Contrary to popular belief, cryptocurrency wallets don’t store currency like traditional pocket wallets. Cryptocurrencies don’t get stored in any single location or exist in physical form. Instead, these wallets keep the private and public keys required to interact with various blockchains. They generate information, in the form of public and private keys, to send and […]
Contrary to popular belief, cryptocurrency wallets don’t store currency like traditional pocket wallets. Cryptocurrencies don’t get stored in any single location or exist in physical form. Instead, these wallets keep the private and public keys required to interact with various blockchains. They generate information, in the form of public and private keys, to send and receive crypto via blockchain transactions.
The information on the wallets also includes an address (an alphanumeric identifier) that is generated based on the public and private keys. The address is essentially a location on the blockchain where other users can send coins to. Therefore, if a user wants to receive funds, they share this identifier with the recipient. In the event that the user loses that address, they lose control over their digital assets and digital money.
A person can also only execute transactions that transfer their digital assets or change them in some way through these keys. A user accesses their cryptocurrency through their private keys. This is regardless of whatever wallet they use, as long as they have the corresponding private key, which is why it’s important never to disclose your private key to anyone.
Types of Wallets
Dependent on its working mechanism, there are two main types of crypto wallets; hardware and software (also known as hot and cold wallets respectively). Users rely on either for the ideal security of the funds in your wallets and transactions.
A hot wallet is any wallet that is accessible via the internet. They are a riskier environment to keep cryptocurrency compared to an offline wallet. This is because a connection to the internet makes the user vulnerable to hacking and malware. They are recommended for storing a small amount of cryptocurrency for daily transactions. Their ease of use makes them convenient for traders and frequent users.
These wallets come in many different forms with most being connected to the internet. However, due to hacking and malware threats, your software wallet is only as safe as your phone or computer is. The most common types of software wallets are desktop, mobile, and online wallets.
Online wallets allow a user to access blockchain through a browser website. The wallets run on a cloud, and the user can access them from any device that has an internet connection. These websites are managed by a third party that can hold and manage private keys on your behalf.
Admittedly cheap and easy to use in terms of access, they are less secure because of susceptibility to hacking. They are more appealing to inexperienced users who are still learning how to handle their assets.
These are software you download and execute locally on a PC or laptop. They give a user full access over their keys and funds. They also offer one of the highest levels of software security because the wallets are only accessible from a single device. The software is encrypted with a password that gives you access to your funds. However, desktops are still susceptible to viruses and malware, so as a user, you should ensure your device is clean before wallet installation.
They function similarly to desktop wallets but are designed as smartphone applications. They are convenient and enable the user to perform daily transactions and payments. They can even send and receive cryptocurrency through reading QR codes. However, they can still get malware infection or get lost, so the user is advised to encrypt the wallet with a password.
Cold wallets store cryptocurrency offline and have no active internet connection. They use a physical medium to store keys offline, making them less vulnerable to hacking. They are often used for long-term storage, making them ideal for storing more significant amounts of cryptocurrency. They are a safer alternative to storing user assets compared to hot wallets.
These are stand-alone, offline devices which use a random number generator (RNG) to generate public and private keys and store them. These wallets are downloaded and reside in hardware like a USB or smartphone. A user can purchase the hardware with the software already installed in them. It’s safe from malware, and hacking attempts as the private keys never leave the device. However, it’s important to purchase the hardware from a trusted source as some hackers sell wallets that are already corrupted.
It is essential to store it safely as hardware can get stolen or lost. They are less user friendly as funds take time to access compared to software wallets.
With this wallet, all you have to do is print or write out your private keys on paper. By definition, this is now a cryptocurrency wallet, and a user shouldn’t make it susceptible to lose or ruin. It is safe from hacking, malware, or loss if stored securely like in a safe.
If you do not intend to send or receive bitcoin regularly, and you are merely holding your funds long-term, paper wallets are perfect for you. It is cheap, safe, and secure.
Tips on Picking the Right Wallet
If conducting numerous transactions, choose a wallet that enables fast transactions. The wallet you pick depends on the length of time you wish to store your assets and how much you are storing. Now, hardware wallets are highly recommended for handling significant sums. On the other hand, mobile wallets are more suitable for daily operations. For the latter, hot wallets are recommended due to easy access.
Safety and Security
It is essential to keep critical information personal. To ensure optimal security of your funds, for large sums, cold or deep cold storage are suitable and come highly recommended. They are less exposed to hacking and malware as opposed to the hot wallets that are always online. Pick a wallet that allows you to encrypt and set a password for added security.
Consider a cold storage wallet for your cryptocurrency. As opposed to hot wallets that are always online, cold wallets are more secure and ensure the safety of your private keys. You can easily access, transact, and unplug your hardware device.
Number of assets/funds
If you would like to deal with multiple assets or cryptocurrencies, you might want to consider multi-asset wallets. For example, a wallet with an inbuilt shapeshift means you can easily exchange different types of currencies while trading and transacting.
Consider getting a wallet whose pertinent information and details are not privy to a third-party. Some exchange wallets are controlled by the wallet web owner leaving the users exposed to hacking and, at worst, losing thousands worth of cryptocurrency. The wallets that require a third party like online wallets are a bit of a security risk as they give someone else access to your keys.
Whether you want to simply create a wallet for daily transactions or one to store the majority of the portion of your digital assets, remember these tips. Create a wallet with top-notch security that will spare you the loss or ruin that comes with possible malware or hacking. Enjoy trading and transacting by choosing the most suitable wallet.