Part 2: A Deep Dive into Cryptocurrency Wallet Features

Welcome back to the second part of our Bitcoin and cryptocurrency wallet series. In this installment, we'll delve into the various features and qualities you should consider when selecting your next cryptocurrency wallet. Given the depth of these topics and the constant innovation and research in this field, we've simplified some information to provide a useful introduction. Let's dive in!

Introduction

Cryptocurrency wallets do more than just store, receive, and send cryptocurrencies. They offer a variety of features for interacting with blockchains and displaying information. Some wallets excel at managing multiple assets, others at tracking purchases, and some are designed for specific apps or use-cases. Some wallets prioritize simplicity above all else.

It's common to use different wallets for different purposes - a secure offline wallet for long-term storage, a mobile or desktop wallet for daily spending, and another for utilizing advanced features of your favorite coin, such as privacy features, staking, asset swapping, coin/UTXO management, etc. To help you navigate this landscape, we've outlined some key features to consider when choosing a wallet.

Factors to Consider

Here are some high-level factors to consider when evaluating which wallet to use next.

Information Gathering

A good cryptocurrency wallet should respect your privacy. Be cautious of any wallet that asks for excessive personal information. Exchange and app-specific wallets are exceptions, as they need to comply with strict regulations, especially when bridging fiat currency to crypto assets. This additional information requirement is known as Know Your Customer (KYC).

2FA - 2-Factor Authentication

2-Factor Authentication is a second layer of security that requires physical access to your phone to move assets on an exchange. It's a security measure used to mitigate the vulnerabilities of standard password security. We recommend always enabling 2FA on exchange accounts.

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.

Privacy

Different wallets offer different levels of privacy. The level of privacy a wallet provides determines how easy it is for your funds to be tracked, find out how much crypto you have, how you spend your money, etc. Some wallets offer advanced privacy features like HD Support / Address Re-Use and privacy protocols like CashFusion.

Wallet Features

Here are some specific features commonly found in wallets:

Multi-Sig Wallets

Multi-sig (Multiple Signature) wallets require multiple private keys (signatures) to sign transactions and move the assets. They are useful for dividing the ownership and responsibility of the asset amongst a group of people.

HD Wallets - Hierarchical Deterministic

HD wallets generate an endless amount of public keys from a single private key, providing much greater privacy as the addresses are always new.

Multi-Coin Wallets

Multi-coin wallets can store many types of coins on many networks. They are good for holding your whole portfolio for long-term storage, but they often lack the more advanced, coin-specific features.

Portfolio Tracking

Some wallets track and visualize your portfolio value over time, which is a great way to monitor how your portfolio is doing over multiple weeks, months, and years.

Privacy Features

Look out for privacy features like CashShuffle and CashFusion, which are proving to be some of the best privacy features.

Wallet Verification Types

Application Servers

These wallets rely on application servers to function. They receive their information through APIs run by various companies instead of interacting with the blockchains themselves.

SPV - Simple Payment Verification

SPV wallets verify transactions on the blockchain without downloading entire block data. They communicate directly with the blockchain and work on resource-limited devices like phones without a dependency on third-party servers.

Full Node

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

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