fbpx
CoinIQ

How to Pick a Cryptocurrency Wallet : A Complete Guide for Beginners

There are more cryptocurrency wallets to choose from than ever before, but not all of them are good choices. Some wallets have better security options and privacy features than others. Also, newer wallets have built-in currency exchange functionality and other convenient features. Continue reading to get all the details.

Security

Perhaps the biggest factor to consider before you download a crypto wallet is security. Has the wallet ever been hacked? You should exercise due diligence and find out before you trust it with your crypto funds. CoinDesk, CoinTelegraph and other reliable crypto news sources are good starting points for your research.

Just because the makers of a crypto wallet claim that it has rock-solid security doesn’t mean that it actually does. Sometimes crypto wallet makers resort to hyperbole. Case in point: Bitfii.

Bitfi’s creators claimed that their wallet couldn’t be compromised. They even announced a $250,000 challenge to prove that their security was unbreakable. Eccentric antivirus pioneer John McAfee went as far as to call Bitfi “the world’s first unhackable storage for cryptocurrency.”

Not long after Bitfi issued its challenge, TechCrunch reported that a 15-year-old hacker not only hacked it, but also installed the classic first-person shooter Doom onto it. Other successful hacks followed– but each time someone compromised the wallet, Bitfi found a way to claim that the exploit wasn’t legitimate or didn’t meet the criteria of their challenge. Bitfi’s PR disaster ended with a Twitter meltdown:

Source: Twitter

Of course, there is no mention of any of this on Bitfi’s official website. That’s why it makes sense to do some background research before you sign up.

Here are some common security features that you might run into when reading about various crypto wallets.

Custodial / non-custodial

Some cryptocurrency wallets hold onto your private key for you, but others pass that responsibility onto their users. Coinbase, Kraken and many other popular crypto exchanges offer custodial wallets to their users. Custodial wallets are convenient because if you lose your private key, you can still retain access to your account. With a non-custodial wallet, there’s nothing you can do if you lose access to your funds.

A South Carolina-based hypnotherapist named Jason Miller specializes in helping bitcoin users find their lost keys. He charges one bitcoin for his services, plus 5 percent of any funds he helps to recover. Miller explained his business model to the Wall Street Journal:

“I’ve developed a collection of techniques that allow people to access older memories or see things they’ve put away in a stashed spot.”

The disadvantage of custodial wallets is that they are not as secure as non-custodial wallets. Whatever third party service that holds onto your keys represents a potential point of failure. If your crypto custodian gets hacked, your funds may turn up missing if the hackers manage to gain access to your information.

Mnemonics

Cryptocurrency wallets that support the protocol known as BIP 39 allow private keys to be connected to a group of easy-to-remember words. This allows you to hold your key in a place where it can never be accessed– in the recesses of your own mind.

The English word list for the BIP 39 protocol contains 2048 words. That means that if you attach a 12-word phrase to your key, anyone who attempts to hack it will be confronted with the challenge of sorting through 2048^12 = 2^132 possible combinations.

If you decide to write your mnemonic key down, be careful– paper can break down over long periods of time. Some long-term crypto investors use Cryptosteel, Billfodl and other similar password backup products to counteract this problem.

Multi-signature wallets

Multi-signature crypto wallets (aka multisig wallets) require two or more private keys. Crypto wallets are often useful when more than one person needs to access a crypto wallet. Multisig wallets ensure that everyone with access to the wallet knows when money is withdrawn.

2-of-3 wallets

One popular variation of the multisig wallet is what’s known as a “2-of-3” wallet. 2-of-3 wallets have three private keys, but only two keys are needed to gain access. 2-of-3 wallets are sometimes used to set up escrow services. If the keepers of two of the keys– a buyer and seller, for example– have a disagreement, the keeper of the third key can act as the arbiter and decide whether or not to authorize the transaction.

Hot vs. cold wallets

Hot wallets connect to the internet. This makes them easy to use– but it also creates an obvious security issue, since it means that anyone with an internet connection can attempt to steal your funds. Other types of wallets can function when not connected to the internet. These are referred to as cold wallets.

There are many different cold storage methods. Some cold wallets are software wallets contained inside of USB drives. These drives can be kept locked away in safes or deposit boxes.

Paper wallets

A paper wallet is a minimalistic cold wallet. It’s a piece of paper that contains both a public and private key. Paper wallets don’t have parts that wear out or fail and they don’t require any electricity. On the other hand, they can decay or fade over long periods of time. Some foldable paper wallets come with seals that indicate whether or not they have been accessed. Notable paper wallet services include Bitcoinpaperwallet.org and Mycelium.

