A Primer On Cryptocurrency Wallets
Leaving Bitcoin and cryptocurrencies on an exchange means that you risk losing them if the site is hacked or otherwise breached. The safer alternative is to store your coins in a cryptocurrency wallet. This is a piece of software that stores public and private keys, and that interacts with the blockchain. It enables you to make and receive payments with any compatible cryptocurrency. It offers security over your cryptocurrency while still enabling you to readily send and receive funds. However, there are several types of wallet available, and if you hold a currency other than Bitcoin, you will have to ensure that the wallet you choose is compatible with your chosen coin.
Hot Or Cold
At the most basic level, there are two types of crypto wallet – hot and cold. Hot wallets are typically connected to the Internet, while cold wallets are offline. Serious traders and investors have both a hot and cold wallet because they are used for different purposes.
- A hot wallet is used when making purchases using cryptocurrency. A trading account on a site like Coinbase can be considered a hot wallet because your crypto is stored on their servers. Because your computer connects to the Internet, even a desktop based wallet is considered hot.
A hot wallet makes it easy to transfer your currency to another person, business, or website, but because it is connected to the Internet, it is generally considered to be less secure than a wallet that is offline.
- A cold wallet is completely offline and is not stored on a device that connects to the Internet. If the wallet never connects to the Internet, then it cannot be hacked, which makes it the more secure alternative to a hot wallet. Hardware and paper wallets are the most common form of cold wallet.
A desktop wallet is installed on your desktop or laptop. It is only accessible from the computer on which it was installed in the first place, and while they are generally considered to be safe, they are still a form of hot wallet. If your computer gets hacked, your wallet could also be hacked and drained of funds.
Online accounts are convenient because they store your details in the cloud. They can be accessed from anywhere and on any device that has access to the Internet. However, they are controlled by a third party, and your wallet is always online, making it easier for hackers to access your wallet and its contents.
Mobile wallets are similar to desktop wallets, except that they are lightweight apps that are installed and controlled on your mobile phone. There are both iOS and Android specific wallets available, and they offer even greater convenience than desktop wallets because you can use them whenever you want, from your mobile phone. You must ensure that the mobile wallet you choose comes from a reputable source and that you download it from an official site, otherwise you could be handing your wallet details straight to hackers looking to profit from your funds.
Hardware wallets are cold wallets. While they make transactions online, your keys are stored offline, making them a more secure alternative to hot wallets. They are easy to use. Plug it into any Internet-connected device, enter your pin, send funds, and confirm, and the transaction completes. There are also models with LCD screens and other features. Hardware wallets do cost money, but they offer the best combination of security and accessibility there is.
Paper wallets have become a little outdated, but they still have their proponents and beneficial uses. The term can be used to refer to a printed copy of your public and private keys, but in this instance, we are referring to a piece of paper that has been printed by official and encrypted software. It contains your keys and a QR code, and if you want to make a payment, you can simply enter the paper wallet details manually or you can scan the QR code.
On the following pages, we have listed some of the most popular and beneficial wallets of all types, so that you can choose the one that best suits your needs, your budget, and how you use cryptocurrency.