MAY 6, 2021
A beginner’s guide to crypto wallets
Storing your crypto currencies: which wallet is best to secure your assets?
You’ve bought, or are considering buying, cryptocurrencies. Now you need a wallet to store them in. But which crypto wallet should you choose to secure your assets?
In this article, I’ll give an introduction to the different types of crypto wallets - including hot and cold wallets - along with how these wallets are secured, the SwissBorg approach to keeping your crypto assets safe, and the top factors to consider when choosing a crypto wallet.
By the end of this article, you’ll have the insights you need to make the best decision for your needs.
What is a crypto wallet?
In short, a crypto wallet is a tool that you can use to interact with a blockchain network. Crypto wallets allow you to buy, sell, store and manage your transactions, as well as monitor your crypto asset balances.
There are various types of crypto wallets, which are usually grouped into two main families, depending on how they function: hot wallets and cold wallets.
A hot wallet is any wallet that is connected permanently to the internet. They are quite easy to set up, are generally user friendly, and the funds are quickly accessible, making them convenient for traders and other frequent users.
There are three kinds of hot wallets: web, desktop, or mobile.
Web-based crypto wallets
Web wallets are accessible through a browser interface. Because users don’t need to download or install anything, these wallets are generally the easiest to set up and use. Most services only require an email address and a password to create an account.
The biggest advantages of web wallets are that they cannot be lost and can be accessed from any computer, smartphone or tablet with an internet connection. In addition, they are usually free.
Unfortunately, being online is also their biggest flaw. Because some platforms maintain the wallets of thousands of users, they can become prime targets for hackers.
Desktop crypto wallets
A desktop wallet is a downloadable software program that can be installed on your computer. Easy to install and update, most are available for Windows, Linux and Mac. Many cryptocurrencies have a desktop wallet specifically designed for their currency (bitcoin wallet, My Ether Wallet, Ripple Desktop Wallet, MoneroWallet, etc).
Desktop wallets offer a relatively high level of security as they are only accessible from the machine on which they are installed, and most of them provide a recovery code when installed in case you lose your computer or it breaks. They are commonly easy to use, and most of them are free.
The biggest disadvantage of desktop crypto wallets lies in the fact they also depend on the owner to keep the computer secure and free from malware. It is therefore necessary to have an effective antivirus and firewall.
Mobile crypto wallets
Mobile wallets are quite similar to desktop wallets, but they work as an application on your smartphone. Mobile wallets have the same advantages and disadvantages as desktop wallets, except that they fit in your pocket.
Smartphone crypto wallets are often easier to use and offer the possibility to scan other wallet addresses with a QR code. This speeds up the exchange of crypto assets considerably. They also make it easier to access funds when travelling.
However, one must be very careful not to lose one's smartphone and secure its accessibility as much as possible.
Now that we’ve covered a brief introduction to hot wallets, what do they have in common? They are all connected to the internet, which makes them vulnerable. This is why some crypto investors prefer cold wallets.
A cold wallet doesn’t require internet connectivity to work and allows you to store your crypto assets offline, making them resistant to online hacking attempts. However, funds are more difficult to access compared to hot wallets. This is why cold wallets are more suitable for long-term investors.
There are two types of cold wallets: paper and hardware.
Paper crypto wallets
A paper wallet, as its name suggests, is a piece of paper that you print out on which all the information required to access your funds is recorded (usually in the form of QR codes). These codes can then be scanned to execute cryptocurrency transactions.
Paper wallets have the advantage of being secure and free, which no other wallet can claim to be.
The downside of paper wallets is how easy it could be to lose or destroy it. If this happens, there is no other way to recover your assets. In addition, because your information is openly displayed on a piece of paper, you need to be careful with how you store it as a simple photo could result in your crypto being stolen. Indeed, there is no password linked to your paper wallet, so anyone who has access to it also has access to your funds.
Hardware wallets take the form of physical electronic devices (like a USB key) on which information to access your funds is encrypted: neither you nor anyone else can access them. This device has an OLED screen and side buttons to navigate through the wallet’s interface.
Hardware wallets come with native desktop apps for different cryptocurrencies and can connect to a PC or mobile device via USB or bluetooth. Currently, most hardware wallets allow you to set up a PIN code to protect your device, as well as a recovery phrase – which can be used in case your wallet is lost.
