[Guide] Beginner’s Crypto Wallet Guide to Kick-start Your Crypto Journey

Taken an interest in cryptocurrency and considering to buy or invest in crypto? Then you would have most likely heard of crypto wallets. In this guide, questions such as “what is a crypto wallet”, “what to look for in a crypto wallet”, “is there a difference between storing them on a crypto exchange or a crypto wallet”, and the likes, are addressed. After all, determining which crypto wallet suits you best depends entirely on your individual needs.

What Exactly is a Crypto Wallet?

How do you store your fiat currencies? In physical wallets or banks. Likewise, cryptocurrencies are stored in a kind of wallet as well. However, contrary to popular belief, crypto wallets do not actually physically hold crypto like how your actual wallet holds cash; they are a software programme that securely stores users’ public and private keys required to buy crypto and provide digital signatures that authorise each transaction. An example would be that your wallet is like your residential address: you can share your address with people so they can visit you, deliver parcels to you, etc, but you do not give the physical key to your house to anyone. So your public keys are like your residential home address and your private keys are similar to your physical key you use to unlock your gate and door. Likewise for crypto wallets, you give out your wallet address so others can send you coins but you do not hand out your private keys (or password) so as to keep your coins safe.

A key is a long string of randomised, unpredictable characters. Every public key is paired with one corresponding private key, and together they are used to encrypt and decrypt data

An important fact that many of us misunderstood is that crypto transactions represents sending of crypto tokens from your mobile to someone else’s mobile. The actual fact is that when you are sending tokens, you are actually using your private key to sign the transaction and broadcast it to the blockchain network. The network will reflect the updated balance in your address and the recipient’s.

All crypto wallets share the same purpose of storing your digital assets but not all are designed the same: some have been designed with accessibility in mind while others place the emphasis on piling on extra layers of security.

Can’t I store Crypto Directly on the Exchange? Why the Hassle of Storing Them in Wallets?

When you transfer crypto to your exchange account, namely the centralised ones like Binance, OKX or Bybit, it is stored in a wallet directly under the exchange’s control. And when you send crypto to someone using an exchange, essentially you are instructing the exchange to use its wallet to send your crypto. On the other hand, if you choose to store crypto in crypto wallet, you have complete control of your crypto assets. And there is no need to rely on a third party when you make transfers directly using a wallet. For instance, storing crypto in an exchange is like having your cash in the bank while having crypto in a wallet is like having your cash in a physical wallet instead. No one can prevent you from spending the cash in your physical wallet just like no one but you have control over your crypto in your own wallet. Exchanges can indirectly perform some of the wallet functions, but in fact, they are not actually wallets themselves.

And as for not storing in centralised exchanges (CEX), that is because they can lock up your money. Case in point: Celsius’ bankruptcy. In mid-June 2022, Celsius froze withdrawals, swaps, and transfers in response to “extreme market conditions”, stoking fears among users that their assets will remain frozen indefinitely.

“So then should I store my crypto all in a wallet?” You can withdraw a majority of your crypto to a wallet because in that way, you retain ownership of your private keys and have full power and control over your finances. As for exchanges, storing small amounts of crypto is preferable, or if you intend to trade frequently, then larger amounts are fine.

What Kind of Features Should I Look for in a Crypto Wallet?

When it comes to choosing a crypto wallet, it helps to understand the main features you are looking for: use the one that is most suitable to your needs.

a)To Pay or Not to Pay, That is the Question

If you plan to buy and hodl a substantial amount of crypto then a hardware wallet (to be explained later) is recommended because they offer higher level of security compared to online wallets and has the capability to store multiple different currencies on a single device. However, there are also many free options that offer ease of use and high security.

b)Backup is Critical

The availability of backup facilitates is not something people tend to take into account but you should because the data in your crypto wallet is extremely precious. It is important to ensure there are sufficient safeguards in place for the data in the wallet, taking into account the possibility of losing the wallet data due to human errors. Take note of these factors: simple backup procedure; functionality is easily accessible; and offers a password, recovery phrase, and backup link.

c)Mode of Access

How you access your wallet depends on the person ─ an app on your mobile, on your desktop, both, or even neither?

d) Multi-currency or Single Currency

Some wallets are designed specifically for single use crypto asset while some are for multi-currency. If you plan on using a single currency, then a wallet that solely focuses on that one works well. The opposite can be said for multi-currency wallet options as well.

e) Wallet’s Reputation

Reputation plays a part in choosing the wallet for you. People tend to lean more towards reputable and well-known giants for security ─ like buying a smartphone from Apple or Samsung instead of an up-and-coming lesser known brand name. However, as a beginner, it is best you invest some effort and time to DYOR. Not only to source for a trustworthy and reputable wallet, but also to find one according to your requirements and preferences. Take note of indicators like testimonials, international recognition, accreditations and accolades for the company. Check for any instances of breaches in the wallet in the past as well.

f) Security, Security, Security

It is imperative to have the utmost assurance for security when you select a crypto wallet. You would not want your hard-earned money to be at risk constantly; peace of mind should be your primary goal. Check for credible proof that the potential wallet is immune to malicious attacks.

How About the Types of Wallets?

It becomes confusing to say the least when presented with the multitude of wallet types: from hot wallet to cold wallet, custodial wallet and non-custodial wallet, and more. The information below breaks them down for you.

