What is a Cryptocurrency Wallet?
A crypto wallet is an app or a software program that is designed to allow crypto users store and retrieve digital assets. It allows crypto users to store their private and public keys, interact with various blockchains, send and receive digital currencies, and monitor their balance.
Overview of Crypto Wallets
To manage and keep crypto assets secure, you’ll need a crypto wallet. There are various types of crypto wallets; the major difference between them is whether they are cold or hot.
Hot wallets, also known as software wallets, are wallets that are connected to the internet and can be accessed at any time. They include most mobile wallets, online cloud wallets, and exchanges.
Cold wallets, also known as hardware wallets, are wallets that are not connected to the internet. They allow you to store your funds offline. With a cold wallet, funds can still be received at any time, but they cannot be transferred out. Offline-kept paper wallets, USB, and other similar offline data storage devices are examples of cold wallets.
The majority of crypto holders use both hot and cold wallets. Cold wallets are better for holding crypto assets long-term, while hot wallets are useful for frequent trading.
Types of Crypto Wallets
There are 4 main types of crypto wallets: paper, cloud, hardware, and software wallets.
The term “paper wallet” is used to describe a physical print or physical copy of your private and public keys. It also refers to software used to initiate a pair of keys together with a digital file for printing.
Paper wallets are commonly classified as cold storage. They give you a relatively high level of security. Paper wallets can be imported into a software client or you can scan the QR of the paper wallet to move your funds.
Paper wallets have their own share of risks, even though they are cold wallets. For instance, they can easily be burned, damaged, and copied. Paper wallets also demand mutual trust, especially if you are not making one yourself.
Cloud wallets are sometimes referred to as online wallets. They are hot wallets. Cloud wallets allow you to access your funds from any device, location, or computer. These wallets are very convenient, but they keep your private keys online. Also, these wallets can be accessed by third parties. By design, cloud wallets are more vulnerable to theft and attacks.
Some popular cloud wallets are Blockchain.com, Guarda, and Coinbase. Non-custodial online wallets are safer versions of cloud wallets. They can be accessed via apps and the web, but the service provider has no access to your private keys.
Non-custodial wallets are usually a part of an exchange platform. They allow you to trade coins securely and safely. Some examples of non-custodial cloud wallets are wallets by LocalCryptos, Bitwala, and Crypto.com DeFi wallet.
Software wallets can be mobile wallets or desktop wallets. They can be downloaded and installed on a laptop or PC or smartphone. Software wallets are hot wallets. Both mobile and desktop wallets provide a high level of security, but they can’t protect you from viruses and hacks. So, when using software wallets, make efforts to stay malware-free.
Mobile wallets are usually much simpler and smaller than desktop wallets due to the limited space available on mobile. However, you can still manage your funds easily using any of them. Some software wallets let you access your funds simultaneously through multiple devices, including laptops, smartphones, and even hardware wallets.
Examples of software wallets are Exodus, Infino Wallet, Electrum Wallet, Freewallet, Jaxx, and more.
Hardware wallets are cold wallets. They are more secure than software wallets. Unlike software wallets, they store your private keys on an electronic or external device like USB. Hardware wallets also let you make online payments.
Hardware wallets allow you to carry out transactions easily and conveniently. All you have to do is to plug the hardware device into any online or internet-enabled device, enter your pin, send currency, and then confirm.
Hardware wallets are considered the most secure method of storing crypto assets. Although they provide a high level of security against online attacks, they can present risks if the implementation of the firmware is not properly done. Hardware wallets are also not free to use. Examples of hardware wallets are KeepKey, Trezor, and Ledger.
Note: It is best for you to buy a hardware wallet directly from a producer. Buying from other people, especially those you don’t know is not safe. Even if you buy directly from a manufacturer, always reset and initialize it yourself.
Crypto wallets form an integral part of using cryptocurrencies. They make it possible for you to receive and send funds through blockchain networks. Every wallet has its advantages and disadvantages. So, make sure you understand how the different wallet works before you move your funds.