Types of wallets for storing cryptocurrencies, classification, examples

20

Various types of wallets for storing cryptocurrency serve both to securely hold their digital assets and to manage them. The selection of wallets is unusually wide and they are classified according to dozens of characteristics. The editorial staff of btcnewsweb.com has compiled a detailed review of the existing and current types of cryptocurrency wallets.

What role do cryptocurrency wallets play?

A cryptocurrency wallet is a complex of software or hardware that implements the functions of storing, transferring, receiving or selling digital coins. The wallet communicates with the blockchain network so that information about any changes and new transactions is added to the chain. The priority function of the wallet is to ensure the protection of a pair of keys: private (closed) and public (public). The private key is used to receive money by decrypting the transaction, while the full information about the transaction is available to all network participants.

The transaсtion takes place as follows:

  • User 1, using his wallet, creates a transaction, specifying the address of the addressee’s wallet and, if necessary, adjusting the commission.
  • Transaction information (namely, sending and receiving addresses, amount, commission, time) is signed using the private key of user 1.
  • The generated information block is sent to the blockchain network, where miners confirm it, checking the information about the sender and recipient and the technical legality of the payment (no double spending, etc.).
  • User 2 receives the payment and, using his private key, which is cryptographically linked to the address, decrypts the transaction and receives funds.

After confirming the transaction and receiving funds, it is added to the blockchain and can no longer be changed in any way.

Types of cryptocurrency wallets

We propose to consider the current types of crypto wallets, based on the classification by the most important parameters:

By platform the wallet runs on

Software wallets can run on one platform or another. Also, there are often multi-platform options, when, in order to reach more users, the developers of the wallet launch its versions for different platforms.

Desktop wallets

Such programs are installed on a laptop or PC and usually have extensive functionality, good performance, and support for a large number of coins. In this case, the user’s personal keys are stored directly on his computer and the developers of the wallet are not responsible for them.

Examples:

  • Exodus. A wallet with a nice simple design and high functionality. Supports 120+ cryptocurrency assets and the ability to exchange them without any registration, which allows you to diversify your portfolio easily and in a matter of seconds. Exodus encrypts secret keys and transaction data on the device. Compatible with Trezor hardware wallet. Closed source.
  • Jaxx. A cross-platform blockchain wallet with the ability to manage Bitcoin and over 90 altcoins. Easy connection to third party trading services. It is also possible to access third-party trading applications from the wallet, such as Changelly and ShapeShift. Portfolio analytics are available to track changes in value over the last hour, day, week or month. Built-in Block explorer. The source code is closed.
jaxx wallet
Jaxx wallet

Mobile wallets

Such applications are installed on smartphones or tablets running Android, iOS (mainly Android) operating systems. They are easy to use and safety depends on how well the device itself is secured. Private keys are stored on the phone, so in theory, if the phone is lost or stolen, an attacker could gain access to funds. Security measures such as setting pin codes and payment passwords, connecting biometrics (access by fingerprint or face recognition) help to avoid this. The main thing during the installation process is to write down the seed phrase.

Examples:

  • Coinomi. It has been operating since 2014 and, according to the developers, has never been hacked or otherwise compromised. Supports nearly 1800 coins (on 125 blockchains), both top-end and rare. Supports Seg-Wit. Assets can be exchanged immediately with the built-in exchange service. When making transfers, the wallet does not charge additional fees, the user only pays a fee to the miners, which can be adjusted. DApp browser support.
Coinomi wallet
Coinomi wallet
  • Edge. Supports 30+ assets with the ability to quickly exchange them, as well as buy / sell using a bank card. Key backup is available with the requirement to enter a username and password. Edge lets you use the same account across multiple devices if needed. Access is secured using a PIN or Touch ID.

Online wallets

The web versions of the wallets work on the principle of a regular website, and the user can use the login and password to enter the account from any device with Internet access. This method is considered one of the most unsafe, but it is suitable for short-term storage of small amounts, due to its ease of use. This type also includes non-custodial crypto-exchanges.

Examples:

  • Blockchain.com. Of all the online wallets, Blockchain is definitely the most popular. It is convenient, has a simple, intuitive interface. You can work without confirming your identity, just by registering an account. However, there is a possibility of verification, which opens up additional functionality, for example, a cryptocurrency landing page. The private key is controlled by the user independently and can be retrieved at any time. Adjustable commission for sending transactions.
Blockchain wallet
Blockchain wallet
  • Coinbase. It is simultaneously a wallet and a regulated cryptocurrency exchange. Allows you to manage your portfolio by instantly buying and selling coins, carefully planning investments for specific periods of time. Cryptocurrencies stored on Coinbase’s servers are covered by insurance. It is possible to protect the wallet by delaying the withdrawal.
Coinbase wallet
Coinbase wallet

Hardware wallets

Wallets in the format of physical devices that are connected to a computer via a USB connector. Most often, the device is equipped with a display where basic information is displayed. Provides cold storage of private keys in a strictly autonomous environment.

