July 28, 2022
An Exploration of the Crypto Wallet*
5 min read
Crypto wallets are both a necessary and often confusing gateway to the world of Bitcoin, NFTs, and different chains like Ethereum or Solana. Adding to the complexity are the dozens of wallets that are available. The purpose of wallets is easy to grasp, but how wallets achieve their purpose can be complex. Rather than simply review a collection of wallets, it seems more helpful to explore the idea of wallets relative to how they are likely to be used. By considering what you want to do with a wallet and understanding a little about how they work and looking at a few popular examples, this article will hopefully help you understand the world of wallets a little better.
At its simplest, a cryptocurrency wallet allows you to buy, sell, (sometimes) trade, and secure your digital assets. They range from very simple wallets that may only access a few coins or a single chain, to others that are entire ecosystems and provide a wide range of utilities. Whether simple or vast, fundamentally they ensure that the owner of the cryptocurrencies and blockchain assets is the only one who can access them.
As for so much else in life, knowing what you want to do helps in choosing a wallet that will best fit your needs. Asking yourself how many currencies are you likely to use, how often and in what way you want to use them and whether you want other functionality like lending, staking or collecting NFTs will help narrow the field.
What makes a wallet simple? Ease of use, clear focus on one or a few uses and smooth setup certainly help. One of the most popular uses of wallets is to trade cryptocurrencies. Unsurprisingly then, some of the most highly recommended wallets for beginners are associated with large crypto exchanges.
Binance, Kraken and Coinbase offer wallets with a robust feature set and well thought out user interfaces. Kraken in particular is focused on delivering a simple user interface that makes buying and selling straightforward. While all three are large exchanges, their wallets can be used with other platforms like Structure.
Another way of simplifying is to help users create and access their accounts. The use of biometric technology by wallets like ZenGo avoids the complexity of seed phrases and simplifies the setup process. Many wallets are secured by passwords that, if forgotten, would cause you to lose your assets. This is a “dead” wallet. By providing a series of seed phrases that can be stored safely, a path is created to aid if access is lost for some reason. Biometric approaches bypass this by using your face or fingerprint as a password and hence eliminate one source of trouble - forgotten password. If you feel like you always lose your passwords, biometric security might be for you.
Finally, many wallets like ZenGo and Mycelium are optimized for mobile use, have easy setup and excellent customer support. Wallets with mobile first design are often preferable if you are going to mostly use your phone for accessing your assets. Further, they are often easiest to set up.
Finally, looking for projects with great customer support reduces worry because you know you can get help if you need it. This often overlooked feature is important, particularly for beginners.
More Complex Wallets
Some wallets are designed to provide an entire suite of uses. For instance, Crypto.com’s wallet allows access to an entire world of Defi. You can swap, mine, stake, loan, earn returns and more. Another example is Uphold that allows users to access different networks, earn interest, even invest in stocks. Like Cyrpto.com, Uphold’s wallet is a gateway to a diversified suite of applications. If you want to explore the full possibilities of decentralized finance and tokenized assets these more feature filled wallets will likely be better suited to your needs. If you don’t know what staking and lending protocols are but want to explore, these types of wallets give you an opportunity to learn.
Some wallets are very good at specific tasks. Metamask is the most popular wallet for use with the Ethereum network and operates more like a browser than simply a wallet. It helps you access the entire ecosystem that is built on top of the Ethereum chain.
Xdefi is a wallet that is becoming increasingly popular with NFT collectors. Where Metamask focuses on the Ethereum chain, Xdefi allows access to Ethereum, Avalanche, BNB, Polygon and Terra chains. You can explore, collect and compare your NFTs across all these chains from within a single wallet. For the NFT connoisseurs this is a great help.
Finally, it is quite common for people to have more than one wallet. As you become more experienced and your needs change, it often makes sense to diversify. Generally, wallets are simple to install and experiment with. A little trial, and hopefully not too much error, will quickly give you a sense of what is best for your uses.
When researching wallets, it helps to understand some basic concepts that will recur throughout different reviews and descriptions.
Blockchain: Cryptocurrencies are recorded on a blockchain ledger. A blockchain is a public digital ledger that records transactions. The shared nature of a blockchain creates an immutable registry that prevents duplicate spending of cryptocurrencies and validates transactions. Different chains, like Ethereum or Avalanche, operate as independent systems. They are connected by bridges and by dapps that allow interoperability across different chains.
BTC: The currency code for Bitcoin. Bitcoin was created by Satoshi Nakamoto as the first decentralized cryptocurrency.
ETH: The currency for the Ethereum chain created by Vitalik Buterin and the Ethereum foundation.
Foundation for Wallet Interoperability (FIO) Network: The FIO is an interoperability standard developed in “pursuit of blockchain usability through the FIO Protocol.” The protocol is meant to develop a standard for interaction between various crypto-related entities.
Hot Wallet/Cold Wallet: Hot wallets are digital wallets hosted on a server. Cold Wallets are hardware wallets, often in the form of USB drives, that are not connected to any networks.
Biometric Security: Uses face scans or fingerprints as part of the private key to enhance security while making it hard to 'lose' or 'forget' your password.
Open-source: Software that has a source code that anyone is free to study, modify or distribute.
Seed Phrase: A string of 12 to 24 words generated by many crypto wallets. It’s effectively a private key that humans can read.
*Structure does not endorse any products or services mentioned