How to Choose Your Bitcoin and Crypto-currency Wallet
There is a myriad of tools for using Bitcoin and other crypto-currencies, but not all of them have the same characteristics or the same advantages and disadvantages. This is everything you need to know about e-wallets, with a selection of the best multi-crypto wallets.
The e-wallet (or “electronic wallet”) is the basic tool for using crypto-currencies. It is used to store, send, receive and sometimes exchange crypto-currencies. Choosing it well is therefore crucial since a wallet provides both the safe and the day-to-day management of your money (from this point of view, the wallet can be seen as the future of banking type services).
While crypto-currencies are spreading and becoming more democratic, the wallet is the central element of the crypto universe, much like the web browser is for the Internet.
It must be understood that there is a considerable number of wallets. Each of the 2000 existing crypto-currencies generally has its own wallet, and the main crypto-currencies (Bitcoin, Ethereum, Litecoin in particular) can be managed by a lot of wallets and services.
WHO CONTROLS YOUR BITCOINS?
While searching the web, you will find lots of distinguishes between different types of Bitcoin wallets. Hot or cold wallet, multisig or not, on mobile or desktop, online or offline, etc.
These distinctions are interesting, but often obscure the main feature of wallets: the concrete way in which addresses are created that store your bitcoins, and who has the control.
From this point of view, there are in fact two (and only two) types of Bitcoin wallets: those that rely on services that manage the keys (called “custodial wallets”), and those that are self-controlled (“non-custodial”).
In the first case, saying that you have a Bitcoin wallet is a misnomer: you actually have a right to access Bitcoin wallets created and maintained for you by a third party company. In the second case, you own (fully and independently) your own Bitcoin wallet (and the bitcoins in it).
Without going into the technical details, the difference lies in the way in which cryptographic keys associated with bitcoins and cryptos are created. If you want to make an analogy, imagine that you rent a safe deposit box in a bank. Whenever you want to access your safe box, you provide proof of identity and a signature, and the banker gives you the key to open the safe box (key you must leave before leaving). Thus, you do not really own the safe and its keys, you just have a right of access, as part of a service offered by the bank. In the second case (non-custodial), not only are you really the owner of the safe (which is at home), but you are the one who makes the keys, and no one but you has access to these keys.
This distinction between custodial and non-custodial is therefore quite fundamental and involves many consequences.
1. Services (Custodial Wallet)
Advantages: In appearance, this is very simple and without headache. You rely on a company that manages your cryptos for you. You just have a login and password to access your corners that are, in practice, stored on the wallets of this company.
Disadvantages: You do not control anything (especially not transaction fees or withdrawals). These services are a favorite target for hackers. ‘Loud’ hacking has occurred in the past and when it does, you risk losing everything. Some services, including crypto-banks but also many exchange offices, require a lot of documents and proof of identity (and are also likely to inform the authorities about your assets).
In this category are the vast majority of traditional exchange offices (exchanges), companies offering banking services and probably some other solutions of “wallet hosted”.
2. User Controlled Wallets (non-custodial wallet)
Advantages: You are the only master on board. Your bitcoins and cryptos are at home and no one else has access to them. Purses require nothing at startup, and you become “your own bank”. In general, it is very easy to import the contents of a wallet into another wallet.
Disadvantages: You must respect some rules and good practices. For example, if you have not saved the keys of the purse stored on your mobile and you lose your mobile, you lose (forever) access to your bitcoins.
In this category are: “physical wallets”, paper wallets and many Bitcoin and multi-coin electronic wallets.
. Do not confuse the distinction “custodial or not” with the fact that a wallet is accessible or not on the web. You can access via the web a service that allows you to manage your own private keys, and download on to a mobile app. Do not confuse private keys with a simple password. All services and applications are protected by a password (or PIN) but that does not mean that you have control of your coins.
. The non-custodial wallets are most often deterministic (or, in the English parlance, “Hierarchical deterministic, HD”) and comply with the BIP32, BIP39 or and/or BIP44 standards. In practice, this means that all keys of the wallet are derived from a single source, called “seed”, sometimes “passphrase”. This seed is usually a sequence of 12 random words (sometimes 24), generated or chosen during the creation of the wallet.
