An Overview of Software Wallets
Cryptocurrencies are either stored in software or hardware wallets. Unlike a physical wallet where you store your paper bills, there is no actual money in crypto wallets. Only proof of ownership of your cryptocurrencies of coins or tokens stored in the blockchain digital ledger are stored in digital wallets. Private keys to access your wallet are special codes only known to you so you can send, receive and transact using your cryptocurrencies.
When someone sends you cryptocurrencies like Bitcoin or ETH, the same person is basically transferring ownership of the digital currencies to your crypto wallet address. If ever you decide to spend your cryptocurrency coins or tokens, the private keys must match the public address the coins are assigned to. No physical exchange of currencies will take place. Instead, the transaction is considered complete once the transfer is recorded in the blockchain. Your crypto wallet will reflect the change in balance too.
Software crypto wallets can either be mobile, desktop or online. For mobile-based crypto wallets, you will need to install an application on your smartphone. Other users find mobile wallets more convenient to use because they are more portable than desktop wallets.
If you want a cloud-based wallet, an online crypto wallet may just be for you. One advantage of an online wallet is it is accessible from any computer or mobile device that has a browser and an internet connection. You can also keep your cryptocurrencies in a desktop wallet. For this you will need to download the wallet software and install it on your computer.
Advantages of software wallets
With software wallets, your cryptocurrencies are stored online and can be accessed anywhere around the world using a device with an Internet connection. The keys to your cryptocurrencies are kept by a third-party service provider. Companies that operate web-based crypto wallets usually take extra security measures because no service would want to be penetrated by hackers.
Most software wallet companies provide support services for a better customer experience. Some even go so far as to offer an integrated exchange service where you can do various transactions using your cryptocurrencies.
Despite the accessibility of software crypto wallets, hardware wallets are more secure. Desktop, mobile and online wallets are vulnerable to hacker attacks because they are all connected to an online network. Most software wallets depend on a third party for security and hackers can easily exploit this weakness.
If you are software wallet user, you are encouraged to take precautions in helping protect the private keys of your cryptocurrencies. Once your wallet gets hacked and your coins are sent to another address, there is no way to reverse the transaction.
Tips to secure your software wallet
- Make sure your desktop wallet software or mobile app is always up to date to gain the latest security enhancements and bug fixes.
- For added security, set long and complicated passwords.
- Trust only software wallet service providers with a good reputation.
- Check if the wallet provides two-factor authentication and extra security layers for every transaction. Use these features too.
- Use a multi-signature or multisig wallet for added security
Disadvantages of software wallets.
If your computer’s hard drive gets corrupted or stolen, your cryptocurrencies are at risk. The fear of being hacked is also constantly there because your tokens or coins are stored online or on a machine that is constantly connected to the internet. The same disadvantage applies to a mobile wallet. When you lose your phone, you may also lose your coins or tokens since your account is in your mobile app, though some newer mobile wallets allow you to recover your cryptocurrency tokens or coins thru a long passphrase that only you should know.
Some Good Software Crypto Wallets
Etherwall claims to be the first GUI desktop wallet supporting Ethereum. It is an open source crypto wallet that also provides support for popular hardware wallets like Trezor. It has the option of downloading the full blockchain of Ethereum or using a more lighter remote Ethereum node to access data.
Green Address is a Bitcoin wallet addon on for the Chrome browser that offers multiple two-factor authentication methods, for every transaction. Green Address also offers mobile wallets for Android and Apple iOS The company makes security and convenience their priorities while not compromising privacy. According to the company, it doesn’t store the private keys of your cryptocurrency. The wallet has a watch-only mode that lets you check transactions in a safe way even over public Internet hotspots.
MyEtherWallet is a popular service provider of software wallets. It is a free and open source wallet that allows users to interact with the blockchain directly while giving full control of private keys and transactions. It highlights the need for user diligence when it comes to security. The company warns you on its website that it can no longer recover your cryptocurrencies if you lose a private key or get caught in a phishing website.
Electrum is one of the earliest software crypto wallets as it has been in operation since 2011. It offers users features like two-factor authentication, multiple signatures and cold storage options by using a machine that isn't connected to the internet. Electrum only supports Bitcoin as of this moment.
Metamask is a browser extension that serves as a wallet and also gives your browser the capability to interact with the Ethereum blockchain by running dApps. Metamask is a very popular alternative to traditional software wallets and is easy to use and install. It additionally protects you from phishing sites because Metamask warns you if you are visiting a suspected phishing site.
Security experts advise withdrawing crypto from your soft wallet and keeping minimal amounts of cryptocurrencies online for trading or daily use. It is a good idea to store the majority of your cryptocurrency holding in hardware-based wallets for maximum security.
This concludes ico-check’s overview of hardware and software wallets. Watch out for our other articles and blogposts soon!