Although digital currencies, such as Bitcoin, aren’t physical entities, you still need a place to keep them. The best and only way to protect your crypto from bad actors, exchange outages, and other unforeseen circumstances is by getting a crypto wallet.
But using these wallets isn’t the same as reaching into your leather pouch for some cash. Keep reading to find out more about how crypto wallets work and the different types of solutions.
What Is a Crypto Wallet?
Crypto wallets aren’t wallets in the traditional sense of the word. They don’t hold actual cash, and this isn’t the place where you store your crypto, either. Crypto wallets provide an advanced layer of security for your private key – a highly advanced form of cryptography that facilitates safe and easy access to your crypto stash.
The private key is usually a series of alphanumeric characters that are hard to crack. That said, some digital currency users may decide to keep their actively traded crypto on an exchange. But bear in mind that an exchange wallet doesn’t give the user access to the private key.
Types of Crypto Wallets
Crypto wallets come in different shapes and sizes, with various features and functionalities. They can be split into two main categories:
- Hot wallets
- Cold wallets
Hot wallets are devices or systems that require an internet connection, which makes them a bit less secure than their cold counterparts. They are highly accessible due to their connection, and although that is one of its greatest assets, it’s also its major drawback. The accessibility makes hard wallets vulnerable to security threats and cyberattacks. So, even though they are user-friendly, they come with a higher degree of risk.
Unlike hot wallets, cold wallets store crypto on a platform that isn’t connected to the internet, making them a far more secure option. A cold wallet would need to be physically stolen for users to lose their funds. But although these security features are its biggest strength, they also make it more difficult to trade funds while traveling.
Those who have large cryptocurrency holdings should probably use a blend of hot and cold wallets. They can store the majority of their crypto in the cold wallet and keep some funds in the hot wallet for flexibility.
Software wallets are usually hot wallets as they require an internet connection. There are different types of software wallets, but the main ones include web, desktop, and mobile wallets.
Mobile wallets are a great option for all those who use crypto on a daily basis. This mobile app enables you to store and trade crypto using your phone. Mobile wallets are both portable and convenient and allow you to exchange funds wherever you are. Transactions are easy because the funds can be sent to other wallets with addresses represented by QR codes.
There’s a wide range of mobile wallet apps for both iOS and Android devices. It’s important to choose a good mobile wallet and stay away from scams and fake apps designed to steal your private key. Once you have the app, make sure your mobile device isn’t stolen or infected by a virus.
Wallets are downloaded and installed onto your computer desktop. Desktop wallets offer more security than mobile wallets, as they don’t rely on third parties to secure the data. With a desktop wallet, you are the holder of the key, which is why it’s crucial to keep your computer malware-free. You should also keep your password someplace safe.
If you decide to go with a desktop wallet, you should make a copy of the data file and back it up. And if anything happens to your device, you’ll be able to access your funds remotely. Desktop wallets are one of the best solutions for people who trade smaller amounts of cryptocurrency from their computers.
Web wallets, also known as online wallets, allow users to access their funds through a web browser. As such, there’s no need to download any software to your desktop or mobile device. One of the most significant advantages of online wallets is that they are the fastest way to complete transactions and can be used to manage a vast number of cryptocurrencies. On the other hand, online wallets give a little less control to users as the website often holds the private key to their crypto.
A hardware wallet stores private keys on a physical device that isn’t connected to the web. It’s widely regarded as the safest way to store cryptocurrency. Most hardware wallets work as flash drives. You can connect them to a computer or some other device through a USB drive. As they’re not connected to the internet, hardware wallets are secure to use and largely immune to computer viruses.
When you have this kind of wallet, you create a seed phrase that allows you to access your crypto even if something happens to your device. What’s great about the hardware wallets is that your private key never leaves the device. The device itself requests the transaction details and validates the data on its own. Hardware wallets are suitable for those who own a large amount of crypto and intend to hold onto it for a long time.
Crypto wallet – Final Word
As there are different types of crypto wallets available, it’s crucial to find the one that accommodates your individual needs. Prior to choosing a crypto wallet, you need to understand how they work and what their advantages and disadvantages are. Once you’re sure your crypto is safely stored, you can focus on your investment plans.
Content writer, CryptoBlokes