A cryptocurrency wallet is a software program that stores private and public keys and interacts with various blockchain to enable users to send and receive digital currency and monitor their balance. If you want to use Bitcoin or any other cryptocurrency, you will need to have a digital wallet.
What you need to remember is that all transactions are recorded and stored on the blockchain.
Some cryptocurrencies offer their own official wallets, while other products allow you to store multiple currencies within the same wallet.
But different digital currencies have different address types, and you’re usually able to send coins between like wallet addresses only. For example, you’ll need to send bitcoin to a bitcoin wallet address and Ethereum to an Ethereum wallet address.
How do cryptocurrency wallets work?
Instead of holding physical coins, a cryptocurrency wallet is electronic and includes a public and private key.
- Public key. This is a long sequence of letters and numbers that forms the wallet address. With this, people can send money to your wallet. It’s similar to a bank account number in that it’s used to send money to an account only.
- Private key. This is used to access the funds stored in the wallet. With this, people can control the funds tied to that wallet’s address. Like a PIN, you’ll need to keep your private key secret and secure. However, not all wallets give you sole ownership of your private key, which means you don’t have full control over your coins.
What are the desired traits of a crypto wallet and how hard can choose a wallet to be?
- Cost. Is it free? What are the drawbacks of using this wallet?
- Security. Does the company have a track record of security excellence?
- Mobility. Is it easy to keep and difficult to lose? Is it accessible anytime, anywhere?
- User-friendliness. Is the wallet UI intuitively designed? Can I store a range of altcoins?
- Convenience. Am I able to make a fast purchase when the time calls for it?
- Style. Do I have a weakness for cool tech gadgets?
What are the different types of cryptocurrency wallets?
Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.
- Desktop: wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded. Desktop wallets offer one of the highest levels of security however if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
- Online: wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking attacks and theft.
- Mobile: wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
- Hardware: wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy. Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
- Paper: wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward. Transferring Bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.
How to send cryptocurrency from your wallet
To send funds from your wallet, you’ll need a wallet address — or the recipient’s public key. These addresses are either:
- A long alphanumeric string of numbers and letters.
- A QR code for smartphone wallets.
- A URL-like web link that’s clickable and opens your wallet automatically.
Once you have this address, you will need to:
- Log in to your wallet.
- Click Send.
- Enter the recipient’s wallet address. You can generally only send and receive like coins — for example, bitcoin to bitcoin or Ethereum to Ethereum. You can’t send bitcoin to an Ethereum wallet address.
- Specify the amount, and possibly the currency, you want to transfer.
- Check any transaction fees that apply, and make sure you have enough coins in your wallet to pay the fees.
- Review the details of the transaction to make sure you’ve correctly entered all the information.
- Click Send.
Note that the exact process varies depending on the brand of wallet you choose. For example, hardware wallet users typically need to connect their wallet device, enter a PIN or password and manually verify the transaction on the device.
How to keep your wallet safe
Wallet security is crucial for any crypto owner, so keep these tips in mind to keep your funds as safe as possible:
- Research before you choose. Don’t just choose the first bitcoin wallet you come across. Thoroughly research the security features and development team behind a range of wallets before making your final decision.
- Enable two-factor authentication. This simple security feature is available on an increasing number of wallets. It’s simple to use and provides an extra layer of protection for your wallet.
- Pick your password carefully. Make sure all usernames, PINs and passwords related to your crypto wallet strong.
- Consider a multisignature wallet. Multisig wallets require more than one private key to authorize a transaction, which means another user or users will need to sign each transaction before it can be sent. It can take longer to send funds, but you may find that extra peace of mind is worth the minor hassle.
- Update your antivirus protection. Your PC, laptop, smartphone or tablet should have the latest antivirus and anti-malware software installed. Set up a secure firewall on your computer, and never install software from companies you don’t know.
- Update your wallet software. Regularly update your wallet software to the latest security upgrades and protections.
- Make a backup. Store a wallet backup in a safe place so that you can recover your crypto funds if something goes wrong — like if you lose your smartphone.
- Check the address. When sending or receiving funds, use the correct wallet address. Similarly, if using an online wallet, make sure it’s secure by checking that the URL starts with “https.”
- Don’t use public Wi-Fi. Never access your wallet over a public Wi-Fi network.
- Split your holdings. Consider splitting up your crypto coins between online and offline storage. For example, keep a small portion of your funds in online storage for quick and convenient access, and store the bulk of your holdings offline for extra security.
- Private key protection. Never share your private key with anyone. Check whether the wallet you choose allows you to keep full control of your private keys, or if you have to surrender ownership to a third party, such as an exchange.
Used by the most secure and trustworthy wallets, two-factor authentication requires a regular username and password combination and another authentication method.
It’s often a PIN code texted to your smartphone, expiring after a set time and different every time you log in. This means that an attacker would need to know your username and password and also have your phone.
Some wallets require you to install a secondary app on your smartphone that generates these PIN codes for you, adding another layer of security.
There’s no one-size-fits-all cryptocurrency wallet. The right wallet for you is the one that matches your needs. If security is your No. 1 concern, you’ll likely choose a different wallet than someone who wants fast and easy access to their coins.
Do your research and compare wallets. Start with our crypto wallet reviews to get an idea of what’s available and key features to consider.