If you are investing or planning to buy crypto then you must first find a secure place to store them.
Crypto keys and blockchain network is hard to penetrate. But you never know when hackers can hack it. The first rule of any investment is not to invest what you can afford to lose. Similarly in crypto, the basic rule is to protect your cryptocurrency.
To do so you will need crypto wallets. Of course! You can’t have any wallet and start storing it without knowing its pros and cons. There are several types of crypto wallets like mobile wallets, hardware wallets and online wallets.
How to know which wallet is most suitable for you?
Don’t worry! We are here to solve this problem for you.
At Cryptohodly we try to explain everything related to crypto and Bitcoin in simple English.
Today we have decoded different types of crypto wallets. This guide will help you decide where and how to store your precious crypto.
Let’s first start by understanding what is a crypto wallet?
WHAT IS A CRYPTO WALLET?
Bitcoin or cryptocurrency is quite different from physical money. You cannot hold them in your hands. It is a kind of digital asset that is in the form of codes.
If you lose the private key or the code you will lose your crypto forever. There is no way to retrieve them.
That is why people use various types of crypto wallets to store these codes.
- A crypto wallet is used to interact with the blockchain network.
- It is similar to the traditional wallet where you store your money. The only difference is that it stores your private keys digitally.
- Moreover, crypto wallets have additional security features that prevent hackers to get access to your wallet.
- Crypto wallets do not store your cryptocurrency rather it stores the keys to your crypto.
- Each crypto wallet has a unique wallet address and a pair of private and public keys to send and receive funds.
Why do you need crypto wallet?
Usually, your crypto is stored in the crypto exchange platforms from where you have bought it. It is similar to a small bank account that shows your crypto funds.
These exchanges also have insurance policies. In case you lose your crypto due to the technical fault of the firm, the insurance covers your loss.
They also have layers of security like FDIC insured accounts to store crypto. However, these securities are of no use if a hacker gains access to your account. He can then transfer all your crypto as he wishes.
Moreover in the case of account hacks the insurance won’t help you. You will end up losing all your money.
That is why you need a crypto wallet to store your crypto investment securely. Though no security is foolproof still wallets are more secure.
If you are investing in crypto you will have to own a wallet to protect your investment.
Types of crypto wallet
The crypto wallets can be categorized into two types. The categorization is based on the mechanism of storage.
The two types of crypto wallets are:
- Hot wallet
- Cold wallet
Hot wallets are those which are connected to the internet in some way. It is more user friendly. However, they are less safe than cold wallets.
Anything that is connected to the internet is prone to risks of hacking. That is why hot wallets have their own levels of vulnerability.
The best thing is that hot wallets give you the flexibility to manage your crypto anywhere anytime.
Cold wallets are not connected to the internet. They are kind of physical wallets that store your keys offline. That is cold wallets are hack resistant.
It is more secure than hot wallets. The only case you will lose your funds via cold wallets is when it’s stolen.
You will have to carry it like a physical wallet. However, the cold wallets are less flexible.
For your daily crypto management, you can use hot wallets as they are easily accessible. However, for storing large crypto funds cold wallets are best in the long run.
Hardware wallets are kind of hardware devices that store your keys offline. It looks like a USB or flash drive.
These are cold wallets that are not connected to the internet. That is why hardware wallets are more secure and less vulnerable.
The best thing is that in hardware wallets you can create a seed phrase. The seed phrase will help you to recover your crypto even if you lose the device.
Your private key will never leave your device when creating transactions. The gadget requests transaction information and then checks the information. Your private key will not leave the device in this manner.
Multiple applications and blockchains are supported by devices like the Ledger hardware wallet. This allows you to deal with several types of crypto on a single device.
As compared to online and software wallets these are expensive. But you can afford to spend a little more to protect your large crypto investments.
Because it is physically a sheet of paper, a paper wallet is another sort of cold wallet. The document has all of the information you’ll need to get your cryptocurrency.
While cold wallets are generally more secure, the nature of a paper wallet exposes it to risk. If you lose your paper wallet, you’ll also lose your money.
Another drawback of a paper wallet is the inability to send partial amounts of money. Workarounds exist, but they can be time-consuming. Paper wallets are often avoided due to these drawbacks.
These are software wallets that you can install on your computer. However, you will need high antivirus security to operate these software desktop wallets. This is because a computer connected to the internet is prone to risks.
Moreover, you will have to regularly back up your to use software wallet on your system. Also, you will have to ensure that your system is always clean and has no viruses. It is best to use a software wallet on a computer that is not connected to the internet in any way.
Some of the common desktop wallets are Electrum, Bitcoin core, Exodus etc.
Mobile wallets are similar to desktop wallets. The only difference is that these software wallets are made for smartphones.
It is suitable for people who handle daily crypto transactions. They are more practical than other cold wallets. However, it is most prone to viruses and risks.
One common