Different Types Of Cryptocurrency Wallets
A crypto wallet is used to interact with a blockchain network. The three major types of crypto wallets are hardware, software, and paper wallets. Based on their work, they can be further classified as cold or hot wallets. Software-based wallets are more accessible and more convenient, whereas hardware ones are most secure. Paper wallets are printed out on paper and now are unreliable and obsolete. In reality, crypto wallets don’t store the currency but act as a tool of interaction with blockchain, i.e., generating the necessary information to receive and send money via blockchain transactions.
The information comprises pairs of private and public keys. Based on these keys, an alphanumeric identifier called address is generated. In essence, this address specifies the location to which coins can be sent to the blockchain. The address can be shared to receive funds, but private keys are to be never disclosed. The private key can be used on any wallet for accessing the cryptocurrency. As long as the private key is known, funds are accessible on any device. Also, coins are just transferred from one address to another, never leaving the blockchain.
Categories Of Wallets
A wallet is a combination of public address and private key. The wallets can be categorized based on the method and location of storage in the following segments:
Hot and Cold Wallets
Internet connectivity defines a wallet in terms of hot or cold. Hot wallets are connected to the Internet and thus are less secure and pose more risks but are user friendly. Cold wallets, on the other hand, are stored offline and don’t require internet connectivity. Thus, improved security and less risk. When compared to a safe or a vault, more substantial sums of money can be stored than that in a carry around a wallet. Hot wallets are more likely to be used for daily transactions and cold wallets for more long-term holdings. Hot wallets are easy to set up, and the funds are quickly accessible. Traders conveniently use them. Cold wallets are hack resistant, and thus the cold storage is suitable for HODLers. As a protection method, only a small percent is stored in hot wallets while being able to trade directly from their cold storage devices.
Hardware wallets are hardware devices that individually handle public addresses and keys. It looks like a USB with OLED screen and side buttons. It is a battery-less device and can be connected to PC and accessed by native desktop apps. It cost up to 70–150 dollars, but it is worth it. They have received a mixed response. They are more secure than hot wallets and user-friendlier than paper wallets but less than web and desktop wallets. They are available in different forms and offer reasonable amounts of control. They are difficult for beginners to use when the investment is significant. Most popular hardware wallets are Ledger Nano S and Trezor.
It is a physically printed QR coded form wallet. Some wallets allow downloading the code to generate new addresses offline. They are not prone to hacks, but the number of flaws has made them dangerous. A major flaw is not being able to send partial funds. Thus, it can’t be reused. They were used to be very popular for cold storage, but not after hardware wallets came onto the scene. All in all, if stringent security precautions are taken, then paper wallets can be set up.
These are installable software packs available for operating systems and are becoming serious with time. Anti-virus is required because a system connected to the Internet poses fundamental security issues. Instead of keeping cryptos on an exchange, desktop wallets for bitcoins should be used. They are the third most secure way to store cryptocurrencies and the best method for cold storage in a completely clean system. They are easy to use, give privacy, anonymity, and involve no third party. Regular backing up of the computer is needed. Popular desktop wallets are Exodus, Bitcoin core, Electrum, etc.
Mobile wallets are just like desktop wallets made for smartphones. They are quite convenient as it uses QR codes for transactions. They are suitable for daily operations but are vulnerable to malware infection. Encryption of mobile wallets is necessary. They are practical and can be used on the go but open to viruses. Some mobile wallets are Coinomi and Mycelium.
As the name suggests, these wallets are accessed by internet browsers. The private keys are held in some web wallets and are prone to DDOS attacks. They can be hosted or non-hosted. Non-hosted is preferred as funds are always in control. They are the least secure wallets. They are not the same as hot wallets. They are ideal for small investments and allow quick transactions. Some of these are MetaMask and Coinbase.
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