Letʼs be honest: Crypto is confusing when youʼre new to it. To a firsttime investor or someone just falling into the Bitcoin rabbit hole, the lines of code and talk about things called hardforks can be frustrating.
For many, the most confusing part about crypto is storing it, and we often hear new users wondering aloud about what the best wallets for storing crypto are.
There are several different types of wallets for storing crypto, but thankfully they break down into two main categories: hardware wallets and software wallets. Although both have their merits, one is far and away more secure for storing cryptocurrency. Read on and weʼll break it down for you!
Hardware wallets are tiny PIN-protected devices that look like USB drives and are used as very safe storage for cryptocurrency assets. The main advantage of using a hardware wallet stems from the fact that they are a form of offline storage, otherwise known as cold
storage. Compared with software wallets, hardware wallets have the following advantages:
Immune to viruses and other forms of malicious software attacks like keylogging
Private keys are kept completely secure and donʼt interact with software
Hardware wallet software is open source, transparent, and can be recovered easily
Hardware wallets can be used with software interface of userʼs choice
Storing cryptocurrency in a hardware wallet is a lot like keeping your cash in a personal vault. Only you know the location and the code required to open it. Users who keep their cryptocurrency on exchange wallets or other software-based wallet options can at any time fall victim to a hack or restrictions placed by the exchange operator on wallet access. Keeping your crypto in your own hardware wallet means your assets are securely in your ownership, with no intermediator resting in between.
To send cryptocurrency from your hardware wallet to an exchange or software wallet before trading, there are several ‘one-clickʼ options, making hardware wallets not only secure but also convenient for moving crypto when you need to. Although quite a few startups have tried to enter the hardware wallet market, at this time only two are thoroughly tested, audited, and recommended – Ledger Nano S and Trezor wallet.
Software wallets are online, desktop, or app-based crypto wallets that allow you to store a variety of cryptocurrencies without needing a physical device to do so.
Why do users opt for software wallets?
For one thing, theyʼre very simple to use, are usually free, and tend to allow a wider variety of storage options than hardware wallets. Hardware wallets take a long time to build support for new tokens, so they are quite limited when it comes to which tokens you can keep on them. Software wallets, on the other hand, are usually very fast to support new tokens, making them the usual go-to for investors buying cutting-edge projectʼs coins.
MyEtherWallet, a software wallet that is immensely popular with cryptocurrency investors, is a great example of this. Ethereum tokens, called ERC–20 tokens, are a massive category with over 1,000 different types in existence today. MyEtherWallet supports the ERC–20 standard, as do most other popular software wallets like Jaxx and Exodus.
The edge software wallets tend to have over hardware wallets is their ability to stay at the forefront of token support. Therefore, if youʼre looking for a type of wallet that supports the widest range of cryptocurrencies on the market today, then look no further than a software wallet.
There are security concerns to be aware of, however. In many instances, you arenʼt given the private keys to the software wallet youʼre using. If you donʼt have the private keys to the wallet, then the net effect is that you arenʼt the walletʼs rightful owner. Only use software wallets for which you also have the private keys. Secondly, software wallets are vulnerable to malicious attacks by hackers and can be disrupted by changes to their code (such as exploits). While MyEtherWallet, Jaxx, and other popular software wallets have been secure to date, it is best not to get too comfortable with them.
While software wallets have their place in cryptocurrency storage, hardware wallets are the most secure wallets for cryptocurrency storage.
When storing cryptocurrency long term, nothing beats the safety of having your coins offline with the knowledge that only you have access
to them. Software wallets are useful in many circumstances, and you may find yourself needing to use them if youʼre holding newer coins or those unsupported by popular hardware wallets. As long as you follow strict guidelines for keeping your computer clean and storing your private keys safely, you should be fine when using software wallets as well.