Saving this seed after creating a wallet is absolutely essential. If you lose access to your wallet, only the seed will allow you to recover your cryptos.
TYPOLOGY OF CRYPTO WALLETS
There are five main types of wallets for storing and managing cryptocurrencies.
1. Foreign Exchange Offices
Type: Custodial (you never own the keys)
Operation: Services focus on buying/selling crypto-currencies (from fiat currencies or cryptos). It is usually necessary to provide various proofs or carry out identity checks in order to benefit from the service.
Cost: Mostly free, but with fees (sometimes high) on transactions and withdrawals.
Recommended use: Acquire cryptos from classic currencies (fiat), convert cryptos among themselves, invest in the short or medium term.
Note: Some decentralized exchange offices (so-called “DEX”) allow the user to manage his own keys.
2. Pseudo-banking services (crypto-banks)
Type: It depends (you sometimes have keys)
How it works: Most often available on mobile, crypto-banks seek to combine the best of both worlds by combining electronic wallet to manage crypto-currencies and traditional banking services (Visa / Mastercard, transfers, IBAN number, etc.). ).
Cost: Variable (credit cards, miscellaneous fees).
Recommended use: Payments and day-to-day management.
Examples: The oldest are Xapo and Wirex (and I recommend them), but a good fifteen new entrants are in the ranks, including TenX, Crypto.com (ex Monaco) or Bankera / Spectrocoin.
Note: Some services like Xapo or Crypto.com manage the keys for you (custodial), others like Wirex let you manage the keys (non-custodial).
3. Wallet on paper (paper-wallets)
Type: Non custodial (you manage the keys yourself).
Operation: The paper-wallet is a way to store bitcoins (or other cryptos) without using any digital network. Once you create a “public key/private key” pair that you print on a piece of paper, you send your coins to the public address, and there you go.
Examples: Several sites explain the procedure, such as WalletGenerator or BitcoinPaperWallet. There are also paper-wallets for many other coins.
Cost: Free (unless you use a third-party print service).
Recommended use: medium or long term storage.
Note: If you follow basic rules (such as making sure your printer’s memory cache is empty after printing), security is good. The process is done offline, your private key has never passed through the Internet or any network and you just have to keep it in a safe place. However, be careful with third-party services marketing personalized paper-wallets: companies printing these wallets have (therefore) keys, and you must not trust them entirely.
4. Physical wallets
Type: Non custodial (you manage the keys yourself).
Operation: An independent electronic device used only to keep cryptocurrencies, and generally offering an excellent level of security.
Examples: The most famous (and respected) brands are Ledger and Trezor, but many other solutions appear like those of Archos, Coolwallet or Xzen. There are even hardware wallets targeting children, like Pigzbe.
Cost: Between €50 and €300.
Recommended use: medium or long term storage (safe).
5. Software wallets
Type: In general non custodial (except you manage the keys yourself).
How it works: Applications (mobile, desktop or online services) to manage your own wallet cryptos.
Examples: See below.
Recommended use: Payments and day-to-day management, short/medium term storage.
Note: Ensure that these applications comply with BIP32, BIP39 or BIP44 standards.
EVOLUTION AND TRENDS
There is, in fact, a very clear evolution of the most modern wallets:
· Multi-coins. It is painful to manage many different wallets, and the leaders of today are those allowing, in addition to Bitcoin, to keep dozens, even hundreds of other crypto-currencies. It is likely that one day we will have an app managing all existing cryptos and tokens.
· Multi-services. Here again, the trend is very clear. Many wallets now integrate in a native way the possibility of exchanging crypto-currencies between them. It is likely that others are moving towards peer-to-peer credit (P2P) or other forms of bank-type services. The border between wallet and crypto-bank should gradually fade.
· Multi-content. An increasing number of wallets integrate the detailed display of courses, management of alerts on portfolios, couriers and even customizable news feeds. The wallet becomes the application centralizing everything related to cryptos.
