How to Choose a Suitable Crypto Wallet: A Comprehensive Guide for Beginners

Cryptocurrencies have become increasingly popular in years, highlighting the growing significance of storage solutions starting from the older paper wallets down to software & hardware wallets of today with implementations of multi-signature functions. All of these can prove to be challenging for a new user of the technology, and we're here to bridge that gap.

In this article, we will explore the world of crypto wallets: discussing different types of wallets and important factors to consider when on the hunt for the best crypto wallet to suit your needs. We also briefly list out some popular crypto wallets widely used by the crypto community at large, and conclude with some final thoughts.

What is a Crypto Wallet and What does it do?

Unlike traditional finance where you store your funds in a bank; with cryptocurrencies, your funds (read: coins) are always on the blockchain (a distributed digital ledger on which transactions are recorded) and the program that allows you interact with it is called a Crypto Wallet (or wallet, for short). It is a program or tool that allows individuals to send, receive and store/manage cryptocurrencies. They are like a gateway between you (the user) & the blockchain itself.

A crypto wallet performs three (3) simple functions:

• They generate, store and handle your private-keys and public keys (aka addresses)

• Show your balance and provides an interface to easily receive coins

• Manage & sign transactions (proving ownership) before broadcasting to the blockchain/network.

Contrary to popular beliefs, your crypto or coins are not stored inside a wallet app, software or device. What a crypto wallet stores is your private keys which then grants you access to send/spend the coins on it's associated public key (address). Hence, it is crucial to keep your private keys, private at all times, as anyone who has access to your private keys (or recovery phrase — a 12 or 24-word readable phrase) can steal your coins.

Types of Crypto Wallets

As crypto wallets store your coins private keys, it is important to have an understanding of which type you are using, it's pros & cons and any additional information before making a choice on the one that's suitable for you.

There are two (2) types of wallets; Software wallets and Hardware wallets.

Software (or Hot) Wallets

Software wallets, also referred to as hot wallets are wallets connected to the internet. They can be accessed via web browsers or as mobile applications. Software wallets are usually free to use — you wouldn't be paying for a subscription nor need to buy any equipment. As a user, all you'd need to do is download the application for your device (mobile or desktop), install it and generate your recovery phrase and/or private-keys through the application.

Software or hot wallets are user-friendly and convenient for day-to-day transactions, especially via mobile phones while on the move. However, being connected to the internet — and your private keys stored on the internet-enabled device itself — they do pose a risk of being targeted by hackers.

Hardware (or Cold) Wallets

Hardware wallets, also referred to as cold wallets, are physical devices (about the size of a credit card or a USB flash drive) that securely store your private keys offline. By this simple distinction, they are generally more secure than software/hot wallets because they are not inherently connected to the internet. Your private keys are shielded from the external world by design, as such this reduces the attack vector and risk of being hacked.

Hardware wallets offer a higher level of security, but cost a quite some amount of money (some being priced at upwards of $200). They may be less convenient for day-to-day transactions, and are most commonly treated as "Vaults", by storing a large portion of your crypto assets using them. For a beginner, they might be harder to use, but the underlying functionality of a crypto wallet is still present: A crypto wallet holds your private keys (not actual coins) and utilizes that private key to sign transactions you initiate, proving ownership.

Can I use both types?

Both types of wallets offer some benefits in their own ways. A software/hot wallet may be convenient to use daily, but deemed less secure; while a hardware wallet is highly secure, but less convenient for day-to-day usage. However, you can maximise both for their benefits.

For example, in traditional banking, you wouldn't carry all your cash in your leather weather which you put in your back pocket; you just carry the amount you may need at a time and leave your life-savings in the bank. In the same way, your software/hot wallet can be treated as your "leather wallet"; while your hardware wallet can be treated as your "bank" (aka Vault).

Factors to Consider When Choosing a Crypto Wallet

Here are some factors to consider when embarking on the task of finding a suitable crypto wallet:

Security

Security should be your top priority when choosing a crypto wallet. How secure is the wallet? How are the private keys generated and stored? What protocol is applied? Are the private keys encrypted on the device or in plain format? Since security is a primary factor, your best bet is to go for wallets that provide the highest level of security, such as hardware wallets. Though they cost money, but you'll be guaranteed of better security compared to using a software/hot wallet (which are fine though).

