Why You Need A Cryptocurrency Wallet
Last updated on June 8th, 2023 at 03:16 pm
Once you begin dealing with cryptocurrency, you will see a lot of information about cryptocurrency wallets. Furthermore, you see people, including me, telling you that you must keep your cryptocurrency in a wallet. While technically you don’t actually hold your crypto inside of a wallet, you might be wondering if you should even use one.
You need a cryptocurrency wallet to interact with a blockchain and prove ownership of crypto assets. Once you invest in a cryptocurrency you are using a wallet. The safest wallet to store the private keys for your cryptocurrency assets is a noncustodial wallet.
The bottom-line is that everyone who is involved in cryptocurrency has to use a wallet. A crypto wallet’s primary functions are to store, send and receive crypto. So, gaining a better understanding of why you must use a crypto wallet will help you to decide which type of wallet is best for you.
Why Use a Cryptocurrency Wallet
Ths short answer is, because it is necessary to interact with your cryptocurrency.
Unlike dollar bills that you keep in the wallet in your pocket, cryptocurrency is not actually housed in a crypto wallet.
The wallet is where the private keys for your cryptocurrency are stored. Cryptocurrency itself is actually stored on the blockchain.
Via your wallet, you can access your private keys which unlock access to your cryptocurrency.
These keys allow you to prove ownership of your crypto on the blockchain as well as allowing you to send and receive any crypto asset.
Think of a cryptocurrency wallet like a user interface for the blockchain.
Protecting this interface, your wallet and private keys, is of paramount importance, so much so that I’ve dedicated an entire article to improving your crypto security here.
Least Safe Wallet For Crypto
There are complexities about wallets that should be understood. This will help you decide the best wallet to use when performing these crypto asset interactions.
For example, most people dip their toes into the crypto space by purchasing cryptocurrency on an exchange or a money app such as PayPal, Cash App or Robinhood.
All of these options provide the user with a wallet to access, transfer and trade their crypto assets.
While all of these options are certainly convenient, they are not the best option for most.
These wallets are best for anyone who is actively trading crypto or plans to sell their crypto asset quickly.
The reason for this is because these types of wallets are custodial wallets.
This means that the exchange or app controls your cryptocurrency, not you. They can lock you out or freeze your accounts at any time.
As a case and point, in January 2021, the Robinhood app did this very thing to traders who tried to force a margin call on Wall Street hedge funds over GameStop.
Before losing millions of dollars, these hedge funds put pressure on members of Congress and the SEC (Securities & Exchange Commission) to intervene on their behalf. These entities in turn put pressure on trading apps like Robinhood to stop their customers from being able to trade against Wall Street.
This collusion exposed the deep corruption that exists between the government, The Fed and Wall Street.
This is one of the major reasons for Bitcoin being created, and it remains one of the driving factors behind the ever growing importance of cryptocurrency.
Use A Noncustodial Wallet
A noncustodial wallet option is best for people who are not actively trading and are looking to hold cryptocurrency for a longer period of time.
Noncustodial wallets are available as hot wallets or cold wallets. It’s a good idea to have a working knowledge of these types of wallets, and you can get that here.
Noncustodial wallets are the best option for interacting with your crypto because you have complete control of the wallet.
Safest Wallet For Crypto
A hardware wallet is the best noncustodial wallet option for interfacing with your cryptocurrency.
People often shy away from using a hardware wallet because there is a bit of an operational learning curve that comes along with them.
I recommend Ledger as the best hardware wallet due to its security features and affordability.
To help you overcome the learning curve with Ledger, I walk you through the wallet setup process here.
Should You Use A Crypto Wallet?
One of the hallmarks of the cryptocurrency space is that crypto provides all of us with autonomy. So, you have many different options to choose from no matter where you wander.
However, using a cryptocurrency wallet is a must to transact with any crypto asset.
There are many wallets to choose from, however, I suggest that you choose a noncustodial wallet as your primary wallet option.
For increased security of your assets, using a hardware wallet is your best choice.
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