If you are new to the crypto world, you may have heard people in the space referring to their "wallet". To store digital assets, you will need a wallet of your own, but before finding one, it is important to determine which type of wallet will best fit your needs.
What is a Wallet?
A wallet is a technology used to hold digital assets. No matter which digital asset you want to keep, you will need a compatible wallet.
Your wallet will have a unique private key. From this key your address(s) are derived. Each address is an alphanumeric string that is completely different from all other addresses on the network. This means that nobody else will receive transactions that are meant for you. It is important to note that a wallet may have multiple addresses for a specific coin or asset but they are all tied to your unique wallet!
Unlike a fiat wallet, crypto wallets are more than a simple preference of style. To properly assess the type of wallet that you need, you will need to understand the fundamental differences between all types of wallets. The five wallet types are:
- Online wallets. Online wallets are cloud-based, meaning you can access them on any device that you can connect to the internet. While this makes them convenient, they are also less secure than other wallet options.
- Desktop wallets. Desktop wallets are downloaded programs that live on your PC or laptop. Because a desktop wallet is only accessible from the device that the program was installed to, this wallet type is more secure than an online wallet. Your digital assets will only be put at risk if you fall victim to a virus or personal hack.
- Mobile wallets. Mobile wallets are exactly what they sound like - a wallet that is usable via a mobile application. This type of wallet is safer than an online wallet because the data is not stored via the cloud. However, it is considered less safe than using a desktop wallet due to the commonality of losing or breaking a mobile phone.
- Hardware wallets. Hardware wallets are considerably more secure than online wallets, desktop wallets, or mobile wallets. Private keys are stored on a special device that can be linked to a computer via a USB port. While they are not free like most of the previously mentioned wallet options, hardware wallets are one of the safest options for anyone that wants to keep their digital assets both accessible and offline.
- Paper wallets. Paper wallets are the most secure method, though they may not be the most convenient. A paper wallet is a physical representation of ownership that is on an actual piece of paper. Your public and private key will be written on this piece of paper. You can scan the QR code to use the wallet.
Hot wallets are not physical. They are always connected to the internet. Because of this, they are less secure, but they can be fairly convenient if you need to:
- Send, receive, or exchange assets several times a day. It may be difficult to hook up a USB, transcribe a key, or scan a QR code if you plan on making a number of transactions throughout the day. Digital assets that you plan on using can be stored on your hot wallet so you can use them at your convenience.
- Utilize your assets on-the-go. In the modern era, everyone is on-the-go, and you may need to use your funds when you are away from your computer. In cases such as this, a mobile wallet may be best for you.
The three types of hot wallets are:
- Online wallets.
- Desktop wallets.
- Mobile wallets.
Cold storage is the safest method of storage, as it is physical and it generally remains offline. Hardware wallets will use an online client so you can manage your digital assets with a clean interface.
Cold storage is best if you want to:
- Keep your digital assets secure. If you are concerned about your digital assets' security, you can keep them in cold storage.
- Separate your digital assets. If you would like to separate the assets you plan to use immediately and those you would like to store, you can choose to store some digital assets in a cold wallet and your ready-to-use assets in a hot wallet.
The two types of cold storage are:
- Hardware wallets.
- Paper wallets.
Wallets support certain coins, so before you choose a wallet, assure that it can store the digital asset that you need it to store. If you want to receive XRP but you choose a wallet that cannot support it, you will not be able to receive the coin that you desire.
We want you to keep your digital assets safe. There are a few golden rules that can help you do this:
- Don't use exchanges for long-term storage. If you have to use an exchange like Coinbase or Bittrex, move your digital assets from such wallets as quickly as possible.
- Back up your wallet. You can back up your wallet using these directions.
- Stay updated. Keep your wallet updated at all times. Updates exist to protect you against new vulnerabilities.
- Protect your private key. Your private key is what allows you to control your digital assets. If someone else gains access to this, they have the ability to steal your coins. Keep your private key safe. ShapeShift will never ask you for your private keys, passwords, or other sensitive information. Please be mindful as there are people and services out there trying to obtain this information. The only time you should ever be using your private key is if you want to recover your wallet.
What Wallet is Best?
Different types of wallets have different pros and cons. Now that you understand the basics, you can pick out the wallet that works best for you. With that being said, here are some choices.