Cryptocurrency wallets (crypto wallets) store public and private “keys” which are necessary for crypto currency transactions. These keys are an arbitrary string of random characters, akin to a unique ID number. Keys come in pairs: every public key is paired with a private key, ensuring that customer data is always protected. These keys are necessary when purchasing cryptocurrency, and/or producing digital signatures to officialise cryptocurrency transactions. There are many forms of crypto wallets including physical devices (hardware wallets), software wallets, and even paper wallets. Determining the best crypto wallet depends on the user’s unique needs and circumstances.
Regardless of their form, crypto wallets fall into two broad categories — they are either “hot” or “cold”, custodial or non-custodial. “Hot” wallets are connected to the internet, while “cold” wallets function offline. In custodial wallets, each user entrusts their private keys to a 3rd party entity, while in non-custodial wallets, each user safeguards their own private keys.
Weighing the Pros And Cons
The risks of different wallet types depend on their properties. Hot wallets tend to be more vulnerable to attacks because both public and private keys are stored online. Even though current technology makes it tough to hack hot wallets, there have been high profile cases such as the attack on 8000 wallets storing Solana coins, including Phantom, Slope and TrustWallet. Fortunately, these attacks are rare. Cold wallets, on the other hand, are less vulnerable. Despite that, they are also more inconvenient and expensive compared to hot wallets. Thus, it is important to weigh the pros and cons.
Regardless, users should only keep a small amount of funds in their hot wallet, enough for their daily transactions. The software should be constantly updated and secured, while ensuring that your password is safe. Users can choose to use custodial wallets with additional layers of protection. Custodial wallets have lengthy Know Your Customer (KYC) and Anti-Money Laundering (AML) processes, to ensure that the 3rd party entity is safe. Non-custodial wallets do not have tedious KYC and AML processes, since users are responsible for keeping their own private keys and funds safe. Despite their differences, both types of wallets are secure as long as there is proper regulation in place.
Type of wallets to use based on the type of users
“Hot” wallets are better suited for novice users as they are more convenient. Custodial wallets would also be more practical, as there is lesser personal responsibility since a 3rd party entity is in charge of the user’s private keys. According to analyses by both Forbes and Money.com, the Coinbase wallet was recommended due to its ease of use and suitability for first-time crypto users.
Coinbase is a highly rated “hot” wallet as it provides support to different crypto currencies, and is also connected to several major decentralised crypto exchanges. At the same time, it is also compatible with the “cold” wallet Ledger Crypto Wallet. Users can simultaneously use both hot and cold wallets with these two applications.
For more advanced users, SafePal is a popular option, as it is used in most countries and hosts major cryptocurrencies such as popular stablecoins like TrueUSD (TUSD). For experienced users who perform multiple transactions a day, SafePal provides convenience due to its integration with crypto exchange server Binance. Users can connect to Binance through their SafePal wallet to engage in cryptocurrency transactions. At the same time, SafePal boasts both “hot” and “cold” cryptocurrency storage, while being relatively cheap for seasoned investors. Beginner users would face challenges in using SafePal due to the unintuitive user interface, making SafePal more suited for experienced users.
Decentralised Finance Users
For users who engage in decentralised finance (DeFi) activity, the Crypto.com DeFi Wallet would be the most suitable, as it offers a platform to store DeFi assets. The wallet also supports the major cryptocurrencies like the ones mentioned above, but has an added plus of processing DeFi assets, which is an advantage the other wallets do not have. Among all the other DeFi-supportive wallets, the Crypto.com DeFi Wallet can even earn rebates on coins, which allows seasoned users to generate revenue on tokens owned.
Another method to choose a wallet would be based on coins. Wallets can be single coin or multi coin. Most wallets hold Bitcoin (BTC), but some wallets are catered only to certain coins like Ethereum (ETH). Some wallets also offer better support for certain coins over others. Depending on what coins users want to transact, different wallets offer differing suitability. An analysis by Money.com lists MetaMask as the “Best for Ethereum”, Electrum as the “Best Desktop Bitcoin Wallet” and BlueWallet as the “Best Mobile Bitcoin”.
The Future of Crypto Wallets
Crypto wallets are progressively becoming more and more developed, heading towards seamless integration with our communicative devices. Telegram founder Pavel Durov announced that Telegram will build a decentralised exchange and non-custodial wallets named TON for millions of users, focusing on trustless transactions and self-hosted wallets.
Depending on the volatile crypto climate as reflected in current events, users should exercise judgement to choose the crypto wallets that best suit their needs. Given the recent FTX Collapse, it is likely that more projects like TON will surface, and be met with significant support. Other prominent figures like Ahon Sarkar also highlighted the rise of online fraud cases rising to the forefront in 2023. Thus, users should choose wisely, based on a wide variety of factors, such as skill level, the type of coin traded, and whether they are interested in long or short term trading.
Ultimately, the best strategy is to focus on popular wallets that have a strong track record, backed up by a reputable trading platform that can reduce risks and keep transactions secure.