Custodial or Non-custodial Wallet?

This is a crucial point in itself — the class of wallet you use. As it is often said: "Not your keys; not your coins", this boils down to the specific class of wallet you're using, either a Custodial wallet or Non-custodial wallet.

A Custodial Wallet is a type of wallet in which the private keys of the wallet are held by a third-party. The third party performs a role similar to a bank — it provides you with a wallet in which you can hold your funds. You (the user) creates an account on their platform and have a login detail (email & password) which you can use to login. With this type of wallet, you only have permission to send or receive payments, while the third party has full control over your funds because they control the private keys of the wallet itself.

A Non-custodial Wallet (sometimes called self-custody) on the other hand is a direct opposite. It is a type of wallet that provides you with far more control and allows you to be completely responsible for your funds. On setup, you generate your private keys (or a recovery phrase) which grants you full control over your addresses (and subsequently, funds you add on them).

The choice of using a custodial or non-custodial wallet for managing your crypto assets is usually about a trade-off between convenience and security. If you do not trust yourself to keep your private-keys (or recovery phrase) safe & secure, it would be convenient for you to simply use a trusted custodial wallet/service. However, if you really want to solely own your crypto assets without fear of being blocked from using a particular platform/service, a non-custodial wallet is the way to go.

Open-source or Closed-source?

Another important factor to consider when making a decision on the crypto wallet to use is whether to opt for an open-source or closed-source wallet. Each having its advantages and considerations.

Open-source wallets are built on transparent, publicly accessible code. This basically means that the wallet's source code is publicly available for review by anyone (including developers and the user community). The code being open-source, these type of wallet are deemed transparent and more secure, as their nature allows for inspection to see how it operates; encourages community auditing which allows developers from anywhere in the world to contribute to code reviews and ensure there are no vulnerabilities; and ultimately offer a higher degree of customisable options for users with coding knowledge who may choose to modify the wallet to fit their needs.

With closed-source wallets, the source code of the wallet is not publicly available. Instead, it is kept proprietary. These type of wallets are usually built to be user-friendly in order to cater to users who may not have technical knowledge/expertise. They are also known to offer dedicated customer support through designated teams and ship out updates regularly. Though the wallet's code is not publicly available, they are usually audited by internal and external security teams to ensure they are free from vulnerabilities and "back doors". However, if choosing a closed-source wallet, it is important to opt for those that are built by well-established, reputable companies and teams.

When making the decision between open-source and closed-source wallets, your choice should align with your individual needs and specific preferences. If transparency, community-driven security and customization are your top priorities, open-source wallets could be a better fit; If user-friendliness, strong support, and a trusted company reputation are your priorities, closed-source wallets might be the way to go. In general, if well-maintained, both types of wallets are just fine.

Number of Supported Cryptocurrencies

The variety of cryptocurrencies a wallet supports is a critical factor to consider. Ensure that the wallet supports and accommodates the specific digital assets you plan to store and transact with. For example, EVM-compatible-only wallets cannot store or manage cryptocurrencies like Bitcoin, Litecoin and some others. A crypto wallet with diverse selection can provide flexibility, allowing you to manage multiple coins from a single interface.

Also, as the crypto space matures and develops daily, more newer coins that offer brighter solutions are being introduced. Consider the wallet's commitment to ongoing support and the ease of adding new cryptocurrencies in the future. The number of supported cryptocurrencies can significantly impact your ability to diversify your digital assets and interact with different blockchain networks.

User Interface

An often overlooked factor is the wallet's interface and design's user-friendliness. Is the interface designed like a 1990 application screen or does it have a more modern design? Is the wallet easy to use? Is it easy to navigate? How easy is it to find specific functionalities? Does the wallet have additional features like portfolio tracking, transaction history, and the ability to buy & sell crypto to fiat directly from within it? Even support for multiple languages is an added bonus that brings extra value to the user experience. All of these are questions you need to ask yourself (and find answer to) especially if you are a beginner.

