Crypto Wallets: A technical review and analysis
Most people assume crypto wallets are a place where individual cryptocurrencies are held, akin to a bank account. However, the reality, as with many things in the crypto world, is a bit more complicated. As crypto wallets continue to evolve, they offer much more than just being a placeholder for cryptocurrencies and provide many different types of functionalities based on a user’s specific needs.
Past the surface level, a cryptocurrency wallet is a type of software which maintains the private keys that are used to verify and digitally sign for different crypto and blockchain transactions. These secret keys are the method by which ownership of digital assets are determined and validated.
Private keys are also used to perform various blockchain transactions, such as buying and selling stocks, or tracking supply chain assets. Crypto wallets also store the blockchain address where individual digital assets reside, because not all wallets maintain the physical digital assets as most are held in custody by different entities, such as Bitgo, Goldman Sachs, and even IBM.
Some Like It Hot And Some Like It Cold
There are two main types of digital wallets, hot and cold wallets, both of which have their advantages and disadvantages. If the address is lost or compromised, then it is nearly impossible to recover the assets. This level of sophistication is why security – and privacy – are the top concerns for those investing in the world of digital assets.
The most versatile and accessible form of crypto wallets are called hot wallets. These are the crypto wallets that are most ubiquitous across the general public, as the most popular hot wallets have UX more akin to mobile banking apps. They are connected to the internet, and can be accessed from anywhere in the world that has a network connection. Hot wallets can take the form of apps on smartphones, currency exchanges, or web wallets.
Cold wallets, on the other hand, are not downloadable and exist offline. They are not connected directly to the internet where they can be accessed by others remotely. Cold wallets can take the form of a physical USB or a physical hard drive where the keys are kept apart from any digital network, until they are ready to be implemented and connected. Other types of cold wallets are desktop wallets and paper wallets.
The desktop wallet is interesting for those that want to utilize the benefits of hot wallets – mainly easier access – but they do come with their own drawbacks. Most desktop wallets require the user to download the entire blockchain for that wallet, which can take up hundreds of gigabytes. Additionally, malware can compromise desktops and laptops still. For traders that have sophisticated malware protection and consider themselves to be IT security gurus, then this will be an obvious choice.
Paper wallets are a relatively new form of cold wallet, where the private key can be printed onto a piece of paper, either with the numerical code or a QR code that links to an individual wallet. The main drawback of these is that they can be destroyed or misplaced, leaving the digital assets completely inaccessible.
Hot wallets are inherently more susceptible to theft or forgotten passwords. Since hot wallets are connected to the internet, hackers can attack the wallet service provider, and move crypto private keys – and all of the digital assets stored there – into hacker wallets. Cold wallets though have notoriously cumbersome UX, and the physical device can also be misplaced.
Best Wallets In Crypto
Apart from understanding the basics of crypto wallets, it’s important to know which ones are the most popular and widely used wallets in the market so you can make an informed decision about which type is best for your specific needs.
The most popular hot crypto wallet is Coinbase, as it’s widely considered to be the best overall wallet. Coinbase gets most of its popularity from its ease of use, with friendly UX that resembles most banking apps on mobile phones. Users can also easily connect their accounts to US banks, which is not easily done with other crypto wallets. One drawback that comes with being the most popular crypto wallet is that it becomes a target of nefarious hackers.
However, Coinbase hasn’t faced a hack on the scale the notorious Mt. Gox experience in 2014. Coinbase is also used by many as it features a fully integrated exchange that allows you to buy and sell, and not simply store your private key and digital assets. In this way, it is the most versatile wallet, which is great for new crypto users, or traders who want something that is as easy and simple as possible for basic trading.
One of the leading crypto wallets most favored by those from high inflation countries is the Uphold wallet, which allows users to participate in programs that allow their savings to earn higher interest rates than a majority of countries globally. Uphold also operates on a 100% reserve model, meaning that all of the stored digital assets are held one-to-one with its own holdings. This model appeals to consumers who worry about the stability of crypto wallets, as it acts more like a traditional FDIC insured brick-and-mortar bank.
When it comes to cold storage wallets, the most popular one globally is Ledger. This cold storage crypto wallet maker was the first to produce a small, external device that is similar in appearance to a standard USB device. It is the most widely used cold storage wallet with over 1.5 million Ledger Nano S devices sold globally, and also features the most cryptocurrencies available for storage with support for 1,000+ cryptocurrencies. However, the drawbacks to this device is that it only comes with a USB port, and has no mobile compatibility, so if it becomes lost, so do the private keys stored on it.
Another hardware crypto wallet worth mentioning is Trezor, which features a small screen that requires physical interaction in order to use. However, it doesn’t interact with as many cryptocurrencies as Ledger does.
New Up and Coming Wallets Set to be Released
The latest crypto wallet that is taking the crypto world by storm – which isn’t even available yet – is the Calibra wallet by Facebook. This wallet functions with the newly announced Libra stablecoin, which is pegged against a basket of fiat currencies. Calibra has sparked interest – negative and positive – because of its parent company, Facebook being so ubiquitous in the world.
Facebook’s entry into crypto markets is bringing with it more real world use applications, and presenting new fiat-to-crypto gateways. The biggest consideration with using Calibra in the future will be its surveillance by Facebook, and its security. Governments worldwide are concerned about the entrance of the world’s largest social media and advertising company into the crypto economy, given its already powerful position in the global economy.
There is also another new wallet on the horizon that has yet to be revealed. This new wallet will have incentives and rewards for traders offering exceptional stability and security. Promising to make some serious waves in the crypto market, we encourage you to watch this space for more details!