Oct 20, 2023 | Updated Oct 26, 2023
|— Choosing a crypto wallet can be tricky; there are so many different types, and not all wallets will support the assets or functions you require.|
— Choosing the best wallet for you depends on your needs: some offer the best security while others are capable of supporting multiple networks and asset types.
— Understanding how different wallets work and what they can offer can help you make an informed decision.
So you are ready to get yourself a crypto wallet, but you’re not sure which wallet is best for your specific needs. It might be overwhelming at first. Indeed, there are so many different types of wallets, offering different functionalities and ways to interact with blockchain.
That said, they all have some core features. They allow users to store the private keys that control their accounts, plus offer an interface that allows you to manage those accounts. Understanding what each of them do is just half of the puzzle though.
See, that’s largely where the similarities in crypto wallets end. Exactly where they store those private keys, and how the wallet’s interface works, can vary greatly depending on their design.
So if they’re all so different, how do you choose which crypto wallet is best for you?
Well, to help you choose which wallet you might need, let’s first explore the different types of features you might want to take into consideration.
Each type of wallet has its strengths, but also its weaknesses. So, before you choose the same crypto wallet as all of your friends, you might want to consider some of these key questions first.
Firstly, some wallets allow you true ownership or your digital assets. Then others merely allow you to use their interface, forcing you to forfeit the ownership of your assets in the process. Typically, custodial wallets are operated by centralized exchanges. Instead of allowing you to manage your private keys yourself, they manage the keys to your account for you. Unfortunately, this means they have the true ownership of your funds.
Of course, the next thing to consider is possibly the most important: security. While all sorts of crypto wallets offer all manners of different use-cases, what’s the point if it can’t actually protect your precious assets?
The secret to a secure wallet is down to where and how it stores and accesses your private keys. Anyone with access to your private keys has access to your entire wallet. Therefore, it’s imperative that your crypto wallet stores your private keys in a place no one else but you can access them.
Hackers will attempt to gain remote access to your private keys by infecting your internet connected device— then tricking you into either handing over control by weaponizing your smartphone or laptop’s screen, or by finding and extracting your public keys from your browser’s data store.
But it’s not just digital hacks you have to worry about, it’s also physical hacks. For example, you wouldn’t want to store your private keys on an untrustworthy, unaudited or weakly secured computer chip. That’s why it’s important to compare in terms of their protection against physical hacks.
In addition, many crypto wallets are designed to work for a single network. This means you’ll need a separate account for every blockchain network you access. Yes–that means you cannot use the same account for storing both Bitcoin and Ether. That said, there are lots of wallets—including Ledger devices— which let you create multiple accounts on several blockchains. So, if you’re planning to use multiple networks, you might be looking for something with this capability.
Even within the same ecosystem though, there are also multiple different wallets you can choose from; with many designed specifically for supporting one type of asset over the other.
While some crypto wallets will only offer support for coins, others will also support fungible and non-fungible tokens. That means if you want to store and manage Bitcoin Ordinals, you’ll need a specific type of crypto wallet to do so.
So with all these things considered, you’re ready to find the best crypto wallet for you. Let’s explore each type of crypto wallet and what they are designed for.
If you’re storing cryptocurrencies, security should be of the utmost importance. There are several different threats to your digital assets, with some wallets providing better protection from these threats than others.
The first risk your wallet may encounter is remote hacking. To explain, software wallets store private keys on your host device–the same one connected to the internet. This means that hackers with access to your smartphone or laptop may be able to either extract your private keys and take control of your wallet or trick you into signing a malicious transaction that gives them power to take what they like.
To combat this particular threat, hardware wallets offer the most secure option.
To explain, a hardware wallet is a physical device. Unlike software wallets, they keep private keys in a computer chip, stored safely and securely away from your internet-connected device. This means that if your web2 device, such as your laptop or smartphone, is hacked, you can still trust the transaction details on the screen of your hardware wallet.
A key risk of hardware wallets is physical hacking. Each hardware wallet has a different security model, so checking that your hardware wallet has effective components to combat physical hacking is a must. Firstly, most hardware wallets offer a sort of two factor authentication. To explain, every time you transact with a hardware wallet you will have to enter a code on the physical device.
Ledger devices use a PINcode, a unique 4-6 digit code that serves as the first barrier for a physical hack. Moreover, they store your private keys in a Secure Element chip—the same chip you might find in a passport or bank card. These tamper-proof chips keep your private keys in an offline environment, making it harder for hackers to steal your digital assets.
Hardware wallets are fantastic for secure storage, with Ledger devices offering even more security than most. However, they do come with a risk: You. If you interact with a malicious smart contract, your hardware wallet might not be able to protect your assets.
To explain, malicious smart contracts may present themselves as harmless apps or platforms, then fool you into signing away your most valuable assets. A lot of blockchain transactions are impossible to read in human language, and signing a transaction like this is called “blind signing”. In these cases, you can’t know the result of a transaction before approving it—which could put your assets at risk.
So, how do you store crypto without making mistakes and signing away your crypto? Well, you may want to consider setting up a cold wallet. To explain, a cold wallet is a crypto wallet that never interacts with blockchain apps or smart contracts. It’s purely for sending and receiving cryptocurrencies.
Although there are plenty of different types of cold wallet, typically, users set up cold wallet accounts on their existing hardware wallet. That’s because your accounts on a hardware wallet are completely separate from each other, meaning an account that interacts with a smart contract cannot affect another account which doesn’t. This allows you to keep one account completely cold–used only for sending and receiving assets. Meanwhile, you can have another separate account you use purely for connecting to web3 apps and services.