Examples:

  • Trezor. One of the most requested devices on the market, released in 2013. Equipped with OLED display, where basic information is displayed. You can send transactions to several recipients at once, connect universal two-factor authentication, etc.
Trezor wallet
Trezor wallet
  • Ledger Nano S. Although this model was released in 2016, it still ranks as one of the most popular hardware wallets. Control is carried out through the Ledger Live desktop application, also available for iOS and Android devices.

Paper wallets

A kind of cold (that is, remote from the Internet) storage of funds, which are keys printed on paper. Store it in a safe place. This method is very safe and also completely free. However, it has a drawback: the paper can be crumpled, torn or stained, it can burn or get wet, as a result of which the keys become unreadable.

Paper bitcoins
Paper bitcoins

By type of management

Cryptocurrency wallets can be centralized or decentralized. What is the difference between these types:

Centralized wallets

These services are managed by organizations (legal entities). They control all the main parameters of the system – supported assets, commissions and additional fees, implementation or removal of functions.

Examples:

  • BTC.com. A centralized service that, however, allows you to send and receive transactions without the need to trust third parties. The user himself controls his capital. The BTC.com wallet belongs to the mining giant Bitmain, as well as the mining pool of the same name.
BTC.COM wallet
BTC.COM wallet
  • Xapo. The wallet does not give the user control over private keys. It is positioned as affordable, simple and easy-to-use for a resident of any country with any needs. Despite the fact that it has a fairly good reputation, its main disadvantage is in custody (that is, independent storage of clients’ cryptocurrency).

Decentralized wallets

Decentralized cryptocurrency wallets are open source and partly controlled by the community. The user does not need to entrust his finances to third parties. Decentralized wallets are ideal for interacting with the DeFi realm (lending, borrowing, peer-to-peer trading, etc.).

Examples:

  • BRD. The mobile application allows you to buy bitcoin using a variety of methods, including a bank card, as well as convert it into various top cryptocurrencies and many ERC-20 tokens. When creating the application, the developers focused on maximum simplicity without compromising security and privacy. No account required.
BRD Wallet
BRD Wallet
  • Metamask. Browser extension + mobile application with the ability to manage the entire range of tokens on the Ethereum blockchain and connect to various decentralized protocols (Uniswap, Compound, Maker and dozens of others). MetaMask generates passwords and keys directly on the user’s device.
Metamask wallet
Metamask wallet

By way of storing keys

It is preferable that the private key, on which access to funds, receiving and sending transactions depends, is always at the user’s disposal. However, there are different options for solving this problem.

Custodial wallets

This is the name of the services that are themselves fully responsible for the safety of user funds. These services are in demand mainly among those users who do not use cryptocurrency very actively and do not store large amounts. In this case, it is more convenient not to delve into technical details, but simply trust the professionals. Private keys are stored on the service side.

Examples:

  • Holy Transaction. The service keeps user funds safe thanks to regular backups of hot and cold storage and modern encryption systems. An API is available through which certain functions of the wallet can be used in your own projects. More than thirty cryptocurrencies and fiat are supported.
  • Coinpayments.net. A wallet and payment gateway with fiat support and functionality for both individuals and businesses. 2000+ cryptocurrencies are available, buying / selling crypto using a card, working with gift cards from well-known companies, custom integrations and APIs.

Non-custodial wallets

The advantage of working with non-custodial crypto wallets is that the user has full control over his private keys. It doesn’t matter if the composition of the developers or their policy changes, the keys belong to the client and with their help he will be able to independently restore access to his own finances.

Examples:

  • Trust Wallet. The wallet is officially supported by the Binance cryptocurrency exchange and is available for mobile devices. Its distinctive feature is the ability to interact with decentralized applications through a special dApp browser, as well as with collection tokens. Quick purchase of crypt from the card. Staking of some tokens.
  • Blue Wallet. One of the wallets recommended in a recent analysis from startup Veriphi, in which services were compared on 48 criteria. A mobile service with the most convenient interface and extensive functionality. There is an API and open source. Integration with a hardware wallet is possible.
Blue bitcoin wallet
Blue bitcoin wallet

By internet connection

Of course, the safest thing to do is to keep your cryptocurrency keys away from the internet so that they are protected from hacker attacks. However, this is not so convenient from the point of view of usability, so the choice here depends on the situation and on the specific purpose of the wallet.

Hot wallets

All software wallets are hot, that is, they are constantly connected to the network during operation. Thus, they allow you to send and receive transactions quickly and without unnecessary hassle. This option is suitable if you are not engaged in large investments, but simply use cryptocurrency payments from time to time for any purpose.

Examples:

  • Samourai. Decentralized non-custodial and anonymous crypto wallet. Modern privacy mechanisms help avoid any possibility of financial surveillance. SegWit support to reduce transaction fees. The commission for miners is also determined according to Samourai’s own methods, therefore, it is set at the most fair level.
samourai wallet bitcoin
Samourai wallet bitcoin
  • Armory. A very reliable wallet, albeit with an outdated interface. Available only as a desktop application. Open source. You can connect your own node. Onion routing is supported to enhance the privacy of the user and his transactions.

