Similar to a bank account for fiat currency, a crypto wallet is a personal interface for a cryptocurrency network that provides reliable storage and enables transactions. Whether a cryptocurrency is securely stored or not, much depends on the wallet, which is only as secure as its private keys.
Wallets are generally either hot or cold. The funds in a hot wallet can be spent at any time, online. A cold wallet functions in contrast: not intended for regular cryptocurrency transactions, but funds can be received at any time. Wallets can also be divided into three groups: software, hardware and paper. Today, we will take a look at the most widespread group of crypto wallets ー software.
What is a software wallet?
Software wallets come in many forms, each with its own set of unique characteristics. Most are somehow connected to the internet and are hot in nature. Wallets are distinguished by a set of supported cryptocurrencies and software platforms such as Windows, Mac and other operating systems. Software wallets are available in three forms — desktop, mobile and online:
- Desktop wallets are computer programs that store cryptocurrencies on a PC so that its information is not accessible to anyone but the user, whose private keys are kept only on the desktop.
- Mobile wallets come in the form of a smartphone app and are easily accessible to their users at any time, considering most people don’t leave their homes without their phones. However, it is worth remembering that mobile devices are vulnerable to various malware and can be easily lost.
- Online wallets are web wallets that can be accessed from anywhere and any device, making them more convenient, but the private keys are stored by website owners rather than locally on user devices.
So, the burning question on everyone’s mind is: Which of these software wallets do I choose?
Exodus is one of the most popular software wallets for storing Bitcoin (BTC) and supports over 110 other cryptocurrencies. Launched in 2015 and based in Nebraska, the service is supported by all major software platforms.
The Exodus code is partially open-source. Private keys are controlled by the users and do not leave the device where the wallet is installed. The service’s philosophy implies the absence of any personal identification and interaction with banks. Exodus uses the instant digital asset exchange ShapeShift for its wallet’s exchange function, although fiat money exchanges are not supported.
Exodus is a free service, while its transaction fees are paid only to miners and determined automatically using the Bitcoin fee service. The size of a transaction in the wallet is determined by the number of inputs and outputs. The more input, the more expensive the transaction becomes. The wallet charges a portion of the commission for facilitating transactions made within the system.
Electrum Bitcoin Wallet
The Electrum Bitcoin Wallet is a reliable service that has been around since 2011. It is a so-called “thin” cold wallet, where the entire blockchain is not downloaded to the user’s device but is rather stored on the network servers. In this case, private keys are stored on the user’s computer in an encrypted form and are never sent to the server.
Versions of the Electrum Bitcoin Wallet can be automatically synchronized on different computers. If users want to use another client program or an online service in the future, they can easily export their keys there or import keys into a cold wallet.
This crypto wallet can sign transactions on a device disconnected from the network by saving a new transaction onto a USB flash drive and then loading it onto a device connected to the internet, where the new transaction can be imported onto the network. The wallet is functionally an analog of a hardware wallet, albeit with a slightly more complex chain of actions, and also uses two-level encryption.
Based in Canada, Jaxx was launched in 2016 by Anthony Di Iorio, CEO and founder of Decentral as well as a co-founder of Ethereum. Jaxx is available on most popular operating systems: Windows, Linux, Mac OS, Android, IOS and also as an extension in the Google Chrome web browser.
Over 80 cryptocurrencies are available as the ShapeShift exchange is also integrated into the Jaxx wallet for easy and fast transactions. The Jaxx platform does not support fiat money exchange operations or multi-signature. It is a free service, and its transaction fees are paid to miners and differ by currency. When transferring BTC, users choose from three options for fees, depending on the urgency of the transfer.
All of Jaxx’s code is open-source except for the user interface. Private keys are controlled by users and do not leave devices that have had wallets installed on them. To verify transactions, centralized validation technology is used. The intuitive controls render this wallet user-friendly and convenient to use.
However, the company has had its rough times. In 2017, Jaxx was hacked, and more than $400,000 in various cryptocurrencies was stolen. However, Jaxx Chief Technical Officer Nilang Vyas said in a Reddit post that, unlike hardware wallets, Jaxx is not designed for long-term storage of crypto assets and that users should store only small amounts of funds in their Jaxx wallets.
Founded in 2017, Atomic Wallet is a desktop app that provides users with full control over their cryptocurrency savings, as the private keys and transactional data for this service are stored on users’ computers rather than on the provider’s servers.
Atomic Wallet is compatible with all known operating systems and currently supports more than 300 cryptocurrencies, including the most common ones, alongside most ERC-20 tokens and its own Atomic Wallet Coin (AWC). The app can be downloaded for free, but it does contain certain paid services:
- Purchasing cryptocurrency with a credit card (a 2% commission and minimum commission of $10).
- Currency transactions within the wallet, such as peer-to-peer.
- Transactions conducted through ShapeShift.
