Crypto wallets: Why they are important and how to choose the right one for your needs
Find out how choosing the right wallet can affect the security and availability of your cryptocurrencies.
Crypto wallets play a crucial role in the world of cryptocurrencies. They allow users to store, manage and transfer their digital assets securely and conveniently.
The bankruptcy filings of several major cryptocurrency exchanges and platforms have led to a lack of confidence in the crypto space and underscored the importance of having a reliable and secure crypto wallet. These incidents have shown that even the most respected and seemingly secure businesses are vulnerable, and that trusting a third party with the custody of your assets is not always a safe option.
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So, what are the main considerations when choosing a digital wallet, what types of wallets are available and what do experts think is the best way to store crypto?
Important considerations
When choosing a crypto wallet, there are several factors to consider. The first and most crucial is Safety. A good wallet should provide robust security features such as encryption and multi-signature options.
Another important factor is availability. The wallet should be easy to use and give you quick and easy access to your money.
Compatibility also plays a significant role. Some wallets only support a few cryptocurrencies, while others are more versatile, compatible with multiple blockchains and supporting a wide range of digital assets.
Finally, to choose the right crypto wallet for your needs, it is important to understand type of wallet and whether to use a custodial or non-custodial option.
Types of wallets
A growing number of crypto storage options are available, and choosing a wallet that best suits your needs and preferences can be confusing and time-consuming. Let’s take a look at the three most popular options and the pros and cons of each.
Exchange wallets:
Custodial wallets are those where the wallet provider, such as an exchange or centralized crypto platform, holds the wallet’s private keys on your behalf.
These wallets are often considered the least secure option as you leave custody of your assets to a third party.
That said, custodial wallets are usually more user-friendly than non-custodial options and provide a convenient way to manage your crypto assets.
Software wallets:
Non-custodial software wallets give you full control over your funds and private keys. However, you are solely responsible for wallet security and resource management.
The wallet issuer, be it MetaMask, Trust Wallet or another provider, does not have access to your funds or private keys and cannot help you recover your password or recovery phrase if you lose or forget this information.
Hardware wallets:
Hardware wallets, otherwise known as cold storage wallets, are physical devices that store the user’s private keys outside the internet.
Cold storage wallets are often considered the safest way to store cryptocurrencies. You must have physical access to the device, which is kept offline and away from potential hackers and online vulnerabilities.
Some hardware wallets support additional security features such as a backup phrase that makes it easier for users to recover their funds in the event of a lost or damaged device.
While hardware devices offer greater security than exchange and software wallets, they require you to take extra protection and safe storage measures.
Expert opinion
With the recent collapse of FTX and other prominent crypto platforms, questions have been raised about whether investors should transfer their digital assets off exchanges and into non-custodial software or cold storage wallets.
Finder recently interviewed 56 fintech specialists to get their opinion on the different types of crypto wallets and secure storage of digital assets.
The majority of the panel or 62% believed that crypto holders should transfer their assets to non-custodial wallets, while 34% believed that this was unnecessary. The rest of the experts who were interviewed were uncertain about the matter.
Mitesh Shah, Founder and CEO of Omnia Markets, Inc., explained his point of view.
“The general rule of thumb is that any coins held on exchanges are not really yours. In a decentralized world, self-custody is always the safest and best option for storing crypto.”
Asher Tan, CEO of CoinJar, takes the opposite view and doesn’t think it’s necessary to transfer your cryptocurrency from exchanges to non-custodial software or cold storage wallets.
“There is no single solution that works best for everyone,” Tan said. “You should be aware of the strengths and weaknesses of the wallet you use and have as much redundancy as possible.”
The panel was divided on the most efficient method of storing crypto. 67% thought hardware wallets were the best choice, while 10% preferred software wallets.
2% of the experts interviewed preferred to keep their crypto on an exchange, and 15% believed that alternative methods such as memorizing a seed phrase or using a multi-signature vault were superior options.
Summary
With the growing popularity of DeFi and crypto self-storage, non-custodial wallets have gained traction due to the higher level of security and control they offer users.
There is currently a significant lack of confidence in the crypto space due to many platforms and exchanges facing bankruptcy or legal concerns. Not surprisingly, the majority of Finder’s expert panel has taken one “not your keys, not your crypto” approach to storing digital assets.
93% of those interviewed expect the use of hardware wallets to grow, while 56% predict a decline in the use of exchange wallets.
Choosing the right type of wallet is critical to protecting your digital assets. Whether you choose a hardware wallet, a software wallet, or another solution, it’s important to weigh the available options and choose the one that fits your specific requirements and preferences.
