If you want to buy bitcoin or any other digital currency, you must choose a wallet where you can securely store your coins or tokens. But if you’re just starting out, choosing a wallet and learning how to use it can feel complicated and overwhelming.
Find out how coins are stored on the blockchain and how to store, buy or sell coins in your wallet. We’ll also cover common aspects of cryptocurrencies and altcoins to help you understand this important and often overlooked aspect of the technology that’s taking the world by storm.
Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific
provider, service or offering. It is not a recommendation to trade.
A cryptocurrency wallet is a software program that allows you to store, send and receive digital currencies.
Because cryptocurrency doesn’t exist in physical form, your wallet doesn’t actually hold any of your coins — instead, 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 crypto 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.
As well as storing your public and private keys, crypto wallets interface with the blockchains of various currencies so that you can check your balance and send and receive funds.
How wallets and blockchains interact
The blockchain of any cryptocurrency contains a public record of all the transactions made since it began. Your wallet address keeps a record of all your transactions, and therefore also tracks your crypto balance. By following the chain to today, a wallet can figure out how many coins you have.
For example, let’s say Alice sends Bob 0.001 BTC. After this transaction is verified and added to the blockchain, the ledger records that the amount of bitcoin at Alice’s wallet address has decreased by 0.001 and that the amount of bitcoin at Bob’s wallet address has increased by 0.001 BTC.
The amounts sent and received and the public wallet addresses are all public information.
Now that you know how crypto wallets work, let’s look at the five types of wallets available.
Easy to use
Plenty of choices
Free to download
Risk of computer viruses and malware
Inconvenient to manage your crypto on the go
The most common type of wallet out there, desktop wallets are downloaded and installed on your computer. Easy to set up and maintain, most are available for Windows, Linux and Mac, although some are limited to a particular operating system. Many cryptocurrencies offer a desktop wallet specifically designed for its coin.
Desktop wallets provide a relatively high level of security, since they’re only accessible from the machine on which they’re installed. The biggest disadvantage is that they also rely on you to keep your computer secure and free of malware, so antivirus and -malware software, a strong firewall and a common-sense approach to security are required to keep your coins safe.
Most desktop wallets provide you with a long string of words to install. Known as your recovery seed or sentence, these words map with your private key, so you’ll need to store them somewhere safe in case your computer dies or you need to format the operating system and reinstall your desktop wallet.
Mobile wallets are fairly similar to desktop wallets, but they run as an app on your smartphone. Mobile wallets feature many of the same advantages and disadvantages as desktop wallets, with your private key stored on your device.
Smartphone wallets are often easier to use than desktop wallets. Mobile wallets have the benefit of scanning other wallet addresses for faster transactions. They also make it simpler to access your coins on the go to make using cryptocurrency part of your everyday life.
Take care to not lose your smartphone, however. There’s a risk that anyone who can access your device might be able to access your funds. Choosing an app that allows you to back up your wallet with a 12- or 24-word passphrase is a good idea.
Online wallets are most often provided by exchanges, though they’re sometimes offered by third parties. Connected to the Internet, they’re generally easiest to set up and use. Most only require an email address and a password to create an account, and web wallets are usually designed to provide a simple and straightforward user experience.
The biggest advantages to online wallets are that you can’t lose them like a mobile wallet, and they’re accessible from any computer with an Internet connection.
However, that they’re online is also their biggest disadvantage. Because some platforms maintain wallets for thousands of users, they can become hot targets for hackers.
Also confirm whether the wallet you choose lets you keep complete control of your private keys or whether they’re owned by the wallet provider.
Hardware wallets add another layer of security by keeping your private key on a USB stick or specially designed piece of hardware. They allow the user to plug the USB stick into any computer, log in, transact and unplug. So while transactions are carried out online, your private key is stored offline and protected against the risk of hacking. As a result, hardware wallets are considered the most secure storage option.
A big disadvantage of hardware wallets is what they’ll cost you. Prices depend on the model you choose, but they’re generally upward of $150. If you lose your hardware wallet, the device is protected by a PIN and typically other protective measures in place to help you recover your funds.
Paper wallets take to the next logical step the concept of entirely offline keys for hardware wallets: simply print out your public and private keys and use that piece of paper as your wallet.
As secure as they are, paper wallets are also complex and can be confusing for beginners. They’re typically used by advanced users who want a high level of security.
To transfer money to a paper wallet, you use a software wallet to send money to the public key printed on the sheet of paper. Most often, this is printed as a QR code for easy scanning.
To transfer money from the paper wallet to someone else, first transfer money to a software wallet by manually entering the private key into the software, and then transfer money from the software wallet to the recipient as usual.
Popular paper wallets: Bitaddress.org, WalletGenerator.net
Hot wallets vs. cold wallets
As you research and compare wallets, you’ll likely come across the terms “hot wallet” and “cold wallet” or the concept of “cold storage”.
What does temperature have to do with crypto storage?
Hot. A wallet is hot when it’s connected to the Internet. Nothing on the Internet is 100% secure, so funds kept in a hot wallet are always at a slight risk of theft or loss from software bugs or hackers.
Cold. A wallet is cold when it’s safely offline and can’t be deliberately or accidentally compromised over the Internet.
Holding on an exchange vs. in a wallet
If you don’t want to go through the extra step of setting up a crypto wallet, it’s possible to store your cryptocurrency in the wallet attached to the exchange you purchased it from. This quick, convenient solution provides fast access to your crypto whenever you need it.
But it’s not recommended for a couple of reasons:
You don’t control the private key to your exchange wallet. Instead, it’s controlled by the exchange, which effectively means that you don’t fully own your cryptocurrency.