Using this method, the only way your wallet—and all of the accounts within it—can become compromised, is if someone gains access to your secret recovery phrase. Remember: your Secret recovery phrase is like the master key for all of your private keys controlled by a specific wallet. That means anyone with access to the secret recovery phrase can control every single one of the associated accounts. That’s why keeping it safe and secure is so important.
Speaking of apps and services, many web3 explorers get involved in crypto purely for those means. To explain, dApps come in many shapes and sizes; including decentralized exchanges, DeFi lending and borrowing platforms, and even blockchain games and metaverses. However, these sorts of platforms will typically only provide you access using one of a select choice of wallets. And more often than not, these select few wallets are software (or hot) wallets.
Software wallets are the best for interacting with blockchain apps because they are easy and free to set up, and they are often widely used on popular blockchain apps and platforms. The most popular software wallets today include Metamask, Phantom, Keplr, Temple and Kukai.
While these types of wallets are extremely accessible, using them also comes with its own risks. To explain, software wallets store your private key on your internet connected device, i.e. your smartphone or computer. This means your private keys are vulnerable to online threats.
That said, there is a way to mitigate this risk: Using a Ledger device to protect your software wallet. This keeps your private keys offline and safe from these types of threats. For more information on how, make sure you check out the full article on using Ledger devices with third-party wallets.
Now, if connecting your device to a third-party wallet sounds like too much responsibility for you to handle—don’t worry! There’s also a much easier way to connect to blockchain apps. Connecting your Ledger device to Ledger Live and navigating to the Discover section will present you with countless apps and services.
Put simply, Ledger Live provides a secure gateway to popular web3 platforms and services from different providers. Using this method, you can start to explore web3 without worrying about phishing or malicious smart contract functions. Ledger Live has a clear signing plugin, which guarantees that all apps show you the proposed outcome of each transaction in human readable language.
Before you start interacting with web3, you might want some cryptocurrencies first. Buying and selling cryptocurrencies can be as easy as swapping one crypto for another. However, if you want to buy a cryptocurrency with a fiat currency (such as dollars or euros), or sell your cryptocurrency in return for fiat currency, you will have to use a crypto on-ramp or off-ramp service. These on and off-ramp services are typically provided by centralized cryptocurrency exchanges (CEXs), which brings us to our next type of wallet; a custodial wallet.
Custodial wallets allow the user access to the account, but essentially the centralized entity retains ownership over the account and everything in it. That’s because they do not allow users the ownership of their own private keys. Essentially, they work much like bank accounts, which makes them a good choice for beginners. They are convenient and often designed with user-friendliness in mind.
However, they also pose a risk. Should that centralized entity stop operating, you may not have access to your funds. It could be as simple as that entity going bankrupt. In fact, that’s exactly what happened with centralized exchange Celsius. It filed for bankruptcy and none of the exchange’s customers could withdraw their funds.
Thus, using centralized exchanges to on or off-ramp can be very convenient, but for long term storage, using their custodial wallets isn’t the best solution.
Luckily, custodial wallets aren’t your only on and off-ramp option. Through Ledger’s ecosystem you can buy and sell crypto for fiat currencies securely using a third-party provider.
To explain, while many of Ledger’s buy partners are centralized exchanges, using Ledger Live means you can retain custody of your keys while accessing this important service. That means you can buy crypto with your fiat currency then immediately secure it with your Ledger device rather than needing to transfer it from your custodial wallet.
Within Ledger Live you can on or off ramp using several different buy and sell providers including MoonPay, Wyre, Coinify and Paypal. Here, you can easily buy (and sell) crypto using your regular credit card, in conjunction with your Ledger device. Plus you can buy or sell a wide variety of coins and tokens including Bitcoin, Ether, Litecoin, DOT and more.
This is the most secure way to buy cryptocurrencies, plus, you can rest assured that using this method, only you can access the crypto in your account.
If you’ve set up a web3 community with treasury funds, such as a decentralized autonomous organization, an NFT or fan token project, you might want to control the funds with multiple people. In fact, you might even want to set up an account with your partner to control the funds for your next get-away. Either way, the best crypto wallet to use when requiring multiple people’s approval is a multisig wallet.
Multisig wallets are crypto wallets that operate via smart contracts and they require two or more participant’s signatures to approve transactions. These types of wallets are a game-changer for web3 businesses and communities which may require the permission of multiple representatives in order to move money, or make decisions on behalf of the community. Using a smart contract, you can set up each representative to sign with their own crypto wallet— whether that’s a software or hardware wallet like a Ledger device.
Whatever you need a crypto wallet for, the Ledger Ecosystem has an option for you.
Firstly, Ledger devices offer unparalleled security features including; a secure element chip, a trusted display, and rigorous security auditing in the Ledger Donjon. Not only that, Ledger devices offer flexibility; allowing you to set up and manage multiple accounts on multiple networks.
Then, through the Ledger Live discover section, you can access countless platforms in a secure and decentralized way. Since you can access blockchain apps directly through Ledger Live, you don’t have to worry about malicious transactions or phishing attacks. Instead, Ledger Live acts as a secure gateway to access blockchain apps and services.
Plus, if you want to explore web3 further, you can also connect your Ledger to a range of third-party wallet interfaces, allowing you to interact with blockchain apps beyond the Ledger Live Discover section. With this method, you can connect to countless platforms and apps with confidence that your private keys stay offline.
And of course, using your Ledger device along with the Ledger Ecosystem has its main advantage: Secure self-custody. With Ledger, you can be sure that your private keys stay under your control. In short, the Ledger Ecosystem allows YOU to take control of your assets, because that’s what self-custody is all about.