Cryptocurrency wallets are an essential part of staying safe when trading or investing crypto. Without one, you leave your crypto holdings open to being stolen if an exchange is hacked and recovering them is not as simple as calling your bank like you might if your credit card was stolen.
In this article we’ll discuss the different types of wallets, wallet best practices, and the available wallet options – all vital in order for you to protect your funds.
Cryptocurrency wallet types
A cryptocurrency wallet serves the same purpose as an everyday wallet that you make use of in your life: you use it to store your bitcoin or other crypto funds.
A cryptocurrency wallet also grants you access to spend the funds that it holds so long as you can prove that you are the owner of the wallet. Ownership is proven through passwords and secret codes.
The main types of cryptocurrency wallets are:
- paper wallets
- hardware wallets
- web wallets
- desktop wallets
- mobile wallets
Which one is right for you will depend on how you prefer to store your funds.
Paper Cryptocurrency Wallet
A paper wallet allows you to store your funds, and proof of ownership, on a piece of paper, secured by your cryptocurrency address and private key. These are listed as a string of characters, but are also shown as QR codes:
When you want access to the funds, you log onto the paper wallet provider’s website and send the funds out of the paper wallet. This type of wallet is great for people who prefer to keep their funds off the internet (known as ‘cold storage’).
People who also want to invest in bitcoin or other cryptocurrencies for the long term can make use of this wallet as it can be stored in a safe place. The downside is that obviously if you lose the paper wallet and don’t have any other record of the address and private key, you lose access to the funds in the paper wallet.
Hardware cryptocurrency wallet
Hardware wallets are physical devices (hardware) that you can store your wallet and the associated funds on. Common devices are hardware drives or USB devices:
Most hardware wallets are also password-protected to give an extra layer of security. This wallet is great for people who want to invest in cryptocurrency for the medium to long term. Users can store their money offline and can transact with the funds a lot easier than a paper wallet since you can just connect the device to a computer or phone and send the money out.
Web cryptocurrency wallet
Web wallets are wallets whereby you store your wallet and the associated funds on a service provider’s platform. The service provider stores your access codes and backup codes in their databases (files). The advantage of web wallets is that you can always access your wallet through the internet by logging into the service provider’s platform. The service provider also aims to make the wallet as simple as possible to interact with.
Desktop and mobile cryptocurrency wallets
Desktop and mobile wallets are when you store all of your wallet details and the associated funds on either your computer or mobile phone. The great thing about these types of wallets is that they pose less of a risk than web wallets as the secret codes to access the funds are stored on your device and not in a service provider’s database. Backup codes are presented to you when you create the wallet so that you can write them down and store them somewhere safe.
Cryptocurrency wallet best practices
There are some simple precautionary guidelines that you can practice to ensure the security of your funds.
1. Spread your storage methods
The first guideline involves spreading your risk by storing your funds on more than one wallet. This is so that you won’t lose all of your funds in the event that you are unable to access your wallet for whatever reason.
2. Double check everything
The next guideline is that you should always double check everything when you send cryptocurrency.
- Check that the wallet provider you might be planning to use is not a scam and raises no red flags whilst doing your due diligence on them.
- When sending cryptocurrency, make sure that the recipient’s address is entered correctly.
- Lastly, when transferring cryptocurrency like bitcoin from one wallet to another it is important that you are in fact sending the bitcoin to a bitcoin address. Apply this check when transferring any other funds in another cryptocurrency.
Cryptocurrency wallet recommendations
We will now take a look at the available wallet options for beginner South African cryptocurrency users. We will give an overview of an option for each of the types of cryptocurrency wallets. Please note that we will not take a look at paper wallets because they are beyond the scope of this article since you have to create one yourself.
Exodus is a desktop wallet that provides support for cryptocurrencies like bitcoin, litecoin, and ethereum.
It does not charge fees on top of the cryptocurrency network fees and it is available for Mac, Linux, and Windows.
Edge wallet is a multi-currency cryptocurrency wallet available for mobile. It is available on both Android and IOS devices.
Edge also does not ask for personal details, which is great for privacy, and is free to open an account. It also supports several payment methods.
Ledger is a hardware wallet and supports all mobile and computer devices. Users can choose their network fees.
What must be noted is that the higher you make the fee, the faster the more your transactions will be prioritised and vice versa for lower fees. Similar to the Edge wallet, the Ledger wallet does not require any of your personal information when signing up. The need to connect the device to a computer or phone to transact with the funds does make it a bit complex for beginners.
Don’t cut corners: be smart and use a wallet
While it may be tempting to just leave your crypto holdings in an exchange and treat it like an online bank, this isn’t recommended. Even well-established crypto exchanges have been hacked in the past and if anything does go wrong, you have no way to claim the funds back.
Sourcing and storing a wallet is an extra step, but it’s a vitally important one. Choosing the right one for you will depend on how you want to interact with your cryptocurrency and how you want to store it, but it’s important that you do make a choice and then do everything you can to keep it safe.