When you open a crypto wallet, there's a steep learning curve -- is it worth it?
The cryptocurrency industry has developed in leaps and bounds in recent years. It used to be difficult to buy digital currencies safely. Now, all you need is an account with a top crypto exchange or brokerage, and you can buy most major digital currencies. You can even earn interest on some of them.
It used to be hard to spend cryptocurrencies. Now, more and more retailers accept major cryptocurrencies -- either directly or through a third party. And several exchanges will give you a prepaid crypto debit card so you can convert your coins and pay as you would with a regular card. We'll see crypto rewards credit cards this year too.
However, some parts of the crypto industry still have a way to go, including crypto wallets. Keep reading to see what billionaire investor Mark Cuban thinks of wallets and why he might be right.
Crypto wallets are too hard to figure out
About 17% of American adults now own cryptocurrency, according to a study by New York Digital Investment Group. Gone are the days when digital currencies were traded by a small niche with a high technical knowledge base. As cryptocurrencies have become more mainstream, so products have become easier to use.
Cuban believes this is crucial. He recently told a Delphi Podcast that businesses need to keep improving in order to retain customers. He noted, "If your solution is not the path of least resistance and low friction, someone's gonna kick your ass."
Cuban went on to give his opinion of crypto wallets. "Wallets are awful," he said. "Figuring out a wallet -- period -- is the worst thing ever."
If you've tried to use a crypto wallet, you'll understand why.
The two main types of wallets are hot wallets and cold wallets. Cold wallets are usually a small piece of hardware about the size of a USB. They are more secure because they aren't online. Hot wallets are connected to the internet, whether on your computer, cellphone, or the cloud. This makes them a more convenient way to store small amounts of money.
How wallets could improve
People primarily use wallets to store and manage their crypto assets. There have been some high profile crypto exchange hacks in the past, so some people prefer to store their coins in a wallet that they control.
However, these days, many people choose to leave their crypto on the exchange where they bought them. This is partly because exchanges are a lot more secure than they used to be. But it's also because -- as Cuban points out -- wallets aren't easy to use.
Here are some of the issues with crypto wallets:
- Fees. There's almost always a transaction fee involved in moving coins to or from a wallet. This is because miners need to validate each transaction, and that takes computer power, which costs money. Fees vary from wallet to wallet and coin to coin. You'll be able to see the cost before you move your coins.
- Ease of use. You can't just move money from one wallet to another at the click of a button. You'll need the wallet address, which is a long string of numbers and characters. If you get the address wrong, it will be almost impossible to get your money back. Added to which, different wallets are compatible with different coins. Imagine doing a round-the-world trip without being able to carry a mix of euros, dollars, and pounds in your physical wallet.
- Security vs. accessibility. When you put cryptocurrency in a wallet, in some ways you are becoming your own bank. That has its advantages, but it also brings additional risks and responsibilities. You need to be your own bank teller and your own security guard. If you have a cold wallet, you'll need to back it up and keep your access codes in a secure place. If you use a hot wallet, you'll need to ensure your computer firewall is up to date and be on the lookout for malware.
Using a wallet gives you more control over your cryptocurrency. Done properly, it can give you more security and flexibility in how you spend your coins. However, wallets have not developed as fast as other parts of the industry and there's a lot of room for improvement.
If you want to use a wallet, there's plenty of help available online. Make sure you understand how to secure it and what fees will be involved before you start. Hopefully, in the coming years, crypto wallets will become as easy to use as your bank account.
RELATED: There are some great wallets out there, especially for NFTs. Check out The Ascent's guide to the best NFT wallets.
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Emma Newbery owns Bitcoin.
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