Cryptocurrency has never been hotter.
Bitcoin (BTC), the best-known cryptocurrency on the market, recently reached all-time highs of more than $52,000 per coin. Meanwhile, even a relatively unknown cryptocurrency like Dogecoin is enjoying the spotlight, as everyone from retail investors to Elon Musk has talked about it. And with cryptocurrency exchange Coinbase likely to go public sometime this year, cryptocurrencies are poised to gain greater legitimacy and attention than ever before.
If all of these factors make you want to buy some digital currency, the first place to start is by figuring out where you’ll store that cryptocurrency. In fact, when it comes to investing in cryptocurrency, choosing where to store it is nearly as important as buying it in the first place. So what’s the best cryptocurrency wallet in 2021?
What Is a Cryptocurrency Wallet?
The term “wallet” is a bit of a misnomer, as a cryptocurrency wallet doesn’t actually store funds.
Instead, each wallet stores one or more private cryptographic keys, which are required to access cryptocurrency funds that live in many fragments on a decentralized online ledger known as the blockchain. It’s absolutely vital to keep your private keys safe, and losing your key can often mean losing your hard-earned cryptocurrency.
The simplest way to divide your Bitcoin wallet options is between hardware (cold storage) and software (hot storage).
At the most secure end is what’s called “cold storage.” Digital wallets that store keys offline on a physical medium like a USB drive are called cold storage wallets because they’re not linked to the internet. A user retains full control over when and where the wallet is accessed, and all of the assets are stored offline, making it harder for hackers to steal from. But if you need to access your wallet quickly or on the move, it’s not the most convenient option.
On the other hand, “hot storage” options come in two forms: software wallets and online wallets. Both versions are connected to the internet — hence a “hot” wallet — where cybercriminals prowl. Software wallets are downloaded to a computer or mobile device, often in the form of an app, while online wallets act like websites, and are usually controlled by a major crypto exchange. Both come with the same benefits: keeping your crypto assets online makes it easier to transfer them, making hot wallets more convenient for users who intend to frequently trade crypto assets. But the downside is the same for both as well: connecting to the internet exposes users to the risk of hacking.
To keep it simple, hot wallets are connected to the internet, while cold wallets are not. Choosing the best Bitcoin wallet for you basically boils down to a continuum with security on one end and ease of use on the other.
So, if you’re interested in crypto wallets, here’s a breakdown of your options:
— Hardware wallets: Keys are stored in a small physical device that you connect to a computer or smartphone for transactions.
— Software wallets: Apps that you download to your mobile device or computer.
— Online wallets: Browser-based wallets that allow you to interact with them like a website.
Hardware Wallets: Ledger and Trezor
Hardware wallets are physical devices about the size of a keychain fob that store your private keys and can be kept separate from your desktop computer. Most importantly, even when you do connect one to your computer to make a cryptocurrency transaction, any malware that might be on that desktop doesn’t have access to the wallet.
The best cold storage wallets on the market are Ledger and Trezor.
According to Adam Lowe, chief innovation officer at CompoSecure, “when users evaluate hardware wallets, they should look for best in class security as well as ease of use. If it looks too complicated to use, you will either stop using it or worse, lose access to your crypto.”
Ledger and Trezor wallets have become popular because of the user experience they offer, which includes support for many different cryptocurrencies and a solid physical look and feel. Trezor brought the first cold wallets to market back in 2013, and today, its wallets remain very popular thanks to security measures featuring multi-factor authentication and an easy to use touchscreen.
Meanwhile, Ledger supports more than 1,185 crypto assets, its cold wallets are sold at a reasonable price, and the Ledger Nano X includes a Bluetooth feature that allows you to use it on your device without a physical connection.
Software Wallets: Electrum and BRD
Here’s where security begins to give way to ease of use.
A Bitcoin wallet on a computer that you use to browse the web is less secure than a hardware wallet because it’s susceptible to getting infected with malware that specializes in looking for cryptocurrency wallets. Then again, Pavel Matveev, CEO at Wirex, says that while hardware wallets are incredibly secure because they require physical access, “online wallets are kept secure using next-generation blockchain technology and encryption techniques, making them virtually impossible to hack.”
That doesn’t mean it never happens, but one way to help prevent thievery is picking a non-custodial wallet instead of a custodial wallet. A non-custodial wallet means you own and possess the private, cryptographic key to your digital wallet. Meanwhile, according to Dov Marmor, chief operating officer at Railsbank, with custodial wallets, “a trusted third party holds your private key and keeps the assets safe on your behalf.”
The Electrum desktop wallet is a non-custodial wallet that has been around since 2011, making it one of the most well-respected desktop wallets out there.
Lowe notes that “Electrum is the best known BTC desktop wallet in the space.” But besides its popularity, he says Electrum “has the advantage of being lightning network compatible, and an advanced, ‘layer 2’ payment protocol that sits on top of the BTC network.” The only downside to Electrum is that it can only be used for bitcoin transactions.
Marmor thinks that the BRD wallet is better for entry-level users, and it’s clear why. The very simple user interface is designed for mobile phones, and the streamlined transaction process makes it easy for new crypto traders to add funds and buy coins via BRD.
Online Wallet: Guarda
Online wallets are the easiest cryptocurrency wallets to use, making them very popular. But there’s a glaring downside to them that new cryptocurrency traders should be aware of: they are hackable. According to Lowe, “exchanges have been hacked for over $1 billion to date, with more unreported hacks suspected.”
In the case of custodial wallets, once you give up your private key, you lose your ability to control your cryptocurrency to another party. This is why Caleb Chen, content marketing manager at Private Internet Access, recommends staying away from web-based wallets that don’t allow users to store their own private keys.
For a non-custodial wallet in which users control their own keys, Guarda offers a web-based multicurrency wallet that supports multiple popular coins and tokens. It also allows users to import and export private keys to and from other services, back up a wallet with a secure encryption algorithm and purchase cryptocurrencies with fiat currency.
So What’s the Best Bitcoin Wallet for You?
Just as you likely maintain a savings account for long-term money storage and a checking account for day-to-day debit card purchases, the top cryptocurrency wallet solution may actually involve at least two wallets. Hardware or software, cold or hot storage, security or convenience — there are many different factors to balance when choosing your Bitcoin wallet.
At the end of the day, the best Bitcoin wallet is the one that fits your needs.
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Update 02/18/21: This story was published at an earlier date and has been updated with new information.