Types of cryptocurrency wallets: What you need to know
Are you thinking about trading cryptocurrency? Do you want to engage in cryptocurrency mining? You need to have a cryptocurrency wallet for protecting your investment because that’s where you will store your digital assets. The only problem is that there are different types of cryptocurrency wallets that exist and you need to understand them better before you can choose the appropriate one for your needs.
A crypto wallet interacts with a blockchain network, which means that it doesn’t really store the cryptocurrency. It only acts as a tool that interacts with the blockchain i.e. generates the necessary information for sending and receiving money through blockchain transactions. This information comprises of private and public keys and they are used for generating an address that specifies the location where the cryptocurrency can be sent. You can share the address for receiving funds, but private keys should never be disclosed.
The different category of cryptocurrency wallets are created because of the location and method of storage. The types of wallets you can explore are outlined below:
- Hot and cold wallets
The difference between hot and cold wallets is because of internet connectivity. The former are connected to the internet, which makes them less secure, but they are user-friendly. The latter are kept offline, which means no internet connectivity is needed for access. This means less risk and improved connectivity. Hot wallets are more preferable for daily transactions, but if you want a wallet for long-term holding, a cold one is a better choice.
- Hardware wallets
Hardware devices that handle individual public keys and addresses are known as hardware wallets. The appearance is similar to a USB device, only it has an OLED screen and side buttons. This device is battery-less and you can connect it to your PC. They are more secure than hot wallets as well as user-friendlier than paper wallets. You can find them in different forms and the most popular options are Trezor and Nano S.
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- Paper wallets
This wallet has a physically printed QR code and some of them also allow users to download the code for generating new offline addresses. While they are not susceptible to hacks, they do have some flaws. First off, you don’t have the option of sending partial funds, which means you cannot reuse the wallet. Initially, these wallets were very popular for the purpose of cold storage, but that was before hardware wallets were introduced.
- Desktop wallets
These are installable software apps that can be found for different operating systems, but you should have anti-virus protection in place because they are connected to the internet and this means security risks. Rather than keeping your cryptocurrencies on an exchange, it is better to use desktop wallets. They are considered the third-most secure method for storing your cryptocurrencies. They give privacy, don’t involve any third party, and are anonymous and also easy to use. Some of the prominent options you can find are Electrum, Bitcoin core and Exodus.
- Mobile wallets
These wallets are similar to desktop wallets and are one of the most popular cryptocurrency apps that you will find. Using them is extremely convenient because a QR code is needed for transactions, which makes them suitable for daily use. However, encryption of these wallets should be your priority because they are vulnerable to malware. Mobile wallets are extremely practical and you can use them on the go. Mycelium and Coinomi are the most popular options available.
- Web wallets
These are the crypto wallets that you access through the browser and you can find hosted and non-hosted options. The latter are a better option because they give you complete control, but it is essential to remember that web wallets are not very secure. These should only be used for quick transactions because they are prone to DDoS attacks. Coinbase and MetaMask are the most notable ones you will find.
Take into account your storing needs and choose a cryptocurrency wallet accordingly.
