Look before you leap: why you shouldn’t choose the first crypto wallet you come across

The answer is simple — because sooner or later, you will lose all of your money — the end. Are you still there? Then you want to know how to avoid that. And once again, the answer is simple — choosing a wallet requires a responsible approach and doing a little bit of research.

It seems quite obvious that when choosing something as important as a crypto wallet, you cannot rely exclusively on your intuition or the first thing to come up on the first page of Google search. Nevertheless, many users that are not familiar with how crypto wallets work quite often make their choice almost at random, risking one day lose all of their assets. Don’t be like that! Let us tell you what to pay attention to and how to choose a high-quality wallet instead of the first thing you come across. But first, a quick crash course about wallets, keys, and some other basic concepts.

Wallet types

If you want to store and send cryptocurrency, then a crypto wallet is something you can’t do without. And it is important to know the differences between various wallet types, as they have far-reaching consequences in terms of safety and usability. Let’s start with an essential distinction between custodial and non-custodial wallets.

Non-custodial wallets

When talking about non-custodial wallets, we must first address one of the most widespread misconceptions about crypto wallets: they do not actually store your cryptocurrency. Instead, they provide you easy access to work with it. As you probably know, cryptocurrencies are decentralized, which means that they are not stored in a single place but are recorded on the blockchain in the form of transactions.

A non-custodial wallet is a tool that allows you to interact with the blockchain directly. The most defining characteristic of such a wallet is that users have full control over their assets: no one, even the company providing the wallet, cannot gain access to them (in particular, this principle is used by the MoneyPipe HD cryptocurrency wallet (Android || iOS)).

After installation, the wallet generates one or several pairs of private and public keys, which make it possible to send and receive assets. Then the assets get tied to a specific address, and when a user wants to send cryptocurrency to someone, the wallet uses the private key to sign the transaction and transmit it into the network, where it gets checked with the help of a process called mining. The signature is also mathematical proof that the transaction is outgoing from the wallet’s owner.

• Private key — a randomly generated string of digits and letters, which allows you to send cryptocurrency to others. Without it, you cannot approve transactions; therefore, it is crucial to keep the private key as secure as possible — losing the private key means permanently losing your coins.
• Public key — is a key that others can see and is generated from the private key through hashing. In essence, it’s your wallet’s address that others use to send you cryptocurrency.

To make things easier, think about keys this way: the public key is your bank account, and your private key is your security code. People can know the former, but you should not tell them the latter.

In essence, the non-custodial wallet is an interface that displays the account balance and allows to initiate transactions. It is important to understand that the fact that the wallet provider cannot gain access to your assets means that if you lose your private key (or seed prase) related to your account, the provider will not be able to help you in any way and you will lose all of your assets. Non-custodial wallets usually include desktop, mobile, and online wallets (which will be explained further).

Custodial wallets

Custodial wallets, as opposed to non-custodial ones, store cryptocurrency on behalf of their clients. This means that your assets are not tied to a blockchain address under your control. Instead, the wallet provider stores all of your assets and is responsible for their safety. Such wallet providers are often compared to banks, and like banks, they are also regulated financial companies. Among other things, it means that they have to verify their users’ identity, limit their services in specific countries, or even censor certain payments as required by local authorities. If you have not received a private key after installing the app — you are dealing with a custodial wallet.

Custodial wallets are convenient for novice users but do not give the financial sovereignty that cryptocurrency can provide.

Brief description of wallet types

All crypto wallets can be divided into five categories: desktop, online, mobile, hardware, and even paper ones.