Hardware wallets are very popular thanks to their high level of security. However, they can be expensive, complex to handle, and don’t offer the best user experience.
How do cryptocurrency wallets work?
In order to understand how crypto wallets work, it's important to understand private and public keys.
Public and private keys
A cryptocurrency wallet (whether hot or cold) contains a public and a private key.
The public key is a long string of numbers and letters corresponding to the wallet address. This is the recipient's address to enter when you want to transfer cryptos. It is similar to a bank account number.
The private key allows access to the wallet's funds stored in the blockchain. If your public key is like your account number or IBAN, your private key is similar to the login and password you use to access your online bank accounts. It is crucial to keep it secret, in a safe place.
In addition to storing your public and private keys, crypto wallets interact with the different blockchains of different cryptocurrencies to check balances and send and receive funds.
The problem with private keys
There are many different types of crypto wallets that use a pair of keys. However, the private key is their common single point of failure.
Here are some potential scenarios:
- A user sends assets to his private key instead of the public key (meaning those funds are lost)
- A user loses or forgets his private key and loses access to the wallet
- The private key is stolen or destroyed
As you can see, when you rely on a private key to secure your assets, there are many things that can go wrong. But if everyone knows the weak point of crypto wallets, why don’t we get rid of them?
The keyless approach to crypto wallets
The keyless approach aims to split the private keys’ ownership between the wallet provider and the customer’s device. Thus, both the wallet device and the server possess one half of the private key required to access the wallet.
There are two main benefits of the keyless approach:
- By owning one half of the private key, customers retain real ownership of their crypto funds, thus ensuring decentralised management.
- Even if the customer’s half of the private key is damaged or lost, customers can recover them from the mnemonic seed held by the wallet owner.
The SwissBorg approach to crypto wallets
The SwissBorg app is both a crypto wallet where users can store and manage their assets, as well as a meta exchange. For the wallet functionality, SwissBorg chose a keyless solution to keep its community’s assets secure.
MPC stands for multi-party computation and its advantage is that the security key is divided into multiple parts that have to be engaged in a certain order to make a transaction. Such a system is very difficult to hack. Apart from that, there is also no private key which the user could lose or accidentally send to a third party. This gives the SwissBorg app a secure, flexible and scalable system that does not have the most common vulnerability: the private key.
What to look for when choosing a crypto wallet?
Now that we’ve covered the different types of crypto wallets, as well as an overview on how they keep your assets secure, how do you choose the right crypto wallet for you?
There are many factors to consider when it comes to choosing a crypto wallet. Here are the ones you should pay particular attention to, because ignoring them may come back to haunt you later.
Obviously, security is the first criteria to look for, so that you can sleep soundly.
If you choose a secure option, you will be able to recover your assets no matter what happens. If you don’t, you are exposed to malicious people and human error. Keep in mind that a blockchain transaction can’t be modified or deleted, so once something goes wrong, there is no way to take it back.
To make sure your wallet is secured, it should at least include: recovery systems, multi factor authentication, and let you be the master of your private key, or have chosen a keyless approach.
The reputation of the wallet provider is one of those factors that most people ignore, and suffer the consequences as a result. So, ensure to carry out proper research about the company you plan opening crypto wallet with. For instance, there are companies that have had legal issues in the past for not being able to store data properly, which can increase the risk of hacking and loss of money.
Another aspect to consider is ease of use. The interface of your crypto wallet should be easy to use so you can access all the features that will help you make the most out of your investments, along with preventing you from making costly mistakes.
The last but not least, make sure the crypto wallet provider you choose provides support and maintenance. There is nothing more unpleasant than being left to deal with problems on your own. These kinds of situations are also more easily overcome if the wallet provider is backed by a great community of fans and passionate people who are able to assist you from different networks.
Crypto wallet closing thoughts
Here we are, the end of our journey about crypto wallets. So, what have we learned?
Crypto wallets make it possible to send and receive funds through blockchain networks. Each wallet type (hot, cold) has its advantages and disadvantages, so it's crucial to understand how they work before moving your funds.
Most crypto wallets are secured by public and private keys. However, the keyless approach, chosen by SwissBorg , helps users avoid costly mistakes while providing the best level of security available.
Download the SwissBorg app today and enjoy one of the most secure and user-friendly crypto wallets on the market!
Try the SwissBorg app today!
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