The volatile nature of cryptocurrency makes it one of the most intriguing speculative investments today. The trademark scarcity of bitcoin, in particular, has given it the reputation of “digital gold.”
Just like with any physical item of value, crypto investors should practice good digital security habits similar to putting large sums of cash in a safe or a savings account insured by the Federal Deposit Insurance Corp. (FDIC). When storing crypto, investors may keep smaller sums hosted directly on whatever exchange (i.e., a digital trading platform) they use. They can also choose to move their crypto off platform and into a crypto wallet. The wallet may be software connected to the internet (aka a “hot wallet”) or be an offline hardware device (aka “cold storage”).
This article originally appeared in Crypto for Advisors, CoinDesk’s weekly newsletter defining crypto, digital assets and the future of finance. Sign up here to receive it every Thursday.
“A lot of people bought cryptocurrency for the first time this year,” said Brittney Castro, a Los Angeles-based certified financial planner and founder of the media company Financially Wise. Millions of new investors are therefore learning about wallets.
What to do starting out
Step one for any crypto newcomer, according to Castro, is learning how both exchanges and wallets even work. One of the most popular exchanges for beginners, Coinbase, has been around since 2012 and went public on the Nasdaq in 2021. Coinbase allows users to buy/sell over 100 unique cryptos, which is a good starting point for most.
Step two is deciding how to store your crypto coins long-term. Advisors and financial planners should plan on helping clients decide what their personal approach or philosophy is, said Castro. If your clients plan to hold a large amount of crypto, for instance, they should research cold storage options. Cold storage is effectively a piece of hardware (sort of like a crypto USB drive) that functions as a digital safe.
However, if your clients just plan to spend a few hundred dollars buying and selling crypto, it’s probably OK for them to keep their coins on a trusted exchange, such as Gemini, that uses its own mix of hot and cold storage.
And finally, for those in-between sums that your clients still want to protect but also retain easy access to – say $500 to a few thousand dollars, depending on your client’s risk tolerance – a hot wallet is the most convenient choice. Each option has its own list of features and security protocols. Some even have a private version of insurance that works similar to FDIC insurance for traditional bank accounts.
Here’s a list of some popular crypto wallets for beginners. (This isn’t a comprehensive list, but rather a place to start. Crypto is an emerging technology, so encourage your clients to research thoroughly and keep safety top of mind.)
Free crypto wallet for beginners: Exodus
Exodus is a free crypto wallet that lets users access and store over 100 types of cryptocurrencies. (Trading fees do apply, like always.) The wallet lacks some bells and whistles that advanced investors might find imperative, but it comes with a simple user interface and built-in exchange, similar to Coinbase.
For clients looking for consistent customer service, Exodus also has them covered with 24/7 human support. However, the tech for this wallet is closed-source, which for some sort of goes against the decentralized ethos of crypto, and not everyone may like relying on the Exodus team for the security of their crypto.
Most popular crypto wallet: Coinbase
“Coinbase is definitely a place to start,” said Alexis Johnson, president of the blockchain public relations and events company Light Node Media. “It’s a wallet and an exchange as well.”
However, Coinbase has a limited supply of altcoins (non-bitcoin cryptos). Users will likely be able to buy/sell the most popular altcoins listed on the CoinDesk 20, which range in market cap and utility. Coinbase itself lists over 100 cryptocurrencies, yet there are thousands of altcoins investors can choose to buy and sell – and the number goes up every day.
Some altcoins are considered currency, whereas others, like ethereum, have more advanced functionality like smart contracts. Meanwhile, coins like Cardano’s ADA are thought of more like buying stocks in a promising new blockchain. And stablecoins like tether are cryptocurrencies tied to a fiat currency (in tether’s case, the U.S. dollar).
Choosing altcoins all goes back to my earlier point about knowing your clients’ crypto philosophy. Once your clients become more seasoned, they’ll likely have an idea as to which altcoins they want to buy, and why. Then, it may be time to branch out from their Coinbase wallet, said Johnson. In that case, have them research a more robust option.
Popular wallet for altcoins, DeFi and dapps: MetaMask
MetaMask’s wallets make popular hot wallet options for the Ethereum blockchain.
“For altcoins that are not listed on Coinbase, your best bet is MetaMask,” Johnson told CoinDesk.
Operating as an extension on popular internet browsers like Firefox and Chrome, MetaMask wallets don’t simply store digital coins. The functionality of MetaMask is nearly unparalleled, according to many crypto enthusiasts. MetaMask wallets allow users to interact with smart contracts and decentralized applications (dapps) – two popular functions of the Ethereum blockchain which have utility in decentralized finance (DeFi).
A word of caution: MetaMask users were recently targeted in a phishing scam that prompted people to click phony advertisements that asked them for information on their wallet keys. Advise your clients to never give their key out to anyone and always go directly to the verified URLs to enter their information anywhere online.
Most popular cold wallet: Ledger
Ledger has two options for cold storage: the Nano X ($119) and the Nano S ($59).
The Ledger Nano X connects to devices with Bluetooth or USB through the Ledger desktop or mobile app. Meanwhile, the Nano S lacks Bluetooth capability, but both still support over 1,800 cryptocurrencies.
When exploring the best crypto wallets for your clients, don’t overwhelm them too much at first. Encourage them to try a few low-cost or free options with good security measures. Remember that the crypto community prefers open-source technology over closed-source, since coders can weigh in on potential security vulnerabilities that way. Your clients will likely start with an exchange such as Coinbase or Gemini, then move on to hot wallets when they buy more crypto than just a few hundred dollars’ worth. And when they’re ready to invest higher sums, steer them towards a cold storage solution with a slightly higher price tag and more robust security features.