Ultimately, the user interface of a wallet plays a vital role for you (the user), but an ideal one varies from one person to another. Your choice should align with your individual preferences, technical proficiency, and specific use-case. Starting out, it would be advantageous to take an ample amount of time in exploring different wallets and trying out their user interfaces to determine which one best suits your needs and makes managing your crypto holdings an effortless experience.

Customer Support

Paying attention to a crypto wallet with robust customer support is a crucial factor to consider especially as a beginner. Some important factors to look out for when assessing a wallet's customer support/service include: the range of contact options/methods (email, live chat on their official website, multi-lingual support), 24/7 accessibility, typical response time, availability of helpful online resources and knowledge base, technical expertise and versatility of the support team.

Having access to exceptional customer support can prove to be highly important in case you encounter any issues with your crypto wallet, have a bit of difficulty when performing a transaction or simply need to understand some specific details.

Support for Advanced Features (MultiSig Wallets, Bip-39 Passphrase, In-built dApp Browser etc)

If you're a power-user, you should consider the availability of advanced features in a wallet, as they could be a game-changer in elevating your experience all round. Some advanced features one may need are multi-signature wallets/functionalities, support for adding a Bip-39 passphrase and availability of decentralized apps (dApps) browser within the wallet (if you're interested in EVM-compatible chains/networks).

Multi-signature wallets/functionalities offers an advanced security capability by requiring more than one (1) private key to sign a transaction before coins can be sent/spent. Depending on how many signatures are required to initiate a transaction, the signature scheme can be 2-of-3 signatures, 2-of-2 signatures or other configurations. They are ideal for large organisations as they add an extra layer of security against malicious theft/movements of coins in the event that a private key is leaked.

Bip-39 (Bitcoin Improvement Proposal 39) was a proposal on the Bitcoin network that brought an implementation of a mnemonic or mnemonic sentence — a group of easy to remember words — for the generation of deterministic wallets. Bip-39 passphrase involves the use of a mnemonic passphrase (commonly called 25th word) added to a regular 24-word recovery phrase. By this addition, a whole new set of addresses would be generated separate from those generated by just the 24-word in utilization. This brings plausible deniability and can be utilized in creating "decoy" wallets for overall security of funds.

Having an inbuilt dApp browser can be something to look out for in a wallet if you're interested in Ethereum network and it's larger ecosystem, as this allows you perform various actions all from within the environment of the wallet.

Wallets that offer support for these advanced features empower users with versatile control, security, and greater customization options.

Top Software (or Hot) Wallets

Because they are free and easily accessible to anyone with an internet-enabled device, software wallets are the most popular type of crypto wallets. We have looked at some reputable software wallets based on the wider crypto community feedback and now present a list:

Exodus Wallet

Exodus is a non-custodial, user-friendly software wallet available for mobile and desktop devices that supports 50+ networks and has a built-in exchange which allows you to trade or swap between 1000+ assets without leaving the wallet.

Exodus prides itself in it's modernized design having a neon-like feel & appearance; presence of live charts & portfolio tracking within its interface, compatibility with Trezor hardware wallet for added security and exceptional customer support.

Trust Wallet

Trust wallet is a mobile-centred crypto wallet built as a non-custodial storage solution for the everyday man. It has built-in features like staking, dApp browser, buy, sell and instant non-KYC swaps between one asset and another.

Metamask

Metamask is an open-source, non-custodial crypto wallet that allows you to store, send, and receive Ethereum (and other ERC-20 tokens) and is compatible with various other EVM chains/networks. The wallet was created by Consensys (a market-leading web3 software company).

Metamask boasts of 30 million users worldwide and is favoured by the wider crypto community as the best wallet for interacting with the Ethereum network and similar networks alike. It is available on desktop as a chrome extension and has a mobile app for iOS & Android devices.

Rabby Wallet

Rabby is an open-source, non-custodial software wallet created by the team behind DeBank (a professional web3 portfolio tracker & transaction analysis tool). It is a crypto wallet for Ethereum and other Ethereum Virtual Machine (EVM) compatible chains like Polygon, Harmony One, Linea, zkSync Era, Arbitrum, Optimism and more.

As at the time of writing this article, Rabby supports a total of 95 EVM-compatible chains and their respective tokens fluidly; offers a rich interface with in-built swap functions; automatic switching of networks depending on the decentralised app (dApp) used and pre-sign checks with easily understandable language for security, allowing you to see exactly what you sign in your wallet. It is available as a chrome extension on laptop; has a desktop app; with the mobile app in the process of being released.

Top Hardware (or Cold) Wallets

Hardware wallets provide the highest level of security when it comes to crypto wallets. Here are some of the best hardware wallets for cryptocurrencies:

Trezor

Trezor is an industry innovator in hardware wallets that supports over 8,000 coins and tokens natively, and comes in 2 models: Trezor model One & Trezor T. It has a user-friendly interface and supports advanced functionalities such as multi-signature wallets, bip-39 passphrase, coinjoin for privacy etc.

Paired with the Trezor Suite app for desktop and mobile, users can conveniently manage their coins, having access to a portfolio tracker, instantly compare online exchanges and find the most advantageous offers for purchasing cryptocurrencies etc.

Being a fully open-source, non-custodial hardware wallet with 200+ open-source contributors and over 1 million+ customers, Trezor wallets stand out firmly as a community favourite.

Ledger

Ledger is a top hardware wallet maker selling over 6 million units of various models of their devices — Ledger Nano S, Nano X and Nano S+. These devices store your private keys offline and can manage over 5,500 different cryptocurrencies. It features a CC EAL5+ Certified secure element chip (a chip used in credit cards to keep banking information fully private) and supports various advanced functionalities such as multi-signature wallets, bip-39 passphrase etc.

Ledger Live, the accompanying software, provides a user-friendly interface through which users can connect with a desktop computer (as well as mobile devices) by using a USB cable or bluetooth connection. Within Ledger Live, users can swap their assets, buy, sell and stake different cryptocurrencies.

While Ledger has made it's mark in the crypto space, it is worth noting that the wallet is not fully open-source, and coupled with the recent controversy surrounding their latest product — Ledger Recover — it is best you analyze your tolerance levels regarding that added functionality which allows the device, by your prompt, to be able to encrypt & shard/split your recovery phrase and share it over the cloud with three (3) of Ledger's enterprise custodial services/partners.

Coldcard

Coldcard is a relatively unknown hardware wallet compared to Trezor and Ledger, but is quite sophisticated as well. It is fully open-source with verifiable source code, and supports advanced functionalities just like Trezor and Ledger hardware wallets. It features a ATECC608 secure element chip, which is a fixed-function chip for private key storage and is not a general purpose CPU like some other secure elements.

With a relatively simple design (outwardly appearing like a calculator) devoid of any crypto-specific wordings and symbols, the hardware wallet has proven to be what it is in the Bitcoin community. However, quite notably, it is bitcoin only — essentially meaning you cannot store nor manage any other type of cryptocurrency with it.

Conclusion and Final Thoughts

Making a choice on the best crypto wallet is paramount for anyone looking to invest in cryptocurrencies, however these possibly simple task can be challenging for beginners. As we outlined, one should first distinguish between software/hot wallets and hardware/cold wallets. Thereafter, factor in conditions such as security and user-friendliness, open-source or closed-source, if the wallet is a custodial or non-custodial type, the number of cryptocurrencies supported on the wallet, presence of customer support and availability of advanced features. With these factors in mind, you would be on the way to choosing the best crypto wallet to suit your needs in no time.

_{Disclaimer: All opinions, news, research, analyses or other information contained in this article are provided strictly for informational purposes only, and does not constitute investment advice. Cryptocurrency products are currently unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. Faucet Crypto (“the website”), including its staff, is not affiliated with and does not endorse nor sponsor any of the mentioned services within this article. Conduct your own thorough research by contacting financial experts before making any investment decisions.}