One revolutionary aspect of cryptocurrency is that the networks are not controlled by any one group. No one needs permission to access or develop on the network. As a result, there are several cryptocurrency wallets to choose from since anyone with the programming skills can create a cryptocurrency wallet. However, with all of this choice, it is important to use a wallet that’s well respected by the community and has a great track record. Since the majority of users can’t or won’t read the code for each wallet, you need to be sure to read reviews and only select well used highly rated wallets. If you select a wallet created by a bad actor or incompetent developer, your cryptocurrency will be susceptible to LOSS!
There are three main types of wallets. Hosted, SPV and Full. I have detailed the differences below; choose the type that best suits you. In each heading, I have given my recommended wallets for each type. I have used each of these wallets, they are trusted by the community and they have a solid track record of not losing people’s funds.
Full wallets are also “full nodes” for cryptocurrency networks. Full nodes listen for, validate and relay all transactions that come across the network. They can help bridge gaps in connectivity and make it possible for transactions in the United States to be received by miners in China. To run a full wallet you need to download and install a program on your computer.
Benefits: When you run a full wallet your computer is acting as a full node on the network. While there’s no monetary benefit to yourself by running full node, it’s an altruistic act that helps ensure transactions a relayed across the network quickly and reliably. They also protect your privacy better. No one knows your private key or public key and you are in full control of your cryptocurrency.
Negatives: You need to download the full blockchain (currently over 100 GB). It’s huge! This wallet isn’t mobile and will have to exist on your desktop or laptop computer. Also, if you lose the password to your private key or your computer’s hard drive fails and you don’t have a backup you LOSE access to your cryptocurrency.
Hosted wallets are created and controlled by companies that control access to “your cryptocurrency” they act as a bank for your cryptocurrency (without the fractional reserve aspect in most cases).
Benefits: These wallets are convenient because they allow you to send cryptocurrency by email or text message and allow you to recover your account if you forget your password. They also provide a way to securely access your cryptocurrency (in most cases two-factor authentication is required to access your account, something many traditional banks have only started to implement).
Negatives: You are technically not in control of your cryptocurrency when you use a hosted wallet. If there is a security breach and a hacker or say the government shuts down the company for noncompliance with KYC/AML (Know Your Customer/Anti-Money Laundering” violations) your cryptocurrency may not be recovered. There’s also zero privacy when you use a hosted wallet. In some cases, an end of year tax return is generated for you and information may be sent to the IRS!
SPV wallets reference trusted cryptocurrency nodes (similar to a trusted Full wallet). They can accomplish this through a direct connection to other nodes (BRD, Electrum) or through an API (Copay, Handcash, Jaxx, Cointext). Because they reference full nodes, the individual does not need to download the full wallet. As a result, use of a lightweight wallet is as easy as downloading an iPhone, Android app or web app on your device! Some wallets like Cointext operate completely over text message so no app is required!
Benefits: Quickly get started by typing in a web address, texting a phone number or download an app on your mobile device. You maintain direct control over your cryptocurrency and NO ONE, not even the wallet host, cannot take your cryptocurrency.
Negatives: You need to be careful and backup your cryptocurrency keys. If you don’t BACKUP your keys and your device fails, you lose access to your cryptocurrency. In most cases, a backup is a simple as writing down of a 12 or 15-word phrase; you just need to remember to always BACKUP first before sending funds to the wallet. All devices will fail at some point so it is important to BACKUP your keys!