Has the Bitcoin market gotten too crowded?
The best return on an investment comes when you get ahead of the curve instead of following the crowd. Ethereum has become the number two cryptocurrency that’s a popular alternative to the overheated Bitcoin market.
You’ve probably heard that to trade and own Ethereum you’ll need a wallet, but which is the best Ethereum wallet?
Cryptocurrencies are like digital cash: Either you have it or someone else does. Like cash, it can be stolen right out of your pocket if you aren’t careful, or it can be taken during a heist at the bank where you deposited it.
Unlike fiat currency, though, cryptocurrencies aren’t insured by institutions like the FDIC. If you lose it, it’s gone. Cryptocurrencies can also be accidentally destroyed, which is like keeping cash at home and losing it in a house fire.
How can you protect your hard earned cryptocurrency?
You’ll need a secure wallet to keep it in that has a way to recovery it when something goes. There are many cryptocurrency wallets that can store Ethereum with varying pros and cons in terms of their security and ease of use. In this guide, we’ve rounded up the ten most secure Ethereum wallets available.
That’s because an Ethereum wallet is actually a software program that stores your identifying data to conduct transactions with. A key difference between cryptocurrencies and fiat currencies is that a cryptocurrency isn’t physical. A wallet doesn’t actually hold Ethereum.
Instead, your wallet holds an encrypted private key for authenticating your transactions and a public address key that’s used as a destination to receive Ethereum. Your balance of owned Ethereum is kept by a peer-to-peer network that logs every transaction.
Cryptocurrency exchanges offer you a wallet or escrow account to store your Ethereum while you trade, but few give you a full-fledged private wallet. You’ll want to transfer your Ethereum off of an exchange when you’re done trading and to do that you’ll need a secure wallet to keep them safe.
How many types of wallets are there?
There are as many types of wallets as there are ways to store data. Because the cryptocurrency community worries most about security, wallets are divided into two main categories: hot and cold wallets. Hot wallets are on devices that are connected to the internet, while cold wallets are kept offline until you need to make a transaction.
Hot wallets are considered more risky because any electronic device connected to the internet can potentially be hacked or infected with malware.
Hot wallets run the gamut of devices that you can connect to the internet with:
Want to keep your Ethereum offline and secure for long-term storage?
A paper wallet is considered the most secure form of wallet against hacking, though you still have to worry about roommates, pickpockets, and burglars. A paper wallet works because the only data that you really need to use a wallet is a private authentication key and a public address. If you have these two pieces of data, you can conduct cryptocurrency transactions.
The problem is keeping the private key private. The idea of a paper wallet is to remove these two pieces of data from software and print them on a sheet of paper that you keep in a safe place.
How do you print out a paper wallet, you ask?
Many Ethereum wallet programs and web apps have a paper wallet printing service. For example, MyEtherWallet is a popular way to print out a paper wallet for cold storage.
Hardware wallets are the next best thing for security besides paper wallets. They are usually USB sticks with two-factor security measures like confirmation buttons. They also have display screens, so you can see important information without plugging them into a computer.
These wallets used to have a problem with malware infection when they were plugged into an infected computer, but recent security innovations have solved them. The most popular hardware wallets for Ethereum are Ledger’s Nano S, Trezor, and KeepKey.
Ledger has been making secure hardware wallets for years, and their Nano S has garnered the trust of many in the cryptocurrency community. One of the reasons for this is that it’s both secure as a cold wallet and when you use it for transactions. This is because the Nano S is designed to allow only outgoing connections when you plug it into a USB port.
This makes it impossible to infect the wallet with malware that may be on the computer you’re using for the transaction. The Nano S also uses a PIN to safeguard it against physical loss or theft. If the PIN is entered incorrectly too many times, the Nano S wipes itself.
You also get a special code phrase (called a seed) to use if you need to recover the wallet and put it on a new one, so your Ethereum is not lost if the Nano S is dropped or stolen.
Trezor’s Tamagotchi-looking hardware wallet is also popular, having entered the market as a Bitcoin wallet. However, the company recently added support for connecting to MyEtherWallet, a widely accepted Ethereum web wallet.