· Multi-platform. This is less a trend than a bias, but the biggest wallet providers (as well as the big web browser providers) are looking to be present on all platforms — Web, desktop and mobile.
THE BEST MULTI-CRYPTOS AND NON-CUSTODIAL SOFTWARE COINS
Ø I tested all the software below and I’ve used some of them everyday for several years. However, I can not vouch for it and I decline any responsibility for the level of security or sustainability they offer.
Ø As always, I focus on the simplest tools of employment, targeting the general public.
Ø In addition, as these are software wallets, they are intended for daily use of cryptocurrencies, but not necessarily storage of large amounts of money in the long term. For storage, it is better to go for hardware wallets.
Ø I hardly mention here the wallets particularly dedicated to the universe Ethereum, which are by logic a little different.
Ø All the tools mentioned here are free.
The Swiss Army Knife: Jaxx — https://jaxx.io
Multi-platform. Offering a large number of crypto-currencies, a synchronization between different wallets on different platforms and an integrated exchange office, Jaxx is very representative of the trend I mentioned earlier. The wallet comes under a complete redesign, Jaxx Liberty, including even more options and services (already available on Android but not yet for Desktops, on which the previous version, Jaxx Legacy, is still usable). Flexible and complete.
The elegant: Exodus — https://www.exodus.io
Desktop (Linux / Mac / Windows). Exodus is characterized by its particularly neat interface, both elegant and intuitive. It is also multi-currency and includes an integrated exchange, while offering advanced options (hide crypts displaying neglected scales, for example). Serious and aesthetic.
The Very Simple: BRD — https://brd.com
Mobile (Android / iOS). BRD (formerly BreadWallet or Bread) has chosen a minimalist bias: the interface is simplified to the extreme, at the risk of appearing stripped. It does not include a huge amount of different cryptos, or many complementary services, but includes the ability to easily invest in emerging cryptocurrency (ICO). Easy and readable.
Other options to consider ;
§ Abra — https://www.abra.com — Mobile (Android / iOS). Interface clear, only about thirty coins but the (rare) possibility to buy cryptos directly from currency fiat ($/€) by bank transfer or credit card.
§ Atomic Wallet — https://atomicwallet.io — Desktop (Linux / Mac / Windows) and soon on Mobile. Managing more than 300 cryptos, with integrated innovative exchange and advanced options. Still in beta but promising (competitor of Exodus).
§ Edge — https://edge.app — Mobile (Android / iOS). Other wallet minimalist but solid, with an integrated exchange.
You will find a comparison (not always up to date but serious) of several wallets on Bitcoin.org.
a. Save your username and password, preferably via a dedicated password manager (LastPass, 1Password or other). For non-custodial wallets, saving your seed (in many places, even on paper) is absolutely essential. Let’s repeat it: if your bitcoins are on your computer and you have not kept your seed elsewhere, you will lose all your money if your computer is stolen or stops working (hard drive failure).
b. Never click on an email to identify yourself on a web service. Phishing is very common for hosted exchanges and wallets. Rather, access your wallets hosted by a blank page of your browser, via your bookmarks, by checking the web address several times before logging in.
c. Never disclose your passwords, private keys or seed to third parties. Never send them by email.
d. Divide your bitcoins and cryptos between several wallets. It is easy, fast and inexpensive to send crypto-currencies from one address to another (that’s a big part of their interest). Use this to your advantage, minimizing the risks!
Personally, I do not look forward to the rise of large Bitcoin wallet hosting services, including Coinbase. Bitcoin’s philosophy and purpose, and crypto-currencies in general, is to get rid of intermediaries and give the user back control over his money.
Do we really want to birth once again, digital giants who control everything including the rain and weather?
Placing your cryptocurrencies on third-party services is like moving the problem: banks are being eliminated, to give weight to new businesses, which will themselves become new forms of banks. They will arbitrarily set the costs and limits of their services, increase the conditions of entry, get closer to governments, and demand more and more documents, vouchers and other administrative paperwork.
Non-custodial wallets will evolve in the opposite direction: they will give even more freedom, power and control to users, while incorporating more and more secure mechanisms to limit the risk of hacking and theft.