Wallet Feature Overview

6.9 min read

2020/02/07

~Pete

#education #wallet


Welcome to part two of our Bitcoin and cryptocurrency wallets series. We will cover some of the valuable features and qualities to consider when choosing your next cryptocurrency wallet.

This series is a companion resource to our Wallet Finder Tool.

Let's begin.

Introduction

Besides holding and spending cryptocurrencies, different wallets have different features and ways to interact with your assets on the blockchain. Some wallets are great for holding many types of assets, some are great for tracking purchases, others are focused on using fewer assets in advanced ways, and others are focused on being as user simple as possible in lieu of advanced features.

It's common to use different wallets for different purposes - such as a secure offline wallet for storing coins long terms, one on the phone or computed for daily spending, and another for using advanced features of your favorite coin, such as SLP support or privacy feature. It can be hard to know which factors to consider when choosing a wallet, so here are some features we find important to make that choice easier.


Factors

High-level factors to consider when evaluating which wallet to use next.

Information Gathering (KYC)

Personal information should never be required to use a cryptocurrency wallet. Be wary of any wallet which asks and gathers excess information about you.

Exceptions to this are exchange wallets. Exchange wallets need to follow strict regulations to allow trading between fiat currencies and cryptocurrencies. This additional information requirement is known as Know Your Customer (KYC).
Terminology: Know Your Customer (KYC)

2FA - 2 Factor Authentication

Very important to use and enable for all exchange wallets. 2FA adds a second layer of security that requires your phone to be with you physically to move assets on an exchange. 2FA is a security measure used to mitigate the vulnerabilities of standard password security.

2FA is usually found on exchange and web wallets; we recommend always enabling 2FA on exchange accounts. Terminology: 2FA

Open Source

Open source wallets allow anyone to read, access, and audit the code. This transparency enables everyone to independently verify the security and privacy of the wallet, and that the private keys are handled securely. If a wallet is not open source, then it's impossible to verify the security of the wallet and any private keys it manages for you.

Not being open source isn't necessarily a deal-breaker, but it's a bonus if the wallet software is open source and has a strong reputation in the community wallets that have been reviewed and vetted by the community.

Privacy

Different wallets have different levels of privacy, and it's an important topic to consider when choosing a wallet. The level of privacy a wallet provides determines how easy it is for other people to track your funds, find out how much crypto you have, how you spend your money, etc.

Some commonly seen privacy features to look for are.

HD Support / Address Re-Use

HD Support enables wallets to always generate and use a new address when receiving funds. Using new addresses makes it much harder to trace funds and find how much money a person owns. HD wallets also enable more advanced privacy features such as CashFusion.


Features

These are a set of specific features that are commonly found which may or may not be important to you. Below is only a small subset of features found in wallets. If your favorite feature is missing, let us know.

Multi-Sig Wallets

Multi-sig wallets require multiple private keys (signatures) to access and move the assets. These can come in many forms and variations - providing and requiring different amounts of private keys to access the funds. For example, a wallet can require 3 out of 3 private keys to access; Another can require 2 out of 3 private keys to use, and another 7 out of 20, etc. They can also be setup such that a certain amount of keys are required or a single key with elevated privileges, such as for a lawyer overseeing a business.

This are useful to divide the ownership and responsibility of the asset amongst a group of people.

Terminology: Multi-sig

HD Wallets - Hierarchical Deterministic

HD wallets are a way of generating an endless amount of public keys from a single private key. This is done with advanced math, but wallets that provide this feature provide much greater privacy as the addresses are always new.

This is a great feature to look for as it enhances ones privacy without any effort.

Multi-Coin Wallets

Wallets which store many types of coins on many networks. These wallets are generally good for holding your whole portfolio for long-term storage, and are great at the core workflows - receiving and sending funds -, but they often lack the more advanced, coin-specific features.

Most ETH wallets are also considered multi-coin wallets. As long as the wallet supports ERC tokens, then any coin which is built as an Ethereum token will be compatible with the wallet. The same is true for other EVM-based wallets and networks, but that goes beyond the scope of this article.

Token Support

As tokenization comes to various blockchain networks, having a wallet that supports tokens can be beneficial. On Ethereum these are wallets that support the ERC-20 standard, and on Bitcoin Cash (BCH) these may be wallets that support the SLP token protocol.

ERC-20 Tokens

Tokens on Ethereum. These are assets that exist on the Ethereum network, and can be traded and used for nearly any purpose. A large amount of the cryptocurrencies we hear about are ERC-20 tokens and not their own blockchain.

ERC-721 Collectibles

Unique tokens on the Ethereum blockchain. These tokens are each unique, where every token represents a unique asset that can be traded. These can be used for ownership, collectibles, or many other things

SLP Tokens

A token protocol on the Bitcoin Cash (BCH) network. These are similar to ERC20 tokens in that a single SLP aware wallet is able to store and spend any number of these. SLP tokens will likely have a large stake in future bull-runs as they are enabling many new use-cases with tokens that are cheap, reliable, and fast to create and send.

Portfolio Tracking

Wallets that track and visualize your portfolio value over time. These are often found in multi-coin desktop wallets and are a great way to track how your portfolio is doing over multiple weeks, months, and years.

Privacy Features

There are many different privacy features and methodologies wallets frequently use, but some of the most exciting ones to look out for are CashShuffle and CashFusion.
These are proving to be some of the best privacy features, and each year more and more wallets are using them.


Wallet Verification Types

Application Servers

Wallets that rely on application servers to function. These wallets receive their information through API's ran by various companies to interact with the blockchain. The advantage of this is that the application can be very lightweight and fast as the majority of computation happens on the server. The disadvantage is if the company shuts down the server, the wallet can become unusable, forcing you to move the private keys to another wallet.

SPV

Simple Payment Verification. Method to verify transactions on the blockchain without downloading entire blocks. Allows wallets to communicate directly with the blockchain and staying minimal enough to work on resource-limited devices - like phones - without a dependency on third-party servers. Since the wallet communicates with the blockchain directly, these wallets can take a while to start (1-15 minutes). Since these wallets don't rely on a server they are always usable and shouldn't experience downtime.

Full Node

A wallet that downloads and verifies the complete blockchain, usually from the very first block (genesis block). These wallets depend only on the blockchain to use and are the most reliable, secure, and least convenient wallet type to use.

Full nodes give the most control over your funds, and are typically used to power services that interact with the blockchain. For most everyday users these are overkill.


That's all for part 2.
In part 3 we'll cover how to keep your funds safe and secure.