Even as cryptocurrency becomes more and more mainstream, the wild ride that Bitcoin and other cryptocurrencies are always on scares off a lot of people. It’s one thing to imagine you were hip enough to buy Bitcoin when it was worth a few bucks, it’s something else entirely to pony up thousands of dollars only to see it magically transform into hundreds of dollars.
There are still compelling reasons to invest in crypto, of course. Bitcoin and Ether and other crypto coins have shown a tendency to gain back value after falloffs, making every dip a potential opportunity. And the potential for cryptocurrency to someday become a truly anonymous currency has vast appeal for many—plus, the list of stuff you can buy using Bitcoin and other currencies is growing.
If you’re new to crypto, you might not realize that you need a place to store your coins once you’ve bought them. Cryptocurrency is just decentralized computer code, and yes, you can store that code in an exchange like Coinbase or Robinhood—but storing your crypto in public exchanges puts your funds at risk, because if the exchange is compromised (or collapses), all you can do is wave sadly as your coins fly away, never to be seen again. A better bet is to put your crypto in a cryptocurrency wallet.
The difference between hot wallets and cold wallets
There are more than 17,000 cryptocurrencies in existence, which is…a lot. There aren’t quite as many wallet choices for storing your crypto, but you still have some decisions to make.
A cryptocurrency wallet isn’t a place where your coins go, it’s just a place where your public and private keys intersect. They work in essentially the same basic way, using a public and private key system. When you send money to the public key, it posts that transaction on the blockchain associated with that particular cryptocurrency. That’s the public, unalterable record that governs the cryptocurrency. Then, in order to access the crypto in the wallet, you need your private key. It’s important to note that no matter where you store your crypto, if you lose your private key, you are what scientists call shit out of luck (SOL).
There are two basic kinds of crypto wallets: Hot wallets, which are software-based and connected to the Internet, and cold wallets, which are not connected and are often hardware (as in, a physical dongle or drive). Hot wallets are slightly less secure but lend themselves to daily transactions. Cold storage has that extra bit of security in that even if hackers know how to steal your crypto, they’ll need physical access to the wallet to even try (and even if they actually steal the physical wallet, without your private key your money is safe). But the downside of a cold wallet is the delay and trouble involved in accessing your crypto.
In fact, the ultimate cold wallet is what’s known as a paper wallet, which is just that—a piece of paper with your public and private keys printed on it. They’re not very convenient, and if you lose the paper you’re screwed, but on the other hand, no one has invented a way to beam a piece of paper over the Internet. Some investors use both hot and cold wallets—hot to make daily moves, cold to store coins long-term.
If you decide you want a cold wallet, your best choice is probably the Ledger Nano X. It works with more than 1,800 kinds of crypto coins and is easy to use. You can connect it to your computer either via USB or Bluetooth, making it a convenient cold wallet. The Nano X balances solid security with an interface that is easy to navigate and use, so you can spend more time staring in horror as your crypto position craters and less time trying to frantically figure out how to sell it all before it’s too late.
Other cryptocurrency wallets
If the ease of transactions and being free from a physical object is important to you, a hot storage wallet is your answer. Which wallet you choose depends on what you’re looking to accomplish:
- Getting started. Is this your first crypto rodeo? Are you dipping a toe in to see what it’s like to watch the value of your investments rocket up and down in dizzying fashion? Then your best choice for a hot crypto wallet is probably Coinbase Wallet. This is the wallet offered by the Coinbase exchange, which is the best-established exchange in the market, but you can use Coinbase Wallet without a Coinbase account. It supports more than 500 cryptocurrencies and is easy to use. Since it’s offered by Coinbase, there’s some reasonable expectation that if something happens and your coins are stolen, you’ll get them back—and while their customer service isn’t always the best, they do have customer service.
- Security. If your main concern about a cold wallet is not waking up to discover the Russian mafia has stolen your coins, the Trezor Model T is one of the most secure wallets around. Supporting more than 1,600 coins, the Trezor has two distinct advantages: One, it’s open-source, meaning its code is available for examination, which reduces the chances of a dirty trick lurking in there. And two, it runs as a native app on your desktop computer, as opposed to a web app, which removes one layer of potential vulnerability.
- Mobile-only. If you’re that ultra-modern person who does everything on their phone or not at all, your hot wallet of choice should be Mycelium. Mobile is inherently less secure than any other platform, so Mycelium’s focus on security and transparent code (which can be examined and reproduced) are huge features. It also allows you to temporarily disable outgoing transactions, which is a great feature if you’re planning on stepping away for a bit.
There are close to a hundred crypto wallets on the market right now, so you have a lot of choices. If you’re just figuring this stuff out, you can start with Coinbase Wallet and transfer everything over if and when you decide a different wallet is needed. Ultimately, choosing a wallet offered by a reputable, well-established company is the key first step.