Crypto Wallets Explained. Understanding the Essentials
A cryptocurrency wallet is the digital equivalent of a regular wallet. It allows storing, sending, and receiving cryptocurrencies such as Bitcoin, Ethereum, or other digital assets. Just like a regular wallet contains cash and cards, a cryptocurrency wallet contains your digital coins and tokens. It’s important to note that cryptocurrencies only exist on the blockchain, and a wallet simply provides a secure way to interact with them.
Public and private key
Cryptocurrency wallets contain public and private keys — a long series of characters.
Simply put, a public key is your address, which comprises characters in the blockchain. It is visible to everyone on the blockchain. For example, if you want to send 1 Bitcoin to a friend, you must enter his public key.
A private key is a password consisting of characters used to confirm the transaction (the process of transferring crypto to someone).
There’s also a seed phrase. A seed phrase is a sequence of 12–24 words that you can use to recover a private key if you lose it.
Remembering your seed phrase is vital because you need to place both your private key and a seed phrase to keep access to your crypto, and no one will be able to help.
Types of crypto wallets
Wallet types differ in several essential parameters, such as how easy they are to use, how well they are protected, how many cryptocurrencies they support, what format they have, and so on. Let’s examine a few types of cryptocurrency wallets to understand their features.
By format
Depending on the working principle, there are hot (software) and cold (hardware) cryptocurrency wallets. Hot wallets are mobile, desktop, and web applications. Cold wallets have a physical form; they are special devices that can be connected to a PC.
By key management
Wallet developers determine how users’ public and private keys are managed and stored. We can distinguish a separate category by the type of data management and divide wallets into two groups: custodial and non-custodial.
Custodial services such as cryptocurrency exchanges store public and private keys on their servers. Moreover, data backup is also the responsibility of the developer. Exchange and some software-based crypto wallets belong to this type.
Non-custodial wallets allow the user to store keys on the device independently. When creating an account with such a wallet, the user specifies a recovery phrase so they can access the cryptocurrency even if the keys have been lost. However, storing cryptocurrency in centralized custodial wallets is less secure than in non-custodial wallets.
Top cryptocurrency wallets
Let’s take a look at five popular cryptocurrency wallets. We have selected both hot and cold wallets. These apps and devices have attracted millions of users worldwide and can be used as examples to create your own wallet.
MetaMask
MetaMask is one of the most popular decentralized cryptocurrency wallets. It is built on the Ethereum blockchain and stores, transfers, and receives tokens of the ERC-20 and ERC-721 standards. You can download it as a browser extension or a mobile app. MetaMask supports BNB SmartChain (BSC), Polygon, Harmony, several other blockchains, and about 200,000 ERC-20 or ERC-20-compliant tokens.
Exodus
Exodus is a hot wallet where users can buy, sell, and exchange cryptocurrencies. The wallet features a simple and intuitive design, tons of features, and regular automatic software updates. Exodus encrypts private keys and transaction data on the device. It is also compatible with the Trezor hardware wallet. You can download Exodus as a Desktop or a Mobile app. It supports Bitcoin, Ethereum, Litecoin, XRP, several other blockchains, the ERC-20 token standard, and over 150 cryptocurrency assets.
Trust Wallet
Trust Wallet supports ERC-20, BEP-2, and BEP-20 token standards, NFT tokens, and decentralized applications (DApps). It has a built-in Web-3 browser. Since the Binance crypto exchange created Trust, it is compatible with all platform services. Trust is a mobile application available for iOS and Android.
Trust Wallet supports over 40 blockchains, including Bitcoin, Ethereum, Litecoin, Solana, and Polygon, and 4.5 million crypto assets.
Trezor
Trezor is a cold hardware wallet and one of the most popular devices on the market. The wallet provides an isolated environment for signing cryptocurrency transactions offline. Trezor features a touchscreen and user-friendly interface that makes the wallet easy to use. You can send transactions to multiple recipients simultaneously and use universal two-factor authentication to protect your assets.
Trezor is compatible with Ethereum-based web and desktop wallets and can store over 1,800 cryptocurrencies and tokens.
Ledger
Two models of Ledger cold wallets, Nano X and Nano S., support more than 5,500 cryptocurrencies and tokens.
Ledger Nano X is a device that can be connected to a smartphone via Bluetooth or a PC via USB. This hardware-based multi-currency wallet is popular with long-term investors.
Ledger Nano S is slightly cheaper than Nano X and doesn’t support Bluetooth, but it still offers high protection.
Final thoughts
The crypto industry needs to stand still and continue to develop. In the future, we may find new ways to store cryptocurrency. Thus, let’s stay in the loop, follow the trends, and trust reliable experts.
