Before you can trade Ether, you need a place to store it. In the cryptocurrency world, that place is called a wallet. Essentially, it is a piece of software that allows you to store your funds, easily conduct transactions and check your balance whenever you need to.
It is worth noting that Ethereum wallets work nothing like conventional physical wallets do. Ether is actually is not stored in your wallet, or anywhere else for that matter. Ether, just like every other cryptocurrency, doesn’t exist in any tangible shape or form. All that exists are records on the Blockchain, and your wallet will only interact with the Blockchain to enable transactions.
Read more: How Blockchain Technology Works
Wallets have public addresses, which are randomly generated strings of case-sensitive letters and numbers. If someone wants to send you some Ether, they will send it to this address, which is also referred to as a ‘public key,’ essentially transferring the ownership of the coins.
What is stored ins your wallet, is your ‘private key,’ a password that you will need to sign off on transactions and unlock coins shared to you. It goes without saying that your private key has to be kept a secret if you would like to avoid theft of your Ether.
The public and private keys are paired, which means that in order for you to perform any transaction, the two strings of numbers and letters should match.
How to choose a wallet
Your own or third-party Ethereum wallet
The easiest way of storing your Ether is doing so in a third-party wallet, for instance in a wallet provided by an exchange. Of course, in this way you have easy access to your funds and keeping your tokens on the exchange will probably speed up the trading process. But, if opting for this method, you will essentially give the exchange full control over your funds, as it is the third party that stores your private keys. Moreover, the cryptocurrency history is filled with instances of exchanges being hacked and their users’ funds being stolen.
The Ethereum platform allows you to create a personal wallet for yourself, and you can choose from a variety of options. This way, you and only you will have control over the private key and, by extension, access to your funds.
Full node or not
Running a full node enables you to have direct access to the Ethereum Blockchain. If you don’t have one, you will need to connect to another node to receive all the necessary information and verify your transactions.
A full node wallet requires you to download the entire Ethereum Blockchain to operate. Essentially, this transforms your computer into a node, an entity that supports the entire network by updating the Blockchain via reaching an agreement on the legitimacy of transactions with other nodes. This is only possible if using a desktop wallet, as the Blockchain is many gigabytes in size and it is constantly growing.
Hot or cold wallet
There are two major categories of Ethereum wallets: hot and cold. A hot wallet stores your keys online so that they can be easily accessible from virtually anywhere in the world, as long as you have Internet access. But, they are definitely not the best option, as they can be hacked and your funds can be stolen from them. On the other hand, cold wallets store your keys offline and only connect online when you want them to. Obviously, this makes them more secure and less prone to hacker attacks.
How to create your own
Creating your own wallet is relatively easy, especially since the Ethereum platform provides an official wallet service called MyEtherWallet. Here’s how to set it up.
Once you open the website, you will be greeted by several safety reminders. Take your time to read through them, as those are very helpful for your understanding of how the whole thing works and what you should and shouldn’t do to protect your funds.
As soon as you’re done reading, you will see an option to create a password and set up a new wallet. Once you’ve created a strong enough password, you will have an option of downloading your keystore file. You can never be too safe in the world of cryptocurrency trading, so it is recommended you do so and store it a safe place.
The next step is of utmost importance: save your private key. Back it up, memorize it, write it in on a piece of paper and put it into a safe deposit box. Do whatever you need to do to ensure you won’t lose it and no one will be able to get their hands on it.
Then, you can copy and paste your private key or upload your keystore file to unlock your wallet. There are several other options for unlocking it, but those are the most suitable for first-time users.
Now you’re all set up. Next time you want to access your wallet, all you need to do is to authorize yourself on the website again. There, you will be able to see the public address of your wallet, as well as your balance.
The above guide is focused on setting up the easiest and perhaps the most widely-used Ether wallet. There are many more varieties of wallets available, all with slightly different setting-up processes.
An Ethereum paper wallet is perhaps the safest option available for storing your Ether. Essentially, it’s just a piece of paper with a code written on it. It’s the biggest advantage is that it’s neither connected to the Internet nor does need to be stored on your computer. That piece of paper can be with you at all times. It can be in your safe deposit box or even buried somewhere in your backyard. It makes your funds immune to hacker attacks as well as most kinds of physical theft (depending on how well you hide it).