This makes Trezor convenient as a cold wallet for transferring your Ethereum loot to a safe place from MyEtherWallet after a transaction. Trezor has security measures that are just as strong as Ledger’s. It keeps malware off the USB stick with one-way connectivity, and you get a seed phrase to use if you ever need to recover a lost wallet.
In addition, KeepKey has been designed to support multiple cryptocurrencies, so if you like to trade in many of the lesser known cryptocurrencies, KeepKey may be more convenient for you. KeepKey’s Ethereum support is solid, but its larger size and multi-currency support does come at a higher price.
Wallet software that resides on your own computer, whether it’s a desktop or a laptop, is a desktop wallet. These wallets are often ported to all three major desktop OSes (Windows, Mac OS, and Linux), but the default is Windows.
Keeping your Ethereum wallet on a desktop computer connected to a home network and the internet is still considered somewhat unsafe, but it’s far better than leaving it in the hands of strangers operating a web wallet.
Exodus is a desktop cryptocurrency wallet that has been in business since 2016. The software is well designed with a professional look and user-friendly interface. It supports trading in several cryptocurrencies like Ethereum, including Bitcoin, Dash, Dogecoin, and Litecoin.
While not as secure as a hardware wallet, Exodus is a good wallet for the active trader who wants to keep their cryptocurrencies off exchanges and web wallets.
MetaMask is a browser plugin (Chrome and Firefox) that maintains your Ethereum wallet and injects the required wallet keys to make or accept Ethereum payments on websites that support it. This makes MetaMask a handy way to use Ethereum for shopping online.
It’s a new product, and its makers suggest that you store only enough Ethereum to make purchases. Because it works as a web browser extension, it’s a better solution than a web wallet since your Ethereum is still stored on your local computer.
Mist is the wallet designed by the makers of Ethereum. When you create an Ethereum wallet with Mist, you become part of the Ethereum peer-to-peer network, so setup can be more time-consuming than it is with other wallets.
If you want to support the Ethereum network, though, Mist is the way to add yourself to it. ShapeShift is included with Mist, which adds support for trading in other cryptocurrencies. The main drawback with Mist is that it doesn’t use a recovery seed.
When you create the password for the wallet, you have no way of recovering the wallet if you forget it. So, make sure you write it down and store it somewhere safe.
Mobile apps are all the rage today. Everyone has a smartphone or tablet that they carry everywhere, so mobile apps are the most convenient software available for many tasks. If you keep the wallet on your smartphone, you can have it with you at all times.It’s also a bit more secure than a desktop wallet because mobile OSes are designed with security in mind especially those with fingerprints.
That said, there’s still plenty of fake apps and malware floating around that can compromise a mobile device, so it’s still a risky way to store Ethereum at the end of the day.
Created in 2014 by one of Ethereum’s co-founders, Jaxx is the most popular mobile wallet for Ethereum, but it also has a desktop version that can be installed on PCs.
This makes it easy to handle transactions on any of your devices at home. It supports other cryptocurrencies besides Ethereum, so if you’ve got the cryptocurrency bug and trade in more than just Ethereum, Jaxx can be a convenient wallet to use.
It currently supports Bitcoin, Ethereum, Litecoin, Dash, Zcash, Augur, Salt, Civic, Qtum, Blockchain Capital, Bancor, and other even more obscure cryptocurrencies that exist today.
Like other wallets, ImToken has grown to support many cryptocurrencies besides Ethereum. It’s less well-known and not open source, which makes any cryptocurrency wallet app suspicious to the community. This one is legitimate, though, and has served many traders since its launch.
Online or web wallets are Ethereum wallets that reside on a remote server. They fall into a couple categories: indirect wallets provided by cryptocurrency exchanges and online wallet services provided by independent web services.
Web wallets are the least secure and most notorious type of cryptocurrency wallet because of the large scale heists that have been pulled off by hackers in the past. Most cryptocurrency exchanges and websites have had some sort of loss or hacking incident.
