of cold wallet, as there’s no way anyone can reach it from the internet, it’s risky in its own unique ways. In fact, it’s considered the riskiest type of cold wallet, as it can get thrown into trash, get crumpled, splashed with or soaked in water or just get blown away by the wind! Having said that, nothing can take away from the fact that it’s the most malware-free wallet you can have.
Mobile & Desktop Wallets
A desktop wallet is downloaded & installed on a personal computer/laptop and can be either a hot or a cold wallet depending upon how actively it stays connected to the internet. Available for all popular operating systems including Windows, Linux and Mac, it offers a healthy combination of convenience and security. Please note, it’s very important to use a good anti-malware, antivirus software and a solid firewall, with a desktop wallet to ensure its safety.
A mobile wallet is a type of hot wallet that runs as a mobile application on a Windows, iOS or an Android phone device. This wallet offers quick access to the stored cryptocurrencies and is ideal for anyone who prefers shopping with them on a regular basis.
How do Cryptocurrency Wallets Work?
Before getting into how cryptocurrency wallets work, it’s important to understand what public and private keys are. Whenever you store a cryptocurrency in a wallet, you’d be provided with a private key and public key associated with the wallet. We can use the analogy of an email address to understand this better. For instance, if you wish to receive email from someone, you’d give out your email address to them and then they can send an email to that address. However, if you wish to send an email out, you’d need to enter your password and then use the email service to send it. The same way, anyone wanting to send cryptocurrency to you can use your public key to send it. However, if you wish to send cryptocurrency to someone, you’d need to enter your private key and then process the transaction. Hence, only you or anyone else who knows the private key can use the wallet to send the cryptocurrency. The private key must not be shared and should be kept safe at all times.
The same process is followed whenever you use a broker/exchange platform or any P2P network to buy/sell cryptocurrency. Whenever you buy a cryptocurrency, it will be sent to you using your address associated with your public key and whenever you sell a cryptocurrency, you’d need to authorise or complete the transaction using your private key.
Key Things to Consider when Choosing the Best Cryptocurrency Wallet
Now that you’re aware of different software wallets and how they work, you should ascertain your expectations from a crypto wallet and then make a decision about the type of wallet you’d like to use. Let’s look at some commonly-known factors that must be considered in this regard:
- The purpose – If your purpose is to buy a cryptocurrency and then hold on to it for the long-term, you’d be better off with a cold-wallet. On the other hand, if you wish to make frequent purchases with the cryptocurrency, a hot wallet like mobile or an online wallet would be more suitable for you.
- Security features – You should look at the various security features offered by the cryptocurrency wallet, including multi-sign-on functionality and two-factor authentication.
- Single currency or multi-currency capability – It’s also important to consider if you’d like to transact in just one cryptocurrency or would require multi-currency capability in your crypto wallet.
- Ease of usage – It’s important to pick a crypto wallet that matches your technical knowledge of cryptocurrencies. If you’re new to these currencies, it’d be better to go with a wallet that has an easy-to-understand user interface and can be used by anyone with minimum knowledge of cryptocurrencies.
- Cost – While the majority of cryptocurrency wallets come free-of-cost, some, for instance, hardware wallets can require a nominal investment.
Pros and Cons of Using Cryptocurrency Wallet
To conclude, we’d like to emphasise that cryptocurrency wallets play an important role in the present-day crypto economy and give new users the confidence to invest in and use cryptocurrencies. In this detailed guide, we informed you about the meaning of crypto wallets, different types, how they work, their pros & cons, what you should look for in them and the best cryptocurrency wallets in 2021.
Frequently Asked Questions
You can regenerate your wallet with the help of your private key or the associated restoration code.
Most crypto wallets don’t cost anything. However, hardware crypto wallets can cost upwards of $100.
Yes, it is possible to take a loan against crypto coins stored in a wallet.
Yes, diversifying crypto storage locations is considered a good strategy for improving cryptocurrencies’ security.
Yes, considering the security and advantages they offer to people wanting to safely store big amounts of cryptocurrencies.
Yes, cryptocurrencies have been legalised in many countries across the world. Nevertheless, please check your local laws to confirm.
Yes, you can do it by selling your cryptocurrency on an exchange.
It depends upon the kind of crypto wallet you’re using and how well you secure your private key.