As a solution that lacks servers, Atomic Wallet does not require registration from its users. Therefore, the wallet does not store any confidential personal information and does not utilize the services of intermediaries to conduct transactions.
All data transferred is encrypted, as users receive a unique “backup phrase” comprising 12 randomly generated words to recover access to their wallets to serve as a backup should other forms of verification fail, or in case a mobile phone is lost.
Bitcoin Core was created in 2009 and is based on the wallet program code that was published along with Bitcoin’s project software, thereby ensuring streamlined functionality along the network.
In 2012, the Bitcoin Foundation began developing applications based on the original Bitcoin project code. The main focus was on the wallet as a dominant app that met the primary needs of the network: storage and money transfer.
Bitcoin Core was one of the first wallets to support SegWit technology and serves as a reference cold wallet for BTC. No other currencies are supported. The wallet can be downloaded as a desktop application on Windows, Linux and Mac.
The main advantage of Bitcoin Core is its security. All information is stored on the user’s PC, independent of third parties and other entities’ servers. A file with private keys is generated and stored by the user — no one else can access it.
With Bitcoin Core, the user can be guaranteed complete anonymity, including anonymized payments. Bitcoin Core uses an address rotation system, making it practically impossible to track the sender and the recipient addresses — provided that different addresses are used for each transaction.
Among the wallet’s shortcomings is low mobility, which may be unappealing for many potential users. Bitcoin Core lacks a mobile version, and this is likely to remain the case, as mobile use contradicts the wallet’s foundational principles of operation and security. Installing a wallet on another computer or even on a reinstalled OS will also not help to recover the funds, as the entire synchronization process (i.e., data downloading and verifying validity) would need to be repeated.
BitGo is a blockchain company founded in 2013 and headquartered in Palo Alto, California. While originally a BTC wallet, BitGo has added support for other popular cryptocurrencies over the years. The BitGo wallet is a web wallet that can be connected through a desktop computer, laptop or other devices. The mobile version of the wallet allows storing keys on user devices. Additionally, keys can be transferred to other devices.
The company has developed two versions of its wallet for either individual or business use.
In addition to being an online wallet, BitGo offers a service providing reliable storage of digital assets for institutional investors through its partnership with Kingdom Trust. In the spring of 2018, the wallet began supporting the ERC-20 standard, expanding the list of supported digital currencies to 90. However, this is of little use to ordinary investors, as all ERC-20 tokens on BitGo are available only to institutional investors.
Each BitGo wallet has three keys: One is stored on BitGo, the second on the user’s device and the third through the Key Recovery Service software. To avoid third-party involvement, just two signatures are required to complete transactions. Access to the wallet is protected by two-factor authentication, and users must confirm their IP every time they log in to their wallets. BitGo charges a fee of 0.25% on all withdrawals up to 1 BTC alongside the usual mining fees.
Like Jaxx Liberty, the BitGo wallet has been at the center of a scandal. In 2015, BitGo and Bitfinex announced their collaboration to create a multi-signature wallet system. The companies decided to put user funds into a mixed storage, in which some were stored on large, offline wallets and the rest online. As a result, each user had three keys, two of which were stored by Bitfinex and the third by BitGo.
However, in August 2016, Bitfinex discovered that more than $60 million in BTC had been withdrawn from its users’ hot wallets. To this day, no explanation has been offered as to how the attackers managed to pull this off other than BitGo confirming on its official Twitter page that its servers had not been breached.
Crypto wallets going forward
Cryptocurrency wallets are an integral part of using Bitcoin and other cryptocurrencies. They are a fundamental element of the crypto infrastructure that allows funds to transfer across blockchain networks. Each wallet has its own advantages and disadvantages, so understanding how they work and what kind of activities they facilitate is essential before moving on to using them.
In any case, software wallets are becoming increasingly popular, and according to Atomic Wallet’s PR manager, Kristina Khachatryan, they are becoming more accessible and attractive every day:
“The software wallets are getting to be more and more accessible for a larger number of people, more multifunctional and filled with cool features at the same time losing nothing in the performance or the security issue. Moreover, the possibility of the decentralized staking is the central opening of this year. That’s why we see high potentials in this field of the software wallets and believe that the market will be surely driven to grow by the increased popularity of this product.”
Exodus’s communications manager, Davey Zelaya, is confident that the software market will develop at a faster pace as more cryptocurrency and blockchain solutions continue to be launched:
“We expect the market to continue to demand user-friendly software to interact with the increasing number of blockchain products and applications. In short, we want to make crypto easy for everyone. Right now, decentralized apps are still bulky and sometimes difficult to navigate. We want to change that.”
Joseph Spezzano received a Masters Degree in computer science from The University of Massachusetts. Joseph has been working as a full-time blockchain programmer for the past 5 years. In his spare time, Joseph enjoys writing for CryptocurrencyInvestments.com and traveling.