This is simply because it’s still easy to find ways to hack web servers or use social engineering tactics to compromise an organization’s network.
Coinbase is the most reputable of the cryptocurrency exchanges in existence today. Based in the United States, it has major investment backers who ensure that the exchange is run professionally, and fiat currency deposits are FDIC insured.
Coinbase had once offered a full-fledged wallet to its users, but that has changed to an indirect escrow account for temporary storage of their cryptocurrencies. What that means is that you don’t have direct control of the private keys while Coinbase holds your Ethereum. This kind of arrangement makes it possible for hackers to steal batches of private keys in a single heist.
MyEtherWallet is an online wallet for Ethereum users that’s independent of cryptocurrency exchanges. The main advantage you get with an online wallet like MyEtherWallet is the ability to conduct transactions from anywhere using any internet-connected device and a web browser. You have control of the wallet and can link it to a local wallet for cold storage.
Many Ethereum users will maintain a wallet on MyEtherWallet for day-to-day transactions and keep the rest of their Ethereum in a more secure wallet offline. MyEtherWallet has also added the option of using a local web browser extension to keep the wallet off of their servers.
So, how do you keep an Ethereum wallet secure?
Most cryptocurrency users today consider security to be the factor that determines which is the best Ethereum wallet. The least secure kind of cryptocurrency wallets are those that reside on a remote server. This puts the safe-keeping of your private keys in someone else’s hands.
Are they patching their servers and staying on top of the latest hacking exploits? Do they have staff who are wise about social engineering tactics like phishing and telephone impersonations?
That’s just a few of the ways online exchanges and services have lost millions of dollars’ worth of cryptocurrency in the past. For that reason, most cryptocurrency traders don’t trust online wallets for anything other than short-term storage.
The better type of wallet to store your Ethereum is one that’s on a device you own at home. It could be a computer or a mobile device. It can be hacked if it’s connected to the internet, but at least your Ethereum isn’t sitting in an organization that’s liable to be targeted for a big heist.
Still, you can find yourself the victim of the same hacking methods if it’s learned you own a large amount of cryptocurrency or someone you trade with tries to scam you. With a hot wallet, there’s still some risk.
So, how do you keep your wallet secure from hacking?
Storing your wallet on an offline device is the only way to keep it away from hacking threats. It doesn’t eliminate every possible security threat, but it reduces it to a level most people are comfortable with. You still need to think about who has access to the device your wallet is on, and whether they are trustworthy.
One way to take your wallet offline is to keep it on a device that has its networking connections disabled. This isn’t a perfect solution if the connections can be reinstalled or enabled accidentally. The best offline wallets are the USB sticks like Ledger’s Nano S or Trezor.
They can still be plugged into computers, but they have security measures like two-factor authentication to stop someone else from conducting transactions with them.
There’s an even better option:
The most secure type of wallet is the paper wallet. A paper wallet takes your private and public keys off of all electronic devices and prints them onto a sheet of paper for your reference. They often can be scanned to make transactions simpler when you use them. Most traders use paper wallets for putting their cryptocurrencies into long-term storage.
What are some ways you can get scammed?
The anonymity of the internet and cryptocurrency peer-to-peer networks makes scamming a major problem that every cryptocurrency owner should be aware of. Scammers, unfortunately, can be quite inventive. Being careful and making sure you deal only with authentic exchanges, websites, and wallet providers will avoid the worst of them.
One of the most common scams are fake websites that pretend to be a new cryptocurrency exchange or wallet service. Scammers who live in countries where there is little enforcement of hacking laws find this one an easy and nearly risk-free way to steal cryptocurrencies.
They simply create a believable website and start accepting cryptocurrency deposits. They close the website down once discovered and walk away with the cryptocurrencies. A recent example of this scam was the mybtgwallet.com website that scammed Bitcoin owners in 2017.
Another type of scam you can easily become the victim of is the fake cryptocurrency wallet. Mobile apps can easily be programmed to do other things besides what you expect, and scammers are always placing fake wallets onto Google Play or Apple’s app market to steal user’s cryptocurrency. By the time the app is reported and taken down, they’ve stolen many people’s assets.