Cold wallets

In cold cryptocurrency wallets, keys are stored offline most of the time – so they are inaccessible to any hacker attacks or viruses. You can replenish such a wallet without hindrance, knowing the address, and in order to send a transaction, you will need to temporarily connect to a software wallet. Therefore, cold wallets are ideal for long-term investment, when mostly only replenishment occurs.

Examples:

  • Hardware devices (Hardware Wallet): Ledger, Trezor, KeepKey, Coolwallet and others. A physical USB device used to store keys. With their fairly simple design, such devices are equipped with a wide range of software security measures that will come in handy in case of loss and theft. A large number of currencies are supported (for example, Ledger – 1500+, Trezor – 1000+). Specific coin lists are provided on the manufacturers’ official websites.
Hardware wallets
Hardware wallets
  • Paper. Just keys printed on a sheet of paper. The advantage of such a wallet over a hardware wallet is that it is free. Otherwise, it is less convenient and less reliable, since the paper can be detected and used by someone, while the hardware wallet is protected by at least a pin code. Specialized sites such as BitAddress for Bitcoin help in creating paper wallets for different cryptocurrencies.
Paper bitcoin keys
Paper bitcoin keys

On interaction with the blockchain

There are two main ways a cryptocurrency wallet interacts with the network:

Thick wallets

When installed, such wallets download the entire blockchain to the computer (the total volume of the Bitcoin blockchain, by the way, has already exceeded 300 GB). Further, the program checks and updates the chain. This method is safer due to minimal internet interaction.

Examples:

  • Bitcoin Core. The official client of the bitcoin network, presented as a PC application. Ranked first in terms of functionality and security. It has been developing for many years, almost since the creation of the first cryptocurrency. It is possible to export and import keys, set a password for a file with keys.
Bitcoin Core
Bitcoin Core
  • Armory (described above).

Slim wallets

They download and install quickly, but in the process, they need to continuously connect to the network in order to receive information about the blockchain update and send their own.

Examples:

  • Electrum. A popular desktop-type bitcoin wallet available for different platforms (Windows, macOS, Linux), there is also an application for Android. Open source, you can connect to your own node. There are multisignature and two-factor authentication.
  • Bitcoin Wallet. The wallet is only available for mobile devices. Offers a high level of security and anonymity, open source. There is an optional backup of the keys, as well as their import if necessary. The wallet has a user-friendly interface.
Bitcoin wallet
Bitcoin wallet

By functionality

Many types of cryptocurrency wallets include some kind of additional features that facilitate interaction or increase security. For example:

  • HD (Hierarchical Deterministic) wallets. HD wallets use 12 (24) word master keys. They are used to obtain an unlimited number of new addresses hierarchically and sequentially. When using such a wallet, a mnemonic phrase must be backed up so that the wallet can be restored in the event of a device loss or breakdown. Implemented in Electrum, Armory, BitGo and others.
  • Multi-signature wallets. A special type of digital signature that allows two or more users to sign transactions together as a group. The principle was invented even before cryptocurrencies. Implemented in Bitcoin Core, Elecrtum, Armory, BTC.com and others.
  • Wallets with the possibility of passive income (staking, landing, pharming). Similar features are implemented in TrustWallet, Ledger, Atomic and others wallets.
  • Mixer fixation wallets. Automatically splitting a transaction into chunks and then mixing with chunks of other transactions before sending. Thus, the recipient receives completely different coins that were received by you, that is, it increases confidentiality. Implemented in Wasabi Wallet.

Which wallet is the safest ?

At the moment, hardware devices like the Trezor and Ledger are considered the safest type of wallet for cryptocurrency. This is the best option for investors, whose main need is that the keys are almost always offline, fully protected from the dangers associated with the Internet.

From software wallets, it is recommended to choose decentralized non-custodial services that do not control user private keys and provide the maximum possible set of ways to protect your account.

Precautions when using wallets

Whichever type of wallets you choose for storing cryptocurrency, you should not rely 100% only on developers. Statistics show that in the overwhelming majority of cases it is the user’s irresponsibility that leads to the loss of funds. A few general guidelines:

✅Set complex passwords and secret phrases.

✅  Check the outgoing data several times when sending a payment.

✅  Store sensitive data in secure locations, preferably not in electronic form.

✅  Download software only from official sources.

When choosing the best option for yourself, be guided by official research and real user reviews, which are posted on independent platforms. Analyze both negative and positive reviews. Read the recommendations for protection against hacking of crypto wallets.

Conclusion

With the development of the industry, new types of cryptocurrency wallets regularly appear, and now there is a clear bias towards decentralization. They make it easier to learn even for novice users, while earlier it was too technological direction for many. Be careful about storing cryptocurrency so as not to worry about the safety of your savings.

Leave A Reply

Your email address will not be published.