In 2017, cryptocurrencies exploded into the mainstream. Around the world, millions of people began investing in digital coins all at once. This leap in popularity for an emerging tech was made possible by immense hype and by underlying technologies. Cryptocurrency wallets, which began development in 2012, were one of the primary technologies that allowed this vast expansion.
Today, cryptocurrency wallets come in all shapes and sizes. Businesses and startups are looking for ways to invest and capitalize on this new currency movement.
With that in mind, let’s talk about how you can enter the cryptocurrency market with your own wallet.
What is a cryptocurrency wallet?
First, the basics: what is a cryptocurrency wallet?
A cryptocurrency wallet is more or less a bank account for your cryptocurrency. It tells you how much cryptocurrency you own, what it’s worth in various currencies, and makes it easy to send, receive, and exchange crypto.
One thing to note, though, is that a cryptocurrency wallet doesn’t store your cryptocurrency. Technically, all cryptocurrency is stored in a blockchain, a ledger that keeps track of every coin in a particular type of cryptocurrency.
In this way, crypto wallets really are like bank accounts. When your bank account says that you have $1,000, it doesn’t mean that $1,000 is sitting in an account with your name on it. It means that your bank has $1,000,000, and $1,000 of that money belongs to you. Your account allows you to manage and use that money, but it’s just an interface for interacting with it — it isn’t actually holding that money.
The same concept applies to cryptocurrency wallets. They store the information that confirms you own cryptocurrency, just like an account. Information about how much cryptocurrency you own is stored in the blockchain, and the blockchain integrates with your wallet. Like a bank!
Also like a bank, you can lose your cryptocurrency if you lose track of your account information. If someone steals the data that confirms your crypto belongs to you, then they can claim it as their own. Since crypto isn’t as established as banks are (by design, notably), keeping your crypto safe largely falls to cryptocurrency wallets.
There aren’t necessarily any defining characteristics of a cryptocurrency wallet other than that it stores the information that confirms your crypto belongs to you. You could technically write that information on a piece of paper, and that piece of paper would serve as your wallet (just don’t lose it!)
While keeping your crypto on a piece of paper is arguably one of the most secure ways to store it, the paper approach lacks features. It can only “receive” cryptocurrency and store it. So those wanting to venture into cryptocurrency wallet development will need to:
- Build an app/device that holds a person’s cryptocurrency information
- Ensure that this information is as secure as possible
- Add features that make their cryptocurrency wallet more worthwhile than alternatives
Ease-of-use is a vital feature of a cryptocurrency wallet because many people have difficulty understanding the concept and using their wallets.
The different types of cryptocurrency wallets
As mentioned, a cryptocurrency wallet can be anything that stores the information confirming you own your crypto, including a piece of paper. Of course, businesses looking to dive into cryptocurrency wallet development aren’t interested in selling paper.
Below are the four most common types of cryptocurrency wallets available today. Each has its benefits, pitfalls, and risks. Like most tech, the more secure something is, the more complex and limited it will be. You want to choose the format that best suits your goals and balances these factors.
Web-based cryptocurrency wallets are popular for the same reason that SaaS and other web-based apps are popular. They’re easy to access, available on all of your devices, and work regardless of how much computing power/storage the user has.
The issue with web wallets is that they can be limited both in terms of security and features. You might struggle to get users on board with them because downloadable mobile apps are more popular with consumers.
That brings us to mobile cryptocurrency wallets. These are, unsurprisingly, the most popular among crypto users today. They’re easy to use, can be carried with you wherever you go, and can take advantage of the hardware in smartphones (like NFC or Bluetooth).
The drawback of mobile wallets, though, is that they’re often stuck on a person’s phone. Additionally, because mobile is such a ubiquitous medium these days, there is an abundance of malware posing as a mobile cryptocurrency wallet. You not only need to keep things secure but communicate to your users that your wallet is as secure as it claims.
Desktop cryptocurrency wallets are usually the most feature-rich. Similar to a mobile wallet, these keep all of your cryptocurrency stored on your computer. You don’t need an internet connection for these wallets to work, though they offer many of the same benefits that you get with a web-based wallet.
The pros of desktop wallets are that they’re secure, geared towards the tech-savvy, and have a feeling of authenticity that mobile and web apps usually don’t. You can think of it as the difference between an app like Acorns and Fidelity Investments. One is more approachable, and the other is more robust.
However, this can also be a hindrance to desktop wallets. Cryptocurrency is no longer exclusive to tech-savvy individuals. As such, desktop wallets can be intimidating to users, assuming they’re even aware they exist.
The last type of cryptocurrency wallet is the hardware wallet. This is arguably the “classiest” way to keep your crypto and works essentially the same as a paper wallet.