• Desktop wallets can be downloaded and installed on your computer regardless of the operating system used. It is a relatively safe way of storing coins, as they can only be accessed from your computer. However, since computers are always connected to the internet, do not trick yourself into thinking that your keys cannot be stolen.
• Online wallets «operate» in the cloud, which makes them very comfortable to work with — you can access them from virtually anywhere in the world as long as there is an internet connection. Nevertheless, in the case of online wallets, your keys are not entirely under your control, and the centralization of multiple keys makes them more vulnerable to attacks. Online wallets are usually used by cryptocurrency exchanges.
• Mobile wallets, e.g., MoneyPipe HD (Android || iOS), are equivalent to desktop ones but are designed to work on your smartphone. They are easy to use, as your smartphone is always on hand, they are quite stable, and your keys are usually stored locally on your device, which enhances security.
• Hardware wallets are a solid choice for those that are serious about keeping their cryptocurrencies in the long term. As opposed to software wallets, hardware wallets store your keys on a special flash drive device. Most of them are designed to provide security even when connected to virus-infected computers. The only serious drawback of hardware wallets is their high price.
• Paper wallets allow storing your private and public keys in print, usually in the form of QR codes, and not necessarily on paper — you can also print them on plastic, like on a credit card. This is quite a safe storage solution, as the main risk is to lose or accidentally throw away the printout. To spend money from your paper wallet, you must first transfer them to a software wallet — this process is known as «sweeping.»

Choosing a wallet

Of course, choosing the best cryptocurrency wallet is a matter of preference. However, it has to be based on pragmatic and practical considerations. Therefore, first of all, ask yourself several questions:

• Do I need fast, day-to-day access to the wallet?
• How many different cryptocurrencies do I plan on storing?
• How much does using the wallet cost?
• Is security important to me?
• Am I ready to sacrifice safety in favor of convenience?

After you decide which type of wallet you want to use, make sure that the chosen wallet is secure and you can trust your cryptocurrency tools. Of course, first of all, you have to pay attention to the cost (most crypto wallets are free-to-use, but some, such as hardware ones, require some investment), security, and ease-of-use.

When choosing a wallet, your assets’ security should sit at the top of the priority list, as those are the functions that you would want to study most carefully. In turn, the wallet’s ease-of-use can be that small difference that separates the pleasure of using a wallet from complete disappointment. Desktop and mobile wallets are usually very easy to use and do not require a lot of effort to set up correctly: you can start working with MoneyPipe HD (Android || iOS) in just five minutes after a few simple steps.

Here are a few more key points you should pay attention to:

• Company reputation. Think about how long the company has been operating, who runs it, how securely they store your data on their servers, who stores your private keys, are they ensured, and did the company had incidents of insider hacks and loss of cryptocurrency due to poor data management or faulty software in the past. At least, search for some reviews.
• Technologies used. Wallets with open source codes allow third parties to thoroughly check their code, which means that it will become known if something is wrong. Usually, cryptocurrency users feel less secure when using wallets with a proprietary code and do not see what hides beneath the service’s exterior. Apart from that, pay attention to the principle of storing private keys, the availability of two-factor authentication, and, if it is essential to you, the support of user privacy.
• Multicurrency. Some wallets are specifically designed for a single cryptocurrency. Others work with various cryptocurrencies simultaneously. If you need to store multiple coins, before installing a wallet, make sure that it supports this feature.
• Ease of transferring funds. Taking how crypto wallet addresses look into account (as a long sequence of numbers and lower and uppercase letters), anything can go wrong when typing in the address on a mobile device’s tiny sensor screen. So it would be handy if the wallet you have chosen was using one of the quick and straightforward transaction methods, e.g., by phone number and contact list on your device (which is a function that MoneyPipe HD (Android || iOS) possesses), or via QR code.
• Readiness for blockchain evolution. Ensure that your wallet provider has the right experience and is ready to manage systemic improvements, such as SegWit or random hard forks as blockchain technology develops, which will, without a doubt, continue in the future.

Additional wallet functions that are not considered key but can also be paid attention to:

• Cryptocurrency conversion. Converting one cryptocurrency to another is a truly convenient integration, which can be embedded directly into your wallet. However, only truly advanced users require it.
• Shared account. MultiSig is a relatively new function that allows users to set multiple private keys for a single wallet and is ideal for families or business partners.
• Multiplatform. This one is simple: if you require access to a single wallet on multiple platforms, it would be good to make sure beforehand that the service provides such an opportunity.

Approach choosing a crypto wallet wisely, and you will save yourself a lot of trouble and the poor developers from a flurry of angry comments.