As more people have become interested in investing and trading cryptocurrency, several types of crypto wallets have sprung up in the last few years. Essentially, each of these wallets has unique features that are useful and suitable for crypto holders based on their needs. So What are the different types of cryptocurrency wallets, and what are their unique features? Let’s walk you through a breakdown of the different kinds of crypto wallets and their respective features to help you make an informed decision.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a physical device, medium, application, or service that helps to preserve the private and/or public passwords for cryptocurrency transactions. Aside from its fundamental purpose of keeping keys, crypto wallets also make the owner of the digital token pseudonymous.
With a wallet, the holder can view and manage all their cryptocurrencies and also initiate transactions. They come in numerous forms, from the user-friendly online web wallets delivered by top crypto exchanges to. complex and protected offline, hardware-based crypto wallets.
What all crypto wallets have in common is keys. Users require these keys to access their crypto assets. Without your keys, you won’t be able to access your cryptocurrency in the wallet.
How do crypto wallets work?
Think of crypto wallets as a digital form of your physical wallet that can help you hold your cryptocurrency assets. Since they are digital, they remain on the blockchain and you cannot hold them.
In reality, a digital wallet doesn’t really hold your crypto assets but helps to keep your private key. The platform you use automatically creates this key when you create your account. Since your private key is not backed up on any server, you can not recover it once it gets lost. For this reason, storing it in a wallet is important.
Nonetheless, the fact that your private key isn’t backed up is a solid security measure because anyone who holds your private key can access and spend your cryptocurrency. Hence, it is for your own good that your private key is not backed on any server.
Also, each digital crypto wallet will have a public key, which is just a string of unique numbers and letters. The public key is an address that will come up within the blockchain as your crypto transactions occur. There will be no visible records of who executed the crypto transaction with whom. What just appears is the number of a crypto wallet.
A public key is similar to your email address, which anyone can send emails to, while your private key is just like your email server password, which permits just you to access the email.
So, in reality, while the owner of a crypto address is unspecified, it is very possible to track transactions on the blockchain using the public key. Also, it is possible to build a profile of somebody based on their regular behavior on the blockchain. Therefore, cryptocurrencies are not actually anonymous but instead, pseudonymous.
So what are the different types of cryptocurrency wallets? Listed below are the types of cryptocurrency wallets that you should know:
1. Hot and cold wallets
Internet connectivity characterizes a crypto wallet in terms of hot or cold. Essentially, hot crypto wallets are always connected to the Internet and therefore, they are less safe and expose you to more security risks. However, they are very user-friendly.
On the other hand, cold wallets are reserved offline and don’t need any internet connectivity. Therefore, they are more secure and have less risk than hot wallets. Usually, hot wallets are likely to be used for day-to-day crypto transactions, while cold wallets are likely to be used for more long-term holdings.
Hot wallets are generally very easy to set up, and the crypto funds stored there are quickly accessible, making them convenient for regular use. As for cold wallets, they are hack-resistant, and hence, the cold storage is very suitable for HODLers. As a safety method, users reserve just a small percent of tokens in hot wallets, while being capable of trading directly from their cold wallets.
With Bitmama, you can create highly secure wallets for seamless buying and selling of crypto without the fear of a breach.
2. Hardware wallets
Hardware wallets are simply hardware devices that separately handle public crypto addresses and keys. It is similar to a USB with an OLED screen with side buttons. Hard wallets are battery-less devices that can easily be connected to a PC and conveniently accessed via native computer apps.
They are generally more secure than hot wallets and more convenient to use than paper wallets, but much less than desktop and web wallets. Hardware wallets are available in various forms and offer users a reasonable amount of control. However, they are very difficult for novices to use, especially when the crypto investment is significant.
3. Web wallets
As the name implies, you can access these crypto wallets primarily through internet browsers, which makes them very prone to cyber-attacks. They can either be hosted or non-hosted. Users of web wallets generally prefer non-hosted funds as funds are always in their control.
Web wallets are the least secure wallets and are different from hot wallets. They are excellent for small crypto investments because they allow you to initiate transactions quickly.
4. Paper wallets
Basically, paper wallet is a physically printed QR-coded type of wallet. Some of these wallets allow users to download the code and generate new crypto addresses offline. Although paper wallets are not liable to hacks, their weaknesses have made them relatively dangerous.
One of the major flaws of paper wallets is not being capable of sending partial funds. Hence, you cannot reuse it. In all, if you can read and follow stringent security precautions, then you are free to set up paper wallets.
Mobile wallets are similar to desktop wallets made specifically for smartphones. They are quite convenient as they make use of QR codes for transactions. Also, they are very suitable for executing day-to-day crypto transactions but are very vulnerable to malware infection and viruses.
6. Desktop wallets
A desktop wallet is a special program for your personal computer that reserves your private keys on your system’s hard drive. These wallets are generally more secure than web and mobile wallets since you don’t depend on a third party to keep your precious crypto private keys.
Nonetheless, desktop wallets still have to be connected to the internet whenever you want to buy or use your crypto assets and certain programs that download the full crypto blockchain to your computer. Desktop wallets require a very fast internet connection and a lot of disk space. They are very easy to use, offer you privacy and anonymity, and don’t involve any third party.
Now that you have all the right information on the different types of cryptocurrency wallets, it is left for you to compare their benefits and choose the most suitable one for you.