Most hardware wallets are just physical devices that plug into your computer and store the information that confirms you own your cryptocurrency (your address and keys). They usually look like flash drives or portable hard drives with a small LED screen. This screen will display things like your address and key, the amount of cryptocurrency you own, and so on.
These wallets generally don’t do anything beyond this as they, by design, don’t connect to the internet. Encryption is standard for these devices as well, making them very secure. If someone forgets their encryption password, though, then that person will likely lose their cryptocurrency as well.
As such, hardware wallets are great for security-conscious crypto holders and stablecoins. However, a more flexible solution will work better for those who want to trade unstable crypto assets.
The difference between hot and cold cryptocurrency wallets
When you begin cryptocurrency wallet development, you’ll find that you can generally break down the available types of wallets into two categories:
- Wallets that connect to the internet
- Wallets that don’t connect to the internet
These are “hot” and “cold” cryptocurrency wallets. Hot wallets connect to the internet and focus on bringing users features and simplicity. Cold wallets, on the other hand, are used for long-term storage and security. They’re usually more difficult to use but offer greater peace of mind.
Cryptocurrency wallet development: Developing it yourself or choosing a custodial service
Another fork in the road that you’ll encounter after you begin cryptocurrency wallet development is the custodial wallet. Hot wallets can be custodial or non-custodial.
Custodial wallets are wallets that store your cryptocurrency for you. You can still trade, send, receive, and otherwise manage your cryptocurrency. You just don’t hold onto the actual keys and address of your wallet. One of the most popular custodial wallets is Coinbase, which mirrors a stock trading app.
Non-custodial wallets give you total control over your cryptocurrency. They’re just the medium that you use to control it.
Custodial wallets are generally easier to use, more feature-rich, and have the benefit of keeping track of your crypto for you. As long as you have the app downloaded and your username/password memorized, you won’t lose your crypto.
On the other hand, you’re at the mercy of the custodial wallet to keep track of your crypto correctly. If they’re hacked, subject to a government seizure, or simply decide to close up shop, then you lose your crypto.
Again, you will want to consider the kind of product you want to develop when comparing these two options. Today, custodial wallets have dominated in popularity. Custodial wallets’ popularity primarily comes from people using cryptocurrency as a tradable asset rather than a currency. As time moves on, though, and the market becomes more stable, non-custodial wallets will likely begin to take over.
6 most important components of cryptocurrency wallet development
Like any service that depends on security, your team must provide your users with a high level of protection. Cryptocurrency isn’t quite at the same level of risk as it was a few years ago, but it’s still a financial asset and should be protected accordingly. Keeping things encrypted, locked behind logins and 2FA, and instating a robust account recovery process is essential.
Offline access for a crypto wallet requires a non-custodial wallet. It also requires that a person’s address and keys are stored on a personal device like a computer, smartphone, or hardware wallet.
Considering offline access in your cryptocurrency wallet development can lead to features like offline crypto transfers and more secure crypto storage.
QR code scanning capabilities
QR codes and NFC tags pose a lot of potential for cryptocurrency wallet development. They allow for contactless transfers of funds, which have already started replacing physical credit and debit cards.
Adopting NFC and QR codes as a means of cryptocurrency payment is not only a great way to embrace the tech-y side of this tech but is also helpful for P2P payments.
Of course, every app for making financial transactions should have some form of transaction notifications, and cryptocurrency is no different. Notifications act as a form of security and confirmation. And on exchange platforms like Coinbase, they can let users know when assets they’re holding have risen or fallen in value.
Trading and exchange features
As mentioned, most cryptocurrencies haven’t reached a point of value stability yet. And they will most likely remain that way before they receive mainstream acceptance by consumers, businesses, and governments.
Many of your users will likely use cryptocurrency as a tradable asset rather than a currency until then. For this reason, it’s worth considering adding trading and exchange features to your platform. Users will also likely wish to trade their crypto for fiat currency until it is widely accepted as a payment method. So having a system in place for doing so is worth considering.
Payment gateway integration
Finally, integrating your cryptocurrency wallet with a payment gateway, like PayPal, is also worthy of consideration. It can help legitimize your wallet and make it more appealing than alternatives that seemingly lock your crypto into an app.
You might even look into building or integrating with a blockchain payment process platform. These services are becoming more popular as cryptocurrency grows in mainstream appeal.
Partner with Cheesecake Labs and accelerate your cryptocurrency wallet development
The newness of cryptocurrency can, understandably, make it intimidating and complex to break into the sector. But you don’t have to do it alone.
The experts at Cheesecake Labs can help you navigate this new technology and develop a competitive product for the market. If you’re interested in starting your cryptocurrency wallet development, reach out to our team and see how we can help.