Examples of hot wallets include Exodus, Edge, etc, and examples of cold wallets (aka hardware wallets) include Ledger, Trezor, KeepKey, etc

A paper wallet is a physical location where you write down or print your private and public keys. It may be safer than keeping your funds in a hot wallet since hackers have no way of accessing these keys, though there is potential risk of the paper getting destroyed, thrown away, or lost, resulting in irrecoverable funds. On the other hand, a hardware wallet is an external device (typically a USB or Bluetooth device) that stores your keys. That means you can only sign a transaction by manually pushing an actual button on the device, eliminating attacks. This however also poses the same risks as a paper wallet ─ misplacing, damaging, or losing it.

So then which is better? Both methods have its pros and cons. It depends on what you are looking for. Accessibility will be your priority if you plan to trade on a daily basis, so a hot wallet will be more viable. If you value security over convenience and plan to store a large amount of crypto assets, a cold wallet will be wiser. It is however, not uncommon for crypto holders to have multiple wallets, including both hot and cold wallets.

Thereafter, wallets can be further broken down into custodial and non-custodial types. Most web-based crypto wallets tend to be custodial wallets: usually offered on exchanges, these wallets are known for their convenience and ease of use but users are no longer in control of their tokens, and the private keys to sign for transactions are held only by the exchange. Typically strong security measures are implemented to prevent unauthorized access like two-factor authentication, email confirmation, and biometric authentication (like facial recognition or fingerprint verification).

On the other end of the spectrum, non-custodial wallets allow you to retain full control of your funds as the private key is stored locally with the user. You will be tasked to jot down and safely store a list of 12 randomly generated words (known as recovery, see, or mnemonic phrase). From this phrase, all of your public and private keys can be generated. This is a backup or recovery mechanism in case you lose access to your device. So if you lose your seed phrase, you lose access to your funds. Hardware wallets are inherently non-custodial as private keys are stored on the device. The downside of non-custodial wallet is that users are in charge of their own security.

So then between the two, which is better? Again, both have their benefits and drawbacks. Use a custodial wallet if you are prone to losing passwords and devices (popular option for beginners as well). Plus, transaction fees with a custodial wallet tend to be cheaper or even free. However, if you want to retain control over your funds, you can consider a non-custodial wallet.

So Which Crypto Wallet Should I choose?

1) Coinbase Wallet

Coinbase Wallet, one of the more beginner-friendly wallets, is a good choice when you are just starting out with little to no experience with crypto. It is a highly secure wallet backed by a well-known and reputable exchange, and the app can connect to most major bank accounts and has a welcoming and easy-to-navigate interface. Moreover, you can store NFTs and digital collectibles on it since it supports over 40k coins and tokens, and has multi-signature and two-factor authentication support! Do not confuse Coinbase Wallet with Coinbase Exchange: you can use the wallet without opening an account on the exchange; it’s non-custodial so your private key is stored in your device, not in their servers.

2) Ledger Nano X

Ledger Nano X is a hardware wallet that supports over 5,500 coins and tokens, has high security standards, built-in battery with eight hours of battery life, and mobile trading capabilities. The Bluetooth Low Energy connectivity enables it to be used with the Ledger Live app on Android or iOS devices to exchange crypto on the go. In addition, the app can be used to lend and stake crypto to generate revenue.

3) Exodus

Considered more desktop-friendly, Exodus supports over 230 crypto assets, is compatible with Trezor wallets (a hardware wallet brand), lets users buy Bitcoin with Apple Pay, and has 24/7 customer support. Originally a desktop-only wallet, it is now available on Android and iOS as well, though the desktop wallet application is still the wallet’s core offering and is updated on a regular basis. An expanding amount of apps have been released to diversify its functionality like live charts, crypto staking, and crypto deposits.

4) MetaMask

A very widely used multi-chain wallet, MetaMask has over 30m monthly active users. Its intuitive interface design provides easy and quick access to thousands of tokens and dApps through different blockchain network. Users can also access popular NFT marketplaces (like OpenSea) by connecting them directly to the wallet. You can download the wallet as an extension if you use Google Chrome, Microsoft Edge, Mozilla Firefox or Brave browsers. You can also download its app on Android or iOS devices. Well-known for its interoperability, the wallet can add almost any blockchain network to the app and fully supports Web3 networks (like Polygon, Binance Smart Chain, and Avalanche). Users’ account information is encrypted and stored locally, meaning they have full control of their private keys.

5) Crypto.com DeFi Wallet

The Crypto.com DeFi Wallet is yet another great choice for users starting their journey into DeFi because of its plethora of DeFi tools, excellent onboarding process, and strong security framework. Users are given full control over their digital assets and private key, and they can swap crypto on 1 one-to-one basis and access a wide range of tools to earn passive income on the crypto they own. The Crypto.com DeFi Wallet can be downloaded and utilised for users’ day-to-day crypto activities without making an account on its exchange.

You get to choose your preferred trading fee and confirmation speed and earn interest on more than 35 tokens. What’s more? It has several layers of security such as biometric authentication, two-factor authentication, and Secure Enclave technology (a dedicated secure subsystem integrated on iOS devices).

Honestly, there is no perfect solution as each type of wallet possesses varying strengths, purposes, and trade-offs. Weigh the factors that work best for you and your needs when you choose your crypto wallet.

Disclaimer: The content in this article is by no means financial advice and is purely for educational/informational purposes only.

Written by: [Coinlive] Catherine