Exchanges are a popular target for hackers and thieves. You’ll find many well-publicized incidences of exchange customers falling victim to hackers, as well as examples of fraud perpetrated by dodgy exchange operators.
With this in mind, the safest solution is moving your coins into a secure wallet that lets you retain control of your private key.
How to choose a cryptocurrency wallet
To choose the right wallet for you, consider your needs and compare wallets based on key factors that include:
The type of wallet you want. This factor comes down to personal preference. For example, if security is your No. 1 priority, compare hardware wallets. But if you want to quickly and conveniently access your coins, a mobile or web wallet may be your preferred choice.
Ease of use. Sending, receiving and storing cryptocurrency can be complicated and confusing, particularly for beginners. Your wallet should suit your tech knowledge and crypto experience. While crypto novices might focus on finding a wallet that’s simple to set up and use, experienced holders might look for advanced features, like an in-wallet exchange and multisignature transactions.
Security features. Find out what security features the wallet includes, such as two-factor authentication and multisig functionality. Will your private key be stored online or offline? Has the wallet ever suffered security breaches?
Other features. Does your wallet include the ability to exchange among currencies in your wallet or provide easy access to live fiat exchange rates or other market information.
Supported cryptocurrencies. Are you looking for a wallet that stores just one crypto, like bitcoin, or are you in the market for a multicurrency wallet? Make sure the wallet you choose is compatible with the cryptocurrencies you need to store, and remember that some coins and tokens can only be held in an official wallet.
The team behind the wallet. See what you can find about how long the company’s been in business. What qualifications do they have? Are they continually working to upgrade and improve the wallet?
Costs. While most crypto wallets are free, choosing a hardware wallet means parting with some cash. Consider the upfront price and shipping costs when making your decision. Some wallets also charge a fee for every transaction you make. Read the fine print to see what you’ll pay.
Reputation. What level of community trust does the wallet have? Check out independent online reviews to gauge how other users rate the wallet and whether they’d recommend it.
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.
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.
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 receive cryptocurrency in your wallet
Receiving coins is even easier than sending them. However, wallets vary in how they receive them. Some provide you with a fixed public address, some give you a new address for every transaction and others provide a combination of the two.
Log in to your wallet.
Click Receive link.
Copy the public wallet address provided.
Send your address to the person who is sending you a payment.
Wait for the funds to arrive in your wallet.
Holding funds in your cryptocurrency wallet
If you want to hold on to your crypto, there’s typically not much you need to do once the funds are in your wallet. Log in to your wallet whenever you want to check your balances. You can earn interest on some currencies by staking your holdings, though there may be specific instructions in your wallet to do this.
Other than that, focus on maintaining a high level of security to protect your coins.
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.
Glossary: Two-factor authentication
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.
Update your wallet software. Regularly update your wallet software to the latest security upgrades and protections.
Make a backup. Ensure you have a wallet backup stored 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.
Compare cryptocurrency backup devices
Video review: BillFodl & CRYPTOTAG recovery seed phrase backup devices
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.
Not really. While most wallets aren’t linked to your identity, cryptocurrency transactions are stored permanently on the blockchain and could potentially be traced back to you.
If anonymity is important to you, consider transacting with a privacy-focused coin like Monero.
Many don’t, but some do. Carefully read the fine print so that you aren’t surprised down the road. It’s likely that if you choose a hardware wallet, you’ll need to pay money upfront to buy it.
Sending a cryptocurrency transaction from your wallet usually costs a small network fee that varies depending on the currency you send. The wallet provider doesn’t charge the fee — it’s the coin’s network that collect the fees.
It depends on the cryptocurrencies you own and the wallet you choose. Some wallets allow you to store only one specific cryptocurrency, while multicurrency wallets support any number of digital currencies.
Read the wallet provider’s list of supported coins and tokens for more information.
There’s no simple answer, because the right wallet for you depends on your personal needs. To narrow down your choices, ask yourself:
Which cryptos do I want to store?
Do I want a wallet I can use for everyday purchases and payments, or one I can use to buy and hold crypto for the long term?
How do I want to access my wallet?
How important is wallet security, and what security features do I want?
Your answers should help you decide on the type of wallet that’s best for you.
Check out the popular wallets listed in our XRP wallets guide to help you find an XRP wallet that suits your needs.
No, you can’t send bitcoin to an Ethereum wallet or Ethereum to a bitcoin wallet. Different cryptocurrencies have different address types, so double-check that you’re sending funds to the correct address before submitting a transaction. Funds sent to the wrong address generally cannot be recovered.
Some wallets require you to run a full node, meaning you’ll need to download the entire blockchain to your computer. This is not only time-consuming but can also be a drain on your system’s memory and processing power.
Light clients only synchronize essential information and fetch additional data from the network when required. This allows you to transact on a cryptocurrency’s blockchain without downloading an entire copy of that blockchain. Most mobile wallets are light clients, while you can also download desktop light clients.
Disclaimer: Cryptocurrencies are speculative, complex and involve significant risks – they are highly
volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of
future performance. Consider your own circumstances, and obtain your own advice, before relying on this information.
You should also verify the nature of any product or service (including its legal status and relevant regulatory
requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may
have holdings in the cryptocurrencies discussed.
Disclosure: At the time of writing, the author holds ADA, ICX, IOTA and XLM.
Tim Falk is a freelance writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
Weekly Coin Analysis: 02 - 09 July 2018The total volume traded in the crypto market has finally seen an increase of 10% compared to last week. ERC20 saw the biggest increase in price, while Pure saw the biggest drop. Check out how the rest of the cryptocurrency market fared over the past seven days.
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