Trading in cryptocurrency is a near useless endeavour if you can’t protect your (hopefully) growing crypto portfolio. Unlike storing funds in accounts held within the traditional banking system — which, barring banking collapses of Icelandic proportions, is relatively foolproof — selecting a crypto wallet requires a far more considered approach.
A wallet in crypto-speak is the data structure that stores and manages a user’s keys. Depending on the type of wallet used, it also allows users to access their funds, manage their keys and addresses, check their balances, and perform transactions — much like a traditional online banking service.
“A wallet’s job is to hold the keys that allow you to access your tokens,” explains TrustBar CFO Mark Smith. “Without these keys, there is no way to access your portfolio, so it’s essential that whatever wallet you use, it is as secure as possible to avoid it being hacked.”
There are currently several types of wallets available that can be used to store keys:
Mobile wallet
The most commonly used type of crypto wallet, the mobile wallet runs on smartphone operating systems such as Android or Apple iOS and are among the most popular choice for first-time crypto users. Like most apps designed for smartphone use, mobile wallets are very user-friendly.
Desktop wallet
As the name suggests, desktop wallets run on desktop operating systems such as Mac OS and Windows and are a good option for users who send frequent Bitcoin payments from their computer. However, as these were the first type of bitcoin wallet developed, they do have certain security disadvantages as they are often insecure and poorly configured.
Web/online wallet
Among the most commonly used type of wallet, web wallets are accessed through a web browser and store the user’s wallet on a server owned by a third party — usually a centralized cryptocurrency exchange. While this is a convenient option, web wallets are more susceptible to hacks, as hundreds or thousands of user keys are stored in one place. Web wallets hosted by centralized exchanges have been the primary targets of online hacks in recent years.
Paper wallet
Offering perhaps the most low-tech, yet secure means of storing cryptocurrency keys, paper wallets entail users physically printing and storing keys on material such as paper, wood, or metal. While rudimentary, paper wallets — often called “cold storage” — allow keys to be securely stored in bank vaults or in a home safe.
Hardware wallets
Offering perhaps the best combination of offline and “cold” storage, hardware wallets are purpose designed and built pieces of hardware that contain a secure wallet in which user keys are stored.
Most hardware wallets enable access to desktop computers and smartphones through USB and are considered highly secure and suitable for storing high-value portfolio keys.
With the plethora of options available to crypto users, which wallet is best suited to you? That depends, in large part, on your appetite for risk, and just how seriously you take the threat posed by hacks on centrally-held wallets.
It’s obvious, however, that there’s a clear move towards holders of digital assets wanting more control over their portfolios.
“I’d recommend that users always opt for a wallet that allows them to maintain full control over their keys. It’s seldom a good idea to store your keys and user details on a shared platform that can be hacked. That’s why the TrustBar decentralized exchange will, for example, allow users to trade on our platform but allow them to retain full control of the keys,” comments Smith.
Due for launch in December, TrustBar will become the first global decentralized exchange that will allow secure cross-chain and cross-token trading through a single transaction.
Details of the user funds will be protected by individual private keys and will not be stored on the platform, while dynamic pairing allows each user to select the buy/sell pairs, speeding up the token exchange and reducing costs.