Hardware wallets

Hardware wallets are tamper-proof physical devices that are designed to store crypto funds. They have more security features than USB drives and other standard data storage devices. Some hardware wallets offer seed recovery features and LED displays. Examples of hardware wallets include Ledger Nano S, Trezor and KeepKey.

Privacy

Privacy is the second most important thing to consider when analyzing cryptocurrency wallets. In a way, privacy goes hand in hand with security. If strangers can track how much crypto you have, that makes you vulnerable.

The kidnapping of Pavel Lerner provides an example of why it makes sense to stay anonymous if you own digital currency. Lerner is an executive at Exmo, a cryptocurrency exchange. He had to pay $1 million dollars’ worth of crypto to an organized criminal group in exchange for his freedom.

During a recent presentation at Coinbase headquarters, Monero Lead Developer Riccardo Spagni elaborated on the vulnerability that lack of crypto privacy brings:

“If we don’t have financial privacy, there are bad things that can happen. We might end up with targeted advertising based on spending habits. [Another example is] targeted crime against the wealthy. You go to a local Bitcoin exchange and next minute you’re held up at knife point. Even worse, you go and pay with Bitcoin for an item and now, the owner knows your bank balance.”

Bitcoin wallets with anonymity features

One of the biggest downsides of bitcoin is that it lacks the privacy features found in other privacy-focused coins. However, some bitcoin wallets have built-in capabilities that make it easier to stay anonymous. For example, Samourai Wallet’s ricochet feature adds four additional hops to each bitcoin transaction you make.

Samourai Wallet’s developers provided the following explanation of how the feature works to Bitcoin.com:

“Bitcoin banks and exchanges freeze funds and suspend users based on blacklists published by blockchain spies. Blockchain spies look at the history of your coins around five hops deep. Your coins can be frozen for their past activity. Even if they weren’t in your control. Ricochet adds four additional hops to a transaction—by adding additional hops before the coins reach their final destination, the blockchain spies would need to look ten hops backwards, increasing their costs and overheads.”

Other privacy-focused wallets for bitcoin include Dark Wallet, Wasabi and BitLox.

Wallets that support privacy coins

Another solution to bitcoin’s privacy problem is to trade your bitcoin funds for privacy coins. A variety of different crypto wallets support privacy coins like Monero, Dash, Zcash and others. Read more about how privacy coins work at the link below.

Related: Privacy Coins 101: Introducing Anonymous Cryptocurrencies

Ease of Use

Even if you only plan on using your crypto wallet occasionally, it makes sense to consider the ease of use factor before you commit. Look for these common UX features as you do your crypto wallet research.

Crypto exchange integration

Some crypto wallets attempt to solve fiat-crypto integration issues by offering support for both fiat deposits and conversions. Bitpanda is one such wallet. Another option is Abra.

Wallets with exchange features are convenient, but they are sometimes expensive to use. Be sure to read all the fine print before you sign up. In particular, try to find out the source of the price information you get through the app. Many wallets with built-in exchange services generate revenue by offering higher-than-market-value prices for coins.

Discounts and rebates

If you plan on using your crypto wallet primarily to shop rather than to invest, you may want to investigate retail-oriented wallets like Wirex and Purse.io. Wirex offers the ability to connect your crypto wallet to a debit card, which you can use in brick-and-mortar stores. Purse.io wallets connect you to a peer-to-peer Amazon discount marketplace.

Related: Bitcoin Cashback 101: Shopping with Bitcoin for Discounts

Multi-platform syncing

The hosted wallet services provided by crypto exchanges like Kraken and Coinbase can be accessed on any device that can connect to the web. But if you want full control over your crypto wallet and you don’t want your wallet tied to one device, you may want to look for a non-custodial wallet that has multi-platform syncing capabilities. One such wallet is Jaxx. Electrum also has a cross-platform syncing feature.

Custom mining fees

Most cryptocurrencies require their users to pay for mining services. Crypto miners dedicate computer power to processing transactions on the network in exchange for crypto rewards. Some crypto wallets let you customize how much you pay in fees, but others force you to accept the default settings. The downside of setting a low mining fee is that more wait time is required to process transactions. Coinomi and Mycelium both support custom mining fees.

Beginner-friendly features

First generation cryptocurrency wallets came with elaborate, jargon-laden interfaces and didn’t provide much in the way of customer support. However, there are a few new wallet projects that put more emphasis on user experience and design. Bitsy – a new wallet backed by a subsidiary of retail giant Overstock.com – features a clean interface that’s designed specifically for newcomers to blockchain tech. A similar wallet is Exodus, which advertises that it “made crypto beautiful.”

