What is the best cryptocurrency wallet?
Cryptocurrency wallets are the software that enables users to store, send and receive bitcoin and other digital assets securely. The best cryptocurrency wallets offer users both safety and convenience – but different wallets will suit different users and purposes.
What is a cryptocurrency wallet?
Cryptocurrencies like bitcoin use a blockchain – a kind of community-maintained database – to record ownership. Each blockchain forms a permanent ledger of transactions for its cryptocurrency.
In order to receive cryptocurrency, users need an address. This is generated from a private key, which is effectively a long password. To send coins from an address, the private key is needed to ‘sign’ transactions to prove you own them.
Cryptocurrency wallets store private keys and manage the complex cryptographic operations needed to make transactions from the associated addresses. It’s vital that private keys are held safely, since anyone who has access to them also has access to the crypto in that address. Similarly, if they are lost, so is the crypto they control.
The best cryptocurrency wallets provide a high degree of security, while making the process of storing and sending coins easy for the user. However, there are different types of wallet, and there is always a trade-off between security and usability. Selecting the right wallet therefore requires some thought.
How to choose a cryptocurrency wallet
There are many different ways of storing and using cryptocurrency. Each one will suit different circumstances. The safest bitcoin wallet, for example, is a ‘cold’ wallet that is not connected to the internet. This makes it ideal for storing large quantities of crypto, but unsuitable for day-to-day use. Finding the right wallet is a matter of balancing different factors:
- Convenience. How user-friendly do you need the wallet to be – and what does that mean to you? Are you a beginner or expert user?
- Security. Are you dealing with fairly small amounts of crypto, or more significant value?
- Crypto types. Do you need a wallet for a single cryptocurrency, like a dedicated bitcoin wallet, or will you be holding multiple coins?
- Functionality. Will you be making only simple transactions, or do you need more advanced features, like an integrated exchange?
Some crypto wallets are run by organisations that control your private keys and crypto for you. This can be attractive for beginner users, because they do not have to worry about managing and backing up keys securely. At the same time, you are putting your trust in a third party, so you must have confidence in their processes and honesty.
There are several common types of wallet, built for different purposes.
Exchanges provide basic wallet facilities, but these are not the safest bitcoin wallets and it is not advisable to keep your cryptocurrency on exchanges for any longer than you have to. Most exchanges pool user funds in a single address, and if their security processes are not robust enough, hackers will compromise them and steal the crypto.
The most secure way to make transactions is by using a crypto client. This is a piece of software you download and run on your local computer. It includes a full copy of the blockchain and a ‘node’ that enables you to participate in maintaining the network. It will also allow you to make transactions directly to other users, with no third parties. However, these are generally more suited to more experienced users.
Other options seek to provide both security and convenience. Two of the wallet types you will regularly encounter, and that are worth further explanation, are so-called hot wallets and hardware wallets.
‘Hot’ wallets give users control of their own private keys. Although they should protect keys by encrypting them, they are connected to the internet and so by definition are not as safe as an offline bitcoin wallet. (A bitcoin cold storage wallet is air-gapped from the internet, and hackers cannot therefore access it via the web.)
Hot wallets come in all forms, including mobile apps. Because they aim to simplify the user experience and have minimal hardware and technical requirements, they do not download a full copy of the blockchain, and do not run their own node. This means they connect via one or more third-party nodes. If these go down or are compromised, you will be unable to make transactions. The risk of theft, however, is low – assuming the wallet has been designed well.
You should always download wallets from a reputable source, such as the company’s own website or an official app store. Coinbase offers a secure, user-friendly mobile wallet that supports multiple currencies, while Electrum is a popular desktop bitcoin wallet.
A hardware wallet is a special kind of offline bitcoin wallet. These are among the safest bitcoin wallets available, but they are a little less user-friendly than regular hot wallets.
Hardware wallets are small devices that store your private keys offline. They connect securely to a laptop or desktop using a USB cable. When you want to make a transaction, the wallet creates and signs the transaction with your keys, and this is then sent to the network via the internet-connected device. This process takes a little longer than using a hot wallet, but is very secure since your keys are never exposed to the web. They are also generally protected by a pin code or password to deter physical theft.
Two of the best bitcoin hardware wallets are Trezor and Ledger. These function in a similar way, with the main difference being in the user experience. Both are suitable for storing large amounts of cryptocurrencies.
How to keep your wallets safe
Keeping your private keys offline is the best way to ensure your crypto is safe. This is the idea behind a bitcoin cold wallet. It’s even possible to create and print out private keys completely offline, then send funds to the crypto address, so that the key has never been used on an online computer. This is a very safe way of storing funds, though you have to keep the keys safe and ideally back them up to ensure they are not lost or damaged. This option is generally suited to more experienced users, but there are many tools for generating addresses for different cryptos securely.
Other than that, maintaining good general online security is vital. Run antivirus and malware scans regularly, don’t click any suspicious links, don’t visit websites unless you know what they are, and beware of phishing attacks. Ideally, use a separate device for crypto transactions.
Thefts and scams
Almost every time crypto is stolen, insecure private key storage is to blame. Users store keys unencrypted on a local device or in cloud storage, or they enter their private key into a malicious website or wallet they have downloaded via a phishing link or other risky source.
If you use official software, maintain good online security, and don’t trust third parties like exchanges to hold your funds, cryptocurrency is extremely safe to use. The best cryptocurrency wallets let you use bitcoin without worrying, as well as making it easy.