A cryptocurrency wallet is a software program that enables you to store, access and interact with your coins and can be considered as the crypto version of a bank account. The main difference is that with a conventional bank account, your account number is public and is directly linked to your identity, but your transactional history is private. With crypto wallets, your transactions are public, as well as your account number (public key), but there's no way to link a particular address to you.
Your wallet address is a unique string of numbers and letters (also called a public key) that people can use to send you cryptocurrency, and which is used on the blockchain to verify transactions. It can also be thought of as the crypto version of your bank account’s IBAN or SWIFT CODE in that it’s only used as an identifying number.
Because Coinmama is not a wallet provider, it’s very important that you triple check the wallet address you provide us with when buying cryptocurrency. We do not keep or store any coins at Coinmama, and if you make a mistake when entering your wallet address, we will have no way of retrieving your coins. This is due to the fact that transactions on Blockchain were designed to be irreversible, so once funds are transferred, they’re at the sole discretion of the receiving wallet’s private key holder.
How wallets work
In addition to the address (aka public key), your wallet also has a unique private key (or password/ PIN), which only you should know, and which you can use to access your cryptocurrency.
Types of Wallets
Different cryptocurrencies are supported by different wallets, but some wallets support several currencies (if you're buying multiple coins you'll probably need more than one wallet, depending on your provider). Note that Coinmama uses smart contracts when sending Ripple or Ethereum, so be sure to choose a wallet that's compatible with smart contracts.
Each different type of wallet has its own benefits and drawbacks, and your decision should be based on your particular needs. We've broken down the different kinds of wallets below to help make the choice - or choices - a little bit easier!
Hot wallets give you easy access to your cryptocurrency and are stored either on your computer or online (depending on the provider). They're best for small amounts of cryptocurrency that will be used frequently, such as for daily trading or making online purchases.
Types of hot wallets:
Online wallets: These cloud-based wallets can be accessed from any device with an internet connection and are stored with a third party, making this is to be the least secure type of wallet. Some online wallet providers, such as Coinbase, have insurance for your funds, but it would be best to contact your wallet provider to be sure if they do.
Mobile wallets: Mobile wallets are also based with a third party, but they live as an app on your own device. These can be used as a means of payment even in physical stores, but the downside is that if your phone breaks or is hacked, your funds may be lost.
Desktop wallets: These wallets are installed directly onto your computer and can only be accessed from the device they've been downloaded to. The funds in desktop wallets are at risk if the device is hacked, has a virus, or is damaged.Hot wallets we like:
Pros of hot wallets:
- Easily accessible
- Usually free or inexpensive
Cons of hot wallets:
- Vulnerable to hacking
- Online and mobile wallets are kept through third parties, which are also vulnerable to hacking and are often uninsured
- Susceptible to scams
Cold wallets live offline, either on a USB-like device or on paper. They're typically used for storing larger amounts of cryptocurrency that are meant for investment or hod'ling (e.g. funds that won't be used often).
Types of cold wallets:
Hardware wallets: These are physical devices similar to a USB stick that contains your wallet keys or code.
Paper wallet: Literally paper printed with a QR code and your wallet address and key. Receiving funds to your paper wallet isn't any different from other types of wallets since the transaction and your wallet history are stored on the Blockchain, and here's a short and simple video explanation from one of our affiliates explaining how to withdraw or transfer coins from a paper wallet.Cold wallets we like:
Both of these multi-currency wallets live offline. They're both a little costlier than hot wallets but offer the highest security possible for funds that aren't being moved around on a regular basis.
Pros of cold wallets:
- Highly secure and hard to hack
- Not reliant on a third party
- Leave control in the hands of the user
Cons of cold wallets:
- Must physically have the wallet in order to use it
- If the wallet is damaged the contents may be lost.
Due to the fact that your cryptocurrency is actually stored on the collective Blockchain network, if your hardware wallet is stolen, damaged or lost, then you might be able to recover your crypto assets if and only if you still have access to your recovery seed. All you’ll need to do is import the recovery seed into another wallet and you will regain access to all of your accounts, balances and transaction data.
Tips for safe wallet creation
- Do your own research: You wouldn't open a bank account without researching the bank first, so it would be best to do the same with your crypto wallet. Read reviews and make sure the wallet you choose is secure.
Always do careful research before choosing a wallet, as a common cryptocurrency scam is a fake wallet: a third-party platform or app that claims to be a legitimate wallet but instead either steals your private keys, or steals your funds directly.
One of the biggest red flags is unrealistic prices. This is one of the easier tactics to implement that many fake providers and exchanges use. If you're not sure, you can compare their prices to the XBX index.
- Stick with well-known and regulated exchanges: Keep in mind that just because you found the wallet on an app store, that doesn't mean it's legit.
- Address bar: The address bar contains a ton of vital information about where you are and how secure the site is. The first thing to check is if the address begins with an https:// or has a padlock sign to the left.
- Always create your own wallet: In order to keep your funds safe, create your own wallet and do not give access to the private keys to anyone you wouldn't also give your bank account password to.
- Know your public and private keys: Your public key is your wallet address, and is the string of letters and numbers you use when sending funds to your wallet, or that someone else can use to send funds to your wallet. Your private key is the password to your wallet - you should keep it safe, and not give it to anyone else. You will need it in order to access your money, so make sure you don't lose it, and always double-check that you have both the public and private keys before transferring funds to your wallet. It would be best to store your private key offline.
- Have a backup: Make sure you know your private key and have a backup somewhere safe—you won't be able to access your funds without it.