Where do you store your physical money while traveling? The most obvious answer to the question is in a wallet. While cryptocurrencies have drastically changed how we perceive money, using a wallet remains common.
The first thing that you need to buy, receive, or sell cryptocurrency is a crypto wallet. Without such a wallet, you cannot make any transactions. Moreover, although blockchain technology offers optimal security, your cryptocurrencies are only as secure as your wallet.
Transacting in cryptos requires public and private key combination. The other person involved in a transaction uses the public key to send or receive transactions from you. The private key is available only with you and is used to initiate any transaction.
Your private keys are stored in a wallet. If someone hacks it, you lose all your cryptocurrencies. Hence, selecting the right wallet to address all your requirements is vital. But with so many options available, it can be overwhelming to choose and set up the most suitable wallet.
Several types of wallets are available, each with some advantages and limitations. Knowing about these types can help you make the right decision to store and protect your private keys. But before getting into that, let’s understand what’s a crypto wallet and why do we need one?
What’s a Crypto Wallet?
Cryptocurrencies are not like traditional physical money. Hence, the ownership also differs. Since cryptos are not physical money, they need two keys for transactions: public and private. These keys are alphanumeric codes that facilitate the crypto purchase, sell and trade.
As long as you know the private keys, you can access your crypto assets like cryptocurrencies and NFTs from any device.
Put simply, a crypto wallet doesn’t store cryptocurrencies but your private keys. You can still think of crypto wallets as traditional wallets. The only difference is that they protect your private keys associated with the crypto assets instead of securing the funds themselves.
You will find hundreds of crypto wallets to choose from. Each of them has its set of advantages. For instance, some wallets are more secure, some allow storing multiple cryptocurrencies, and some are easily accessible from any device.
Below is a YouTube video that shares some of the most popular and secure cryptocurrency wallets for 2022. It discusses Trust, MetaMask, Coinbase, Trezor, and other wallets. You can go through the video to see how each wallet operates and select the right one for you.
Please like the video, share it and subscribe to the channel for more cryptocurrency-related information if you find it useful.
Primary Cryptocurrency Wallet Categories
The cryptocurrency wallets are broadly classified into two primary categories: hot and cold. The use of both these categories is the same. The only significant difference between the two is how and where they store the cryptocurrencies.
Hot Wallets
A hot wallet, also sometimes referred to as a software wallet, is an online storage method. It means that hot wallets are connected to the internet and store your private keys online. Hence, you can access these wallets from your computer or smartphone.
Due to the connection with the internet, hot wallets are not as secure as their counterparts. Cyber attackers can hack your online wallets and get the private keys’ information to steal your cryptocurrencies. That’s how most crypto scams happen.
A similar crypto attack occurred on the Crypto.com exchange. According to the blog shared by the official team, the incident infected 483 users and withdrew 4836.26 ETH, 443.93 BTC, and some other currencies, amounting to the theft of around $35 million.
“They’re often connected with an exchange, they’re oftentimes user-friendly, and they’ve really opened up the space to a more mainstream market,” Nicole DeCicco, founder of CryptoConsultz.
Hot wallets are free and easy to access on any device. Also, you don’t have to worry about keeping track of a physical storage device. However, these benefits of hot wallets come with security issues.
Cold Wallets
A cold wallet, also sometimes referred to as a hardware wallet, is an offline storage method. You can think of these as a USB drive that stores your private key details. Using cold storage options enhances the security of crypto assets. However, there are still chances of losing crypto assets.
Cold wallets are more secure than hot wallets but are still vulnerable to theft or cryptocurrency loss.
Some of the possibilities of losing cryptos in cold wallet options include:
- If you misplace the physical device storing
- If you buy it from an untrusted source who can tamper with the device to steal all the information
Unlike their hot counterparts, cold wallets are not free to use. You might need to spend anywhere from $50 to $200 to buy the physical storage device.
Hot Vs. Cold Wallets: Which One is Better?
After knowing about the hot and cold crypto wallets, the first question that comes to mind is which of the two is better. The answer depends on your requirements and use. The only sure thing is that wallets offer more security than exchanges.
Every crypto exchange has a wallet of its own. However, instead of keeping the cryptos with the exchanges, you should have a crypto wallet for an added security layer.
If you have around a hundred dollars invested in crypto, you can keep them on the crypto exchange itself. But if you have invested hundreds and thousands of dollars, storing the assets in a crypto wallet will prove beneficial.
There’s no definitive answer to the hot vs. cold cryptocurrency wallets. As already established, each has some advantages and limitations. Hence, it will help to analyze what you want from a wallet to select the right one.
So if you are planning to hold cryptocurrency assets for an extended period, cold wallets are better. But if you are using them for frequent trading or looking to cash them out in the short term, hot wallets are best.
The hot wallets are easy to access. You don’t have to worry about keeping track of any physical device. But the issue is that it is vulnerable to cyberattacks and hacks. On the other hand, cold wallets are more secure but are hard to maintain.
Types of Cryptocurrency Wallets
Now that we know about the primary cryptocurrency wallet categories, let’s delve into the different types. There are 5 types of crypto wallets. Here they are:
Web Wallets
Web wallets are a type of hot or software wallets. As the name gives out, these wallets reside on the web and don’t require you to download any specific desktop or mobile applications. Since you can access these wallets quickly through a browser, they are called web wallets.
Advantages:
- Fastest transactions as you don’t have to worry about app or server issues
- Easily accessible from anywhere with your password
- Ideal for small amount crypto holdings
- Easily and quickly integrable into any exchanges
Disadvantages:
- Susceptible to scams and hacks
- Some web wallets might have outdated security measures
- The private key information is saved on a third-party website
Common web wallets are MetaMask, Coinbase, Coins.ph, and other crypto exchange wallets.
Mobile Wallet
Mobile wallets are a type of hot wallet that comes as a mobile application. You can use and access these wallets through a smartphone. They offer more flexibility as you can access your crypto assets from anywhere from a mobile device.
Advantages:
- Provide additional flexibility as you can access with your smartphones
- Offers additional features than other wallets, such as the use of QR codes for transactions
- Easy to adopt and use
Disadvantages:
- Compromisable as mobile devices are vulnerable to hacks and theft
- Your phone needs to be virus-free to avoid the crypto loss
Some famous examples of a mobile wallet include Coinomi, Mycelium, and BitPay.
Desktop Wallets
Desktops are also a type of hot wallet. They are similar to mobile wallets, with the primary difference being that you need to install a desktop application to access them. These wallets are more secure than other hot wallets. However, the level of security still depends on how you use your desktop.
Using an older laptop that you don’t use for any other transactions and is usually offline is advisable.
Advantages:
- Easy to use because of excellent user interface
- If used on a desktop or laptop that is never connected to the internet, it is an excellent option for blending hot and cold storage
- The private keys are not stored on a third-party site
Disadvantages:
- If the desktop is connected to the internet, security concerns will arise
- You need to have a backup because if your computer or laptop crashes, you will lose the crypto assets
- Susceptible to malware and viruses
Examples of good desktop wallets are Exodus, Electrum, and Bitcoin Core.
Hardware Wallets
When thinking about cold storage types, hardware wallets are the best option. Although they are less user-friendly, they are more secure than all the hot wallet types and easier to work with than the other cold storage option, paper wallets. These are the best options to store many cryptocurrencies that you don’t want to move frequently.
Hardware wallets come with a diverse range of options. Some have tiny built-in screens to enable quick access, while some don’t. Some need batteries to operate, and some others don’t.
Advantages:
- A most secure option to store crypto assets for long term
- Not vulnerable to hacks
- Easier to use than paper wallets
- The private key never leaves your physical storage device, even during a transaction
Disadvantages:
- Less user friendly, especially for new users
- Not easy to find and purchase
Examples of hardware wallets include products from Ledger, Trezor, and KeepKey.
Paper Wallets
Paper wallets are essentially a type of cold wallet. As the name gives out, it is a piece of paper containing all the information and details required to initiate and complete a crypto transaction. Like other cold wallets, paper wallets offer more security but can be lost.
Paper wallets cannot send partial funds and are very complicated to use. Hence, the use of paper wallets is discouraged.
Advantages:
- A secure option to store cryptocurrency private keys
- Information is not stored on a third-party server
Disadvantages:
- Not easily accessible and usable
- Very technical
- Slow transactions as cryptocurrencies are not easy to move using paper wallets
Examples of paper wallets are BitAddress.org and Bitcoin Armory.
Conclusion
There’s no one-size-fits-all solution for cryptocurrency wallets. Hence, you need to select a wallet based on your requirements. Each wallet comes with a different level of security and features. Learn about all the advantages and disadvantages of all the available options and compare the features to ensure selecting the most suitable crypto wallet for all your needs.