To set up a paper wallet, create a new wallet on MyEtherWallet, download the keystore file and hit the ‘print’ button provided for you. A piece of paper that will come out of your printer will contain both your public and private keys as well as QR-codes to scan them.
Alternatively, for added security, you can use other generators available online and disconnect from the Internet before generating a new wallet address. This is a safety precaution in case the website is transmitting the wallet information to a hacker.
Mobile wallets are frequently referred to as ‘light’ clients, as they don’t require you to download the entire Blockchain to operate. Instead, they rely on miners or nodes to send them accurate information about the current state of the network. Those wallets are great for using them on-the-go, essentially enabling you to access your Ether at any time, as long as you have cellular connection. However, as these clients are ‘light,’ they are easier to hack.
At the time of writing, the most popular and well-reviewed Ethereum-compatible mobile wallet is Jaxx. It is available for desktop on Windows, MacOS and Linux as well as on smartphones running on either iOS or Android systems. The most important feature of the wallet is that the private keys never leave the device. There is no need to register or provide any personal information.
Coinomi is another well-reviewed option, it keeps your keys on your device and allows you to store 18 different coins and 214 tokens. Moreover, it allows for instant conversion of cryptocurrencies. It is currently only available for Android, with an iOS client set to be released in the foreseeable future.
Desktop wallets run on your computer or a laptop. You can either download a full client with the entire Ethereum Blockchain or use a light client. While the latter option is easier, the former provides extra security, as it doesn’t need miners or nodes to send them accurate information – they validate transactions themselves.
Desktop wallets are easy to set-up and use, they’re convenient and quite secure, as they can only be used from one computer where they have been downloaded. They are, however, connected to the Internet, so you need to make sure your computer is not hacked or infected by malware. Moreover, if your computer gets stolen, you will be running a huge risk of losing your funds.
Some of the best desktop wallets currently available are:
- Exodus — An easy to use multi-currency wallet with a user-friendly interface that saves your keys on your machine. It has ShapeShift integrated into it, so you can instantly exchange your cryptocurrencies without any hustle. However, Exodus is not completely open-source, which means that some parts of its code cannot be looked at and reviewed by the community.
- MetaMask — A Google Chrome extension, but it saves your keys on the machine itself, which essentially makes it a desktop wallet. It’s very easy to use and you can store, send and receive Ether using it. Moreover, it allows you to use other decentralized apps within it.
- Mist — An official Ethereum wallet, which means you don’t have to worry about security too much when using it. It is similar to Exodus, but a bit less user-friendly. Has ShapeShift built into it as well.
Web wallets or online wallets, use cloud storage and can be accessed from anywhere. Also, they are generally a lot faster than other types of wallets. But, as your keys are stored online and, more often than not, on a third-party server, it makes them extremely susceptible to cyber-attacks, malicious malware, phishing scams and hackers. Moreover, it isn’t essential your wallet, as it’s provided by a company and the security of your funds is completely out of your hands.
MyEtherWallet is essentially a web wallet, but it’s safe than other ones, as it’s completely decentralized and stores your keys on your device.
Most other Ethereum web wallets are associated with and provided by exchanges. You can find a list of Ethereum-supporting exchanges in our ‘How to sell Ethereum’ guide.
Hardware wallets are the ultimate cold storage of cryptocurrency. They are much like those conventional, portable hard disks, but designed specifically to be used with cryptocurrencies. They can be plugged into the computer of your choice to make a transaction and they generate keys offline and on the go.
As hardware wallets are not connected to the Internet, they make your funds completely immune from any kind of cyber-attacks and hacking. Most of them come with backup options to ensure you won’t lose your Ether and the can be further secured with two-factor authentication as well as a PIN password. Most modern Hardware wallets also have a screen, which allows you to sign for transactions on the device itself.
Of course, they come at a price. They will definitely cost you a little more than you’d spend on a software wallet, but they will be worth the price, especially if you’re storing a large amount of Ether. Moreover, as they are devices made with a specific purpose in mind, they were not released in massive quantities, so they might be quite hard to find.
Read more: Bitcoin Wallets for Beginners, Everything You Need to Know