Can I protect myself from all that with a hardware wallet?
Only if you buy directly from the manufacturer. Third party sellers on markets like EBay or Amazon are often selling you a modified product designed to scam you. Scammers with hardware and software expertise can buy hardware wallets, install their own software onto them, and then resell them online. They also will make replicas to sell to newcomers who won’t recognize that it isn’t the genuine item.
Exchanges usually have a per transaction fee of 1%. Wallets, on the other hand, keep their fees below 1%, usually a fraction of a percent on transactions with other wallet networks.
That all depends on the wallet. Check the documentation for each wallet if you plan to trade and store other cryptocurrencies besides Ethereum. Some wallets support Ethereum only, and others support nearly every cryptocurrency in existence.
So far, Ethereum is legal for normal purchases and transactions in the United States. If you plan to earn a living speculating on Ethereum exchange rates, you may need a license.
Ethereum is still a question mark legally in other countries. You will need to check with your local regulators and law enforcement agencies to make sure what you plan to do with Ethereum is considered legal. In some countries, cryptocurrencies are in the process of being regulated or outlawed.
Ethereum wallets typically give you an interface for sending and receiving Ethereum over the peer-to-peer network. These transactions are done according to the specific wallet software’s instructions, which can vary depending on the product. A hardware wallet, for example, will require you to plug it into a USB port, integrate with another program on the computer, and then perform a two-factor authentication.
A desktop wallet may simply require that you enter a quantity to send, a destination address, and press a button. Mobile wallets work similarly to desktop wallets, except with a touchscreen interface found on smartphones and tablets.
When sending Ethereum, the wallet software securely sends your encrypted private key to the peer-to-peer network and provides the public key of the recipient that you entered before making the transaction.
Buying Ethereum is similar to sending, except that the public key is what you send to the other party who is transferring Ethereum to your wallet. The public key acts as an address for where the peer-to-peer network will store the Ethereum once the transaction is done.
Ethereum transactions work the same as other cryptocurrencies do. Transactions are logged by a peer-to-peer network that keeps track of how much Ethereum each user owns. Transactions are authenticated with private keys.
That is to say, the private key is like your personal ID on the peer-to-peer network. The network carries transaction messages between you and the traders you conduct business with. When you send Ethereum, your private key registers that you are transferring your Ethereum to another wallet.
Private keys are encrypted numbers using a form of encoding that hides the number but allows you or your wallet software to send it over the network. Usually they use something called Wallet Import Format (WIF) that consists of random strings of letters and numbers.
Having your private key stolen is like having your cash taken out of your real-life wallet. Because the private key is your ID on the Ethereum peer-to-peer network, anyone who has it can then make transactions with your Ethereum. They can transfer your Ethereum to another wallet immediately. The result will be that by the time you recover your wallet, your assets will be gone.
The private key associated with your wallet is also how the wallet’s public key is created. The public address key is the result of an irreversible arithmetic operation performed on the private key to ensure that it’s unique and that the private key can’t be reverse-engineered. This means that if your private key is stolen, the thief can recreate your wallet on their own device.
If you accidentally delete your wallet from a device, and you didn’t have a backup, then whatever Ethereum that you owned is lost forever. However, most wallet providers today give you a means of retrieving a backup of your wallet’s private and public keys. They typically use a unique seed phrase code to do this. If you lose that code and you delete your wallet, then you’ve destroyed the Ethereum you owned.
Like everything we store on electronic devices, the best way to make sure you don’t lose it is to back it up. Perform regular data backups of the device you use for your Ethereum transactions, and you should be able to recover from disasters like a failed hard drive.
That covers the ten best Ethereum wallets. There are many others that are not well-known or haven’t been on the market long enough to work out their bugs.
Which wallet works best for you will depend on how secure you need it to be, whether you plan to shop with Ethereum on a regular basis, or whether you intend to store Ethereum as a long-term investment. Many traders find themselves using two or more wallet apps for transactions and storage.
One thing is sure, though: Ethereum and cryptocurrencies are here to stay for the foreseeable future.