Notable Crypto Wallets

Now that you know about the most common crypto wallet features, you’re ready to dive into a more detailed analysis. Follow the links below for in-depth reviews of the most popular crypto wallets.

Abra

Originally, Abra was a blockchain-powered remittance service with a mission to make sending money between countries cheaper and easier. In 2017, the service shifted its focus and started marketing to crypto enthusiasts. Today, Abra supports a wide range of altcoins and a variety of different fiat payment methods including ACH transfers and American Express credit card payments.

The main downside of Abra is that it uses an algorithm to set the prices for the cryptocurrency prices it provides. This makes it hard to predict how much you’ll pay in spread fees when you initiate an exchange. In addition, Abra only supports bitcoin and litecoin crypto withdrawals.

Related: Abra Review: Safe, Innovative Wallet for Fiat and Crypto

Coinomi

If you’re looking for a crypto wallet with deep altcoin support, you may want to investigate Coinomi. With support for more than 154 cryptos, Coinomi can store just about any type of token or coin. Coinomi doesn’t support any type of fiat currency. However, it does integrate with Changelly– an expensive but easy-to-use non-custodial exchange that supports credit card buys.

Related: Coinomi Wallet Review – Solid Security Record, Supports Hundreds of Assets

Exodus

If you’re totally new to crypto, you may want to try Exodus. Though Exodus lacks advanced features like the ability to customize mining fees, its specialty is design. As mentioned above, the tagline Exodus uses to market itself is “we made crypto beautiful.” If the developers of Exodus come out with an equally easy to use mobile app that syncs with the desktop version of Exodus, they may be able to win over the crypto newcomer crowd.

Related: Exodus Wallet Review –  Beautiful Experience But Not For Advanced Users

Jaxx

One of Jaxx’s best features is its ability to sync your wallet across multiple platforms. Another perk: it supports more than 70 cryptos and syncs with the crypto-to-crypto exchange ShapeShift. Jaxx received a cosmetic makeover since we last reviewed it, and the new version of the interface looks very slick. Though there has been some controversy around the viability of Jaxx’s 12-word mnemonic backup phrase feature, Jaxx’s developers contend that worries about the strength of Jaxx’s security are unfounded. Another benefit: Jaxx is an HD (hierarchical deterministic) wallet. That means it generates a new address every time you receive digital assets.

Related: Jaxx Wallet Review – Full Control Over 60+ Coins but Security’s On You

Shakepay

If you live in Canada and you’re looking for a simple and easy-to-use wallet, Shakepay is worth a look. A recent policy update helped solve a problem with a high spread between Shakepay’s prices and the actual market prices of the two cryptos that it supports, bitcoin and ether. On the plus side, Shakepay supports Canada’s Interac bank transfer system. Most Interac deposits and withdrawals get processed within an hour.

Related: Shakepay Review – A Truly Easy Way to Buy Bitcoin in Canada

Electrum

The best thing about Electrum is that it’s one of the few non-custodial crypto wallets that syncs across multiple platforms. Aside from that, however, its feature set is somewhat weak. That could be because Electrum’s developers seem to have lost interest in the project. When a security researcher pointed out a potential flaw in Electrum’s code, he was ignored until the researcher publicized the flaw on social media.

Related: Electrum Wallet Review – Stale Features, Negligent Developers

Final Word

The most important thing to consider when researching crypto wallets is security. If a wallet doesn’t safeguard your coins, it’s not worth using. Privacy goes hand in hand with security. However, if you only intend to hold small amounts of crypto, privacy may not be a deciding factor. Lastly, ease of use could be something you may want to think about– especially if you’re new to crypto.

The wallet that seems to satisfy most of the above-mentioned criteria is Jaxx. The team behind Jaxx has been involved with cryptocurrency since 2012. Initial versions of Jaxx date back to 2016– this makes it more established compared to newer wallets. It has a strong security track record, good privacy features plus multi-platform syncing and a new, fresh-looking interface.

Alex Munkachy

Affiliate Policy

Please note that CoinIQ is reader-supported. When you sign up for products or services through links on CoinIQ, we may receive an affiliate commission.

We maintain strict editorial standards and our recommendations are in no way affected by these commissions.  We do not compromise on our critical approach for any product, service, person, or company.

Exchange Reviews

Purchase Guides

State of Crypto Logo

 

Subscribe to our newsletter!

We'll send you a roundup of the most important news in crypto, every week.

Our mission is to bring you the stories that are most relevant and important in understanding the state of the cryptoeconomy.

Thank You! You'll receive a confirmation email within 5 minutes.