Before we can receive Ether, we need a place to store it. In the world of cryptocurrencies, that place is called a wallet. Essentially, it is a piece of software that will allow us to store our funds, make transactions easily, and check the balance when we need it.
Notably, Ethereum wallets do not work like conventional physical wallets. Actually, our Ethers will not be stored in our wallets or anywhere else. Ether, like any other cryptocurrency, does not exist in any tangible form. All that exists are records in the Blockchain, and our wallet will only interact with the Blockchain to enable the transactions that we want to execute within said network.
Dig deeper into – How Blockchain Technology Works?
Wallets have public addresses, which are case-sensitive strings of letters and numbers. If someone wants to send us some Ether, they will send it to this address, which is also known as the “public key”, which is what basically transfers ownership of the coins.
What is stored in our wallet is the “private key”, a password that we will need to close transactions and unlock the coins that we have within the network. It is not necessary to clarify that our private key must be kept secret if we want to prevent all our Ethers from being stolen.
The public and private keys are paired, which means that for us to perform any transaction, the two strings of numbers and letters must match.
Learn more about the topic: What is Ethereum?
How to Choose a Wallet
1. Our Own or Third-Party Ethereum Wallet
The easiest way to store our Ether is to do it in a third-party wallet, such as, for example, in a wallet provided by an exchange. Of course, in this way, we have easy access to our funds, and keeping the tokens on the exchange will help us to carry out any type of operation faster. But, if we choose this method, we must understand that we will be giving total control over our funds to the exchange and because it will be a third party that will store our private keys. On the other hand, the history of cryptocurrencies is full of cases of hacked exchanges and theft of funds where users end up losing everything.
On the other hand, the Ethereum platform allows us to create a personal wallet for our personal use and allows us to choose from a variety of options. In this way, only we will have full control over the private key and, by extension, access to our funds.
2. Full Node or Not
Running a full node allows us to have direct access to the Ethereum blockchain. In the event that we do not have one, we will need to connect to another node to receive all the necessary information and verify our transactions.
A full node wallet requires us to download the entire Ethereum blockchain to function. Basically, this transforms our computer into a node, an entity that supports the entire network by updating the Blockchain through an agreement on the legitimacy of transactions with other nodes. This is only possible if a desktop wallet is used, as the Blockchain is many gigabytes in size and is constantly growing.
3. Hot or cold wallet
There are two main categories of Ethereum wallets: hot and cold. A hot wallet stores our private keys online so they can be easily accessible from virtually anywhere in the world, as long as we have access to the Internet. But, they are definitely not the best option, as they can be hacked and lead to our funds being stolen. On the other hand, cold wallets store our private keys offline and only connect online when we connect the wallet. Obviously, the latter is much more secure and less prone to hacker attacks.
How to Create Our Own Wallet?
Creating your own wallet is relatively easy, especially since the Ethereum platform provides an official wallet service called MyEtherWallet. Here we will quickly explain how to set it up.
Once we are on the website, we will be greeted by various security reminders. We need to take the time to read and analyze them, as they are very helpful in gaining a better understanding of how the whole thing works and what we should and shouldn’t do to protect our funds.
As soon as we finish reading, we will find an option to create a password and set up a new wallet. Once we have created a sufficiently secure password, we will have the option to download the file where the wallet’s private keys are stored. Given the insecurity that exists within the world of cryptocurrencies, it is best to store this file in a safe place.
The next step is extremely important: save our private key. We will have to make a backup copy, memorize it, write it on a piece of paper, and put it in a safe. Everything we can do to make sure that we will not lose it and that no one will be able to access it.
We can then copy and paste our private key or upload the key storage file to unlock our wallet. There are several other options for unlocking it, but these are best suited for new users.
Now you are all set. The next time we want to access our wallet, all we have to do is authorize ourselves on the website with our keys. There we can see the public address of our wallet to receive Ether, as well as the balance we have in it.
The guide above focuses on the easiest and perhaps most widely used Ether wallet setup on the market. There are varieties of wallets available, although they all feature somewhat different installation processes.
A paper wallet for Ethereum is perhaps the most secure option available for storing our Ether. Essentially, it is just a piece of paper with code written on it. The biggest advantage is that it is not connected to the Internet nor does it need to be stored on our computer. You can be with us at all times. We can store it in a safe or even bury it somewhere in our backyard. These types of wallets make our funds immune to hacker attacks, as well as most types of physical theft (depending on how well we hide the wallet).
To set up a paper wallet, we need to create a new wallet in MyEtherWallet, download the Keystore file, and click the “print” button provided to us. We will see how a sheet of paper will come out of our printer containing our public and private keys, as well as QR codes to scan them and be able to use the funds that are stored in it.
Alternatively, for added security, we can use other generators available online and disconnect from the Internet before generating a new wallet address. This is a security precaution in case the website is transmitting the wallet information to a hacker.
Mobile wallets are often referred to as “thin” clients, as they do not require us to download the entire blockchain to function. Rather than having the entire blockchain, these types of wallets rely on miners or nodes to send them accurate information about the current state of the network. These wallets are ideal to use on the go or for daily trading, essentially it allows us to access our Ether at any time, as long as we have an internet connection with our cell phone. However, since these clients are “thin”, they are easier to hack.
One of the most popular and accepted mobile wallets on the market that is compatible with Ethereum is Jaxx. This wallet is available for desktop computers with Windows, macOS, and Linux, as well as for smartphones with iOS or Android systems. The most important feature of the wallet is that the private keys never leave the device. You do not need to register or provide any personal information to use the wallet.
Coinomi is another well-reviewed option, it keeps the keys on our device and allows us to store 18 coins and 214 different tokens. Also, it allows instant cryptocurrency conversion without going through an exchange. Currently, it is only available for Android, iOS, and for computers.
Desktop wallets run on our computers. We have the possibility to download a complete client with the entire Ethereum blockchain or use a thin client. While the second option is easier, the first provides us with additional security, since we do not need miners or nodes to send us information since the wallet itself will have the capacity to validate transactions.
Desktop wallets are easy to configure and use, they are comfortable and quite secure since they can only be used from a computer on which they have been downloaded. However, they are connected to the Internet, so we must ensure very well that our computer is not hacked or infected by malware or viruses. In addition, we have the risk that if our computer is stolen, we will have to face the possibility of losing all our funds.
Some of the best desktop wallets available today are:
- Exodus – An easy-to-use multi-currency wallet with a simple interface that stores private keys on our machine. It has ShapeShift built into it, so we can instantly exchange our cryptocurrencies without any difficulty. However, Exodus is not completely open-source, which means that some parts of its code cannot be reviewed by the community.
- MetaMask – A Google Chrome extension, but it saves the keys on the machine itself, essentially making it a desktop wallet. It is very easy to use and allows us to store, send and receive Ether using it. In addition, it recognizes the possibility of using other decentralized applications within it.
- Mist – An official Ethereum wallet, which means we won’t have to worry too much about security when using it. It is similar to Exodus, but a little less user-friendly. It also has ShapeShift built-in.
Web or online wallets use cloud storage and can be accessed from anywhere. Also, they are generally much faster than other types of wallets. However, as our private keys are stored online and, in most cases, on a third-party server, they are extremely susceptible to cyberattacks, malicious malware, phishing scams, and hackers. Also, it is not essentially our wallet as it is provided by a company and in this case, the safety of our funds is completely out of our control.
MyEtherWallet is essentially a web wallet, but it is more secure than others since it is completely decentralized and generates that our private keys are stored on our device.
Most of the other Ethereum web wallets are associated with and provided by exchanges.
Get to know a list of the best exchanges that work with Ethereum here: How to buy Ethereum?
Hardware wallets are the ultimate in cryptocurrency cold storage. They would be like conventional, portable hard drives, but specifically designed to be used with cryptocurrencies. They can be connected to the computer of our choice to carry out a transaction. Plus they generate private keys offline.
As the hardware wallets are not connected to the internet, they make our funds completely immune to any kind of cyberattacks and hacking. Most of them come with backup options to make sure we won’t lose our Ether and can be further protected with two-factor authentication as well as a PIN password. Most modern hardware wallets also have a screen, which allows us to sign transactions on the device itself.
Of course, these wallets come at a price. They will definitely cost us a little more than what we would spend on a software wallet, but they will be worth the price, especially if we are storing a large amount of Ether. On the other hand, since they are devices made with a specific purpose in mind, they were not released in massive quantities, so they could be quite difficult to find.
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