Which crypto wallet is more secure?

A cryptocurrency user should be able to:

Learn how to buy/sell Bitcoins and other cryptocurrencies through cryptocurrency exchanges.

Understand the capabilities of the different types of crypto Ethereum wallets and be able to choose the one that best suits them. Fund storage within a centralized exchange is not always secure.

Use encryption and additional security features.

Usage Statistics

There are more than 75 million Bitcoin wallets compared to 53 million a year ago according to Statista.

Coinbase announced 56 million verified users in early 2021.

According to NASDAQ, there are approximately 46 million Americans who own at least a fraction of Bitcoin's active cryptocurrency users, which translates to approximately 17% of the adult population.

Much data is missing from emerging markets.

Bitcoin's market capitalization is approximately $940 billion, with the total crypto market capitalization above $2 trillion.

Mismanagement of users often leads to the loss of private keys, passwords, and consequently, the loss of billions of dollars in crypto funds.

Even though cryptocurrency users in numbers are currently a fraction of the number of users engaged with conventional payment mechanisms like Visa, PayPal, and Mastercard (each having hundreds of millions of users), awareness and cryptocurrency adoption. Therefore, this article is a useful tool for new users to understand the capabilities of various types of crypto wallets and choose the ideal one for their needs.

Cryptocurrency Exchanges

New users should carefully select the cryptocurrency exchanges they sign up with. There are thousands of them, but there are certain features to look into before joining any of them: Fees: Deposit, transaction, and withdrawal fees vary between exchanges. Most of them favor larger transactions. Check the website of each exchange for detailed information. Cryptocurrency friendly: Choose an exchange that allows you to trade a variety of cryptocurrencies beyond Bitcoin (for example, ETHER, AVAX, DOT, ADA, ALGO, HOLO, SWAP, etc.) Reputation: User reviews from people within Bitcoin communities are a great tool to access important advice, as this group of people is active and willing to help. Your Verification Requirements: Most centralized exchanges require identification and address verification to deposit and withdraw. Consider staying away from centralized exchanges that allow full anonymity, as they are the most vulnerable to money laundering and scams. Payment Methods: Choose an exchange that allows you to deposit/withdraw with a variety of methods (eg crypto, credit card, debit card, bank transfer, PayPal, AstroPay, etc.)Exchange rate: The exchange rate varies between different exchanges. Advanced users usually sign up to at least 2-3 exchanges to benefit from arbitrage opportunities. Geographic Restrictions: Certain exchanges do not offer full functionality in some parts of the world. Users today tend to use decentralized exchanges (DEXs) rather than centralized ones, due to low barriers to entry in terms of participation requirements, no withdrawal/deposit limits, and elimination of intermediaries. We will take a deeper look at the DEX ecosystem in a future blog post.

Crypto Wallets

Exchanges may not be the optimal way to store crypto funds, as there have been various attacks by malicious parties in the past. When utilizing crypto exchanges, there are various hazards related to third parties. Storing funds on an insecure exchange refers to entrusting the custody of your funds to a third party. Third party risks include:

Fraud (the exchange may not be a legitimate counterparty)

Security (numerous attacks and sharing hacks in the past)

Financial health (if the exchange fails financially, your wealth may also be lost)

Users will be able to choose securely verified exchanges to trade and deposit/withdraw and enable 2-factor authentication from the security settings.

Web Wallets

The web client is the least secure option, after exchanges. Web wallets like BitGo, Green Address, Circle, and Blockchain keep your private keys (also known as your password) on their servers. It can come through a mobile app or by using your browser on a personal computer. + Easy access to your coins from multiple devices + A third party takes responsibility for funds for new users − you are trusting a company not to steal/mismanage you are putting your confidence in a business to protect your money from threats.

Desktop Wallets: Full Nodes

Full nodes (like Bitcoin Core) are software downloaded and installed on a PC or laptop and keep the history of the entire blockchain on your computer. + Help maintain Bitcoin or other cryptocurrency network + Full control and protection, especially if private keys are encrypted with passphrases and regularly backed up + Attacking every full node to perform a network attack is complex, plus slow and expensive for malicious parties − May be vulnerable to Internet attacks, such as spying or computer malfunctions − Most Ethereum blockchain networks take days to download and sync. For most users, this option is not advised due to the required disc space.

Mobile Wallets

We are going on a mobile device (examples: Mycelium, Coinomi) – they usually work as a thin client or a web client. A thin client downloads only part of the blockchain network (saving time and space) and queries full nodes to verify transactions. + Portable, easy and convenient: the smartphone camera scans the QR code of the receiver/dealer and transfers the coins + Best for everyday transactions + If the mobile device is lost or stolen, the funds do not disappear, most of wallets require backups to recover coins. You are required to create a 12 or 24 word mnemonic phrase upon installation − Mobile wallets generally require a PIN

Paper Wallets

Mainly applicable to Bitcoin; pieces of paper containing public and private keys. Users should keep paper wallets in a safe place and keep multiple copies + Protection against online attacks and hardware failure. Can be generated offline with some technical knowledge + Ideal for long-term fund holding and gift provision − Vulnerable to loss, theft and destruction − Users must import paper wallets into the software in order to transfer coins. This is not the case with hardware wallets: you must specify the "exchange" address when spending a portion of the funds, or else you risk losing the remaining balance, due to the way Bitcoin treats the change in transactions.

Hardware Wallets

The most secure option, satisfying maximum security procedures (examples: Trezor, Ledger). + Maximum security (not connected online and therefore cannot be easily compromised) + Private key generation and storage within the device + Users access the wallet with a PIN. Signed transactions within an external PIN-protected device + Backups are essential for hardware wallets, similar to mobile wallets. The only way to lose funds is to lose both the hardware device and the backup phrase − Less convenient than mobile wallets for daily transactions − Users must purchase hardware wallets from original stores to avoid scams Both first-time and advanced users Experienced should consider the maximum security of their wallets. Adequate protection measures require significant investments in additional research.