With cryptocurrency becoming more mainstream, it is only natural for there to be an increase in users seeking out good crypto wallets.
However, selecting a safe and secure wallet requires a methodical approach wherein users look beyond just the brand name. As such, there is an array of elements to look for when picking a good wallet option to allow for safety, functionality, and complete financial sovereignty. Of course, finding a wallet that checks all the boxes can prove challenging, especially for those new to the cryptocurrency scene. Let’s take a look at what criteria need to be met when picking out a crypto wallet.
The Decentralisation Imperative
Before delving deeper into the criteria, it is vital to understand the difference between decentralised (non-custodial) and centralised (custodial) wallets. Simply put, custodial wallets are for those newer to crypto, and will have their funds managed by a third-party, whereas non-custodial wallets give users complete control (there is no third-party). While custodial wallets are beginner-friendly, it is recommended to opt for decentralised options instead to ensure financial autonomy over your private keys.
This places users in a position of self-custody, offering true ownership and a good foundation for digital asset management when engaging with Web3. When it comes to picking the best decentralized wallets, they must have top-tier security and broad compatibility with DeFi and Web3. Additionally, there should be regular independent audits, true self-custody, or cross-chain support to avoid lost funds, high fees, or limited functionality.
Custody Model: The Sovereignty Question
Custodial wallets are exchange-based and offer users a ‘set-it-and-forget-it’ means of managing their money. Pair this convenience with quick password/account recovery and ease of access, and it may seem like an ideal crypto wallet option. However, there is one major setback that can be detrimental to your financial health: custodial wallets are vulnerable to cyber attacks. Think of an exchange-based wallet as handing your private keys to a bank, which, of course, has its own security and safety measures in place.
If those measures were to be compromised, all your funds would be at risk. Before fully committing to this wallet type, a certain level of trust would need to be placed in the custodian managing the deposited funds. In comparison, non-custodial wallets provide maximum security as they not only eliminate users’ reliance on a third party but also offer greater privacy. Even more, users are required to enhance their wallet security by managing backups and using OpSec (personal operational security).
Security Architecture: Hot vs. Cold Storage Profile
Another factor to consider is how crypto owners use their funds: will they be utilised for trading, exchanging crypto, or investing to save long-term? Understanding how these funds will flow before deciding on an option is important, as it will define the wallet type (including security levels). For one, cold wallets (basically financial external hard drives) are great for long-term, deep storage of capital (long-term saving/investing). Hot wallets, in comparison, are software-based, connected to the internet, and are perfect for active trading and other financial utilities. Naturally, hot wallets are more prone to phishing attempts, malware, and various other cyber attacks. As such, users are encouraged to educate themselves on which wallet type is more aligned with their interests.
Seed Phrase Generation and Recovery Integrity
The next criterion should focus on how well a wallet handles seed phrase generation, which acts as the literal key to your funds. In essence, a seed phrase is a sequence of 12 to 24 words that generate and backup crypto private keys (which act as proof of ownership when attempting to transact). Looking at whether the wallet uses an isolated RNG (Random Number Generator) is vital, as this guarantees the sequence is secure. Of course, this seed phrase will need a good, physical (offline) place for safekeeping, so considering how to maintain it should be prioritised. Writing it down on a piece of paper could work, but that could easily be lost, so going a more permanent route (think metal stamping or fireproof storage) is a better idea. Adding a 25th word (or PassPhrase) to the seed phrase can offer extra protection if physical storage is compromised.
Interoperability and Multi-Chain Support
To further optimise asset management strategies, ensuring the crypto wallet of choice can reach across the decentralised landscape is crucial. First, modern investors need multi-chain access, so a wallet needs to be compatible with the Ethereum Virtual Machine (EVM). This computation (basically) executes smart contracts across the Ethereum network and allows users to interact with other chains and dApps (decentralised applications). Second, a wallet should be able to handle other major ecosystems (e.g., Solana, Polkadot, Cosmos), so multiple tokens can be managed in a single space. As such, interoperability is especially important for users who have purchased multiple tokens or own various digital assets.
DApp Connectivity and Web3 Integration
Beyond interacting with other cryptocurrencies, a good wallet needs to be able to interact with DeFi (decentralised finance) alongside the broader Web3 economy. As such, checking for a WalletConnect protocol is key, as it will be what connects a mobile or desktop wallet to lending platforms or NFT marketplaces. Additionally, this WalletConnect protocol needs to be well implemented for a reliable connection to be established and to avoid crashes mid-transaction. Alternatively, when using an in-app browser mobile wallet, an integrated dApp is a bonus, but granting permissions to smart contracts could have its cons. More specifically, these permissions could introduce potential security risks, such as phishing scams or becoming the target of malicious actors.
Code Audit History and Open-Source Transparency
As with most tech-related safety functions, verification processes are of great importance when it comes to securing sensitive information. It is therefore recommended to look for open-source wallets as they offer transparency through community reviews. Generally, an open-source wallet will have a code that is accessible to the public (or rather, the wider crypto community). Although it sounds dangerous, this actually makes it easier for developers and security experts to identify any potential vulnerabilities or issues. In addition, be sure to confirm whether a wallet has regularly published audit reports, as these confirm that the wallet’s firmware has undergone independent security audits.
User Experience (UX) and Organisational Features
Besides security features, a good wallet should also be practical and easy to use, so an option with multiple features and a user-friendly interface should be prioritised. For one, does the crypto wallet support asset management? Is it easy to access a log or history of each transaction made from the wallet (no matter how small)? Are there detailed settings, integrated token swapping, and an option to view NFTs (Non-Fungible Tokens)? The answer to these questions should all be ‘yes’. Lastly, usability is vital in avoiding human error (sending funds to the wrong address or utilising the wrong asset). As a result, finding an option with clearly labelled and modern interfaces is crucial, as a crowded app or page can make it impossible to find the relevant information.
To Conclude
While the crypto wallet brand or cryptocurrency token is up to user preference, these elements are non-negotiable. With cyber attacks targeted at crypto users on the rise, it is more important than ever to be strategic when it comes to securing assets. Overall, security and the protection of private keys should be users’ main priority, whether they are new or veteran investors.
