Deep Dive Into Cryptocurrency Wallets
So, we have decided that it is a good time to revise Crypto 101. Relax, make yourself some tea and remember about the heroes keeping your cryptocurrency safe — the wallets.
Table of Contents
- Ok Google, what is a crypto wallet?
- Nondeterministic vs. Deterministic crypto wallets
- Custodial vs. Non-custodial wallets
- Offline wallets, Online wallets and where to find them
- Cold Wallets
- Hot wallets
- This is just too much — what do I do now?
Ok Google, what is a crypto wallet?
It seems like everything people keep talking about right now is Bitcoin Halving. Also, the money machine going brrr. Also, Corona. Also, other, well… Stuff. The world is a crazy place. Don’t you just wish life was simple and basic? Going back to the roots, to what is truly important. Guarda does! So, we have decided that it is a good time to revise Crypto 101. Relax, make yourself some tea, and remember about the heroes keeping your cryptocurrency safe — the wallets. Here, we will break down the important bits, help you choose in the time of need, and have a little bit of fun. Together.
We talk about wallets all the time. Literally every day — going grocery shopping (not anymore!), checking how your cryptos are doing, arguing with your bank because they blocked your account for no obvious reason… But do we really have time to think about what a wallet is? Of course no. Merriam-Webster dictionary, that remains one of the team’s favorite books for a good reason, states that the “wallet” is:
A folding pocketbook with compartments for personal papers and usually unfolded paper money
Makes sense. However, if we are talking about blockchain, things get a little bit more complicated. First of all, the wallet is not physical. Secondly, you can not put unfolded (or folded, really) Bitcoins in there. This is where we state:
A crypto wallet is an application allowing the users to generate and manage private and public keys. The funds still remain in the blockchain though.
The world of crypto wallets is great and vivid — the storages come in a variety of forms, with a great many features included, designed for particular causes and much, much more. Hopefully, we will manage to cover at least the main types in this article.
How do we distinguish wallets on the most general level? Possibly, the most basic distinction would be by the way your wallet generates the keys. There are two types of keys that you need to interact with blockchain — a public key (sort of a more lengthy version of your address) and a private key (the key that your SHOULD NOT SHARE WITH ANYONE, which is used to sign transactions and manage dem Bitcoins). A wallet can either generate the keys in a deterministic or a nondeterministic way. Believe me, it gets easier if you pronounce this a couple of times.
Nondeterministic vs. Deterministic crypto wallets
If you ponder on the word “deterministic”, it is possible to understand that this type of wallets DETERMINES the keys from… Something. This is absolutely true — deterministic wallets generate the keys from a common seed. This is pretty great, as the wallet only needs one backup––the private keys all get generated from the parent seed, no worries here. You can also use the same backup to manage the wallet (for instance, export it or import it). Nondeterministic wallets, on the other hand, do not have the seed to generate the keys from — each key gets created individually and can only be used once. Great for privacy. Hell for those who love comfort — you need to keep all the copies of your keys, otherwise, you might be locked out of your wallet and say farewell to the coins in it. The more keys get generated, the more challenging the wallet management becomes.
Custodial vs. Non-custodial wallets
We have covered this topic in an article that almost went viral a while ago, but it is never bad to revise the main stands. Guarda is a non-custodial cryptocurrency wallet — we do not store your keys, backups, passwords, or data. Do you know what it means? That’s right! Your keys = your coins.
Users have full control over the assets — you are the only person in charge, no third-party is there to have access to your information or coins, full decentralization, and happiness in the air. Custody-free services are something the crypto space certainly needs: they are secure, you rest assured that the keys are yours, they come in different forms. The only thing to remember here is that with great power comes great responsibility — make sure that you manage your wallet wisely, remember the passwords, store backups in a secure place, and have no computer malware when using Desktop. If you follow these rules, your funds are in great hands. Yours.
On the other hand, are your fellow banking applications — you have a third party controlling the funds at all times. The general rule here — if your wallet looks more like an account, no matter what platform are you using, the chances that it is custodial are very high. Usually, custodial wallets can be found on exchanges — Binance, for instance. When you trade, the funds stored in a hot wallet are accessible by the company’s representatives and yourself. This is why it’s not advised to keep large sums in crypto on exchanges — after all, it’s the security we all think about.
Offline wallets, Online wallets and where to find them
Non-custodial cryptocurrency wallets, as already mentioned somewhere above, come in a variety of forms. Web, Desktop, Extension, Hardware, Paper… All of those allow self-performed key management. However, there is one significant difference — some of these wallets are online (also known as Hot), some of them — offline (also known as Cold). Even though the differences in these types of wallets are pretty obvious, we are here to look into the sub-kinds of each and explain how they work (and, possibly, why you should choose a particular representative of each family).
Storing cryptocurrency offline is sometimes not as easy as it might sound — after all, you will need to think of the way the keys are actually going to be held. With Cold storages, there are not too many options to choose from, so here we will break down two main categories.
Have you read Bitcoin Billionaires? Do you remember that Tyler and Cameron went all around the country to put some pieces of paper in banks? Even if you do not, this is how a paper wallet works. You generate the keys, you write them down or print them on a piece of paper and you’re good to go. At the moment, paper wallets are considered to be an outdated way to store crypto due to their total inconvenience.
A simple example to illustrate the statement: if you are actually going to spend some part of the funds stored in such a wallet, the whole sum needs to be transferred out. After this, you can create a new paper wallet — this type of crypto storage is not reusable. If you are not a person willing to invest in crypto and then never touch the funds until you are 99 years old, paper wallets might be not the greatest of picks. If you already have such a wallet from way back and are not sure what to do with it, here is a video on how to import it to something way more modern ( ͡° ͜ʖ ͡°).
Get your Ledgers and Trezors out! This is the time to discuss hardware crypto wallets — a much more elevated version of how you can store cryptocurrency offline. A hardware wallet usually looks like your common USB-drive (even though it might also look like a card) and this device allows storing the keys and keeping the funds offline unless plugged into a computer to manage the coins. This type of wallet offers great security features, especially valuable for those seriously investing in cryptocurrency. However, the fact that the funds are stored offline and the device needs to be managed through a PC or Mobile device comes with a little bit of user dissatisfaction — it can be quite a hassle to manage crypto rapidly if you are a trader or make real-world cryptocurrency purchases frequently. Hence, we collaborated with Ledger to make a Hot+Cold wallet integration possible. Store on Ledger, use Guarda for management. Fairly easy, very secure, makes life better for sure.
Look at Guarda. We are here 24/7, always online, ready to answer all your questions. Our interface, too, is here to generate the keys at all times — all you need to have is a stable Internet connection and, of course, a device to use. As we have already covered all the platforms in cryptocurrency wallet development, we will have the audacity to describe the forms of hot cryptocurrency wallets using our own examples.
Web wallets are working through one’s browser. It looks like this –you go to a website, create a wallet (make up a password and download the backup in case of a custody-free wallet like Guarda) and then operate it online. Everything is very logical here. Web wallets are great for convenience — first of all, you can use it from any device connected to the Internet (be it a PC or a smartphone — hey there people who do not like apps too much). Generally speaking, Web versions of wallets are perfect for those who value comfort, extra features (exchanges, purchases, currency-specific perks), and a wide range of supported coins.
Desktop cryptocurrency wallets require downloading and installing a program to a user’s computer. Desktop storages are usually non-custodial, so the owner of a wallet can enjoy full cryptocurrency ownership rights. The backup is stored locally on the device, so the security levels of such a wallet are quite high. However, there are some things worth mentioning — if you save the backup on to your Desktop and name it HUNDRED-BITCOIN-WALLET.txt, please make sure your computer does not go to the hands of some wrongdoers. Ok, now seriously — it is essential to make sure your PC is free of viruses and malware before starting using a Desktop wallet. Otherwise, it is a great choice for cryptocurrency management that unlocks many awesome features and is always in reach.
You don’t have time to mess around with pieces of paper or carry a PC back and forth — you have to grab a flight from Stockholm to Malta at 6 AM and would love to get your Frappuccino for BTC. We know the feeling. You need a Mobile crypto wallet. Mobile versions of cryptocurrency wallets are applications you can get on Google Play or Appstore — they are light, convenient and have everything you need for a well-furnished crypto life.
Application storages are definitely great to solve the usual crypto usage problem — the issue of adoption. Sometimes it is hard to check out in crypto, even if your local merchants accept it, isn’t it right?
Well, if you have a wallet on your phone and can simply scan a QR code, the task becomes much easier. When it comes to security, the usual rules apply — if you are using a non-custodial Mobile wallet, make sure your data is stored safely, do not share your keys with anyone, and double-check the apps when downloading them (it is better to use the links from the official website of a wallet provider).
Chrome Extension Wallets
We love dApps! Who doesn’t? Ok, maybe there are some people who do not. Nevermind. Browser Extension wallets are meant to interact with decentralized applications, shops, and every kind of crypto-requiring thing that pops up in your browser. Pretty handy, right? A Browser extension wallet can either be dedicated to one currency (like Ethereum-focused Metamask) or offer a wide range of supported coins (like our own pride and joy here). Once created, a wallet will pop up on top of your browser window, just like other Extensions do.
This is just too much — what do I do now?
Great! We got everyone absolutely confused! Now, you just have to process all this information and continue living with it.
Ah, just kidding. We hope that this guide will be enough for you to understand the very basics of cryptocurrency wallets and their types. When it comes to choosing a service and trusting your blockchain access with it, there are really several rules to follow:
- Check the provider — it is better to go with a well-known wallet. Duh.
- Think about the purpose — if you are in for cryptocurrency storage and management, choose a non-custodial wallet. First of all, this increases your security levels, secondly, your data remains yours at all times.
- Choose cold or hot storage — are you just here for a massive USD 2398305872350323 investment in Bitcoin? You will not touch these funds ever again? Possibly, it makes sense to look for a hardware wallet. If you change your mind and decide to play around with your BTC somewhere along the way, Guarda and Ledger integration is also always here for you.
- Pick a wallet that is versatile — if you are new to cryptocurrency, you might want to just have fun. Check all the features, get a smooth onboarding process, exchange one coin to another, do this, and do that. This is why it is good to pick a wallet that supports many coins, comes in different forms (talking about platforms here), and offers a range of features to choose from. It is important to feel good about your wallet. We know. We’ve been doing this for years.
- Sometimes, it’s good to follow the rules of security but also go with the gut. Pick a friendly service that makes you comfortable!
On this cheerful note, it is time to wrap up. I hope you find these materials useful for your crypto research… Or just have fun reading it. If you have some additional questions on cryptocurrency wallets, drop by our Twitter or Telegram, and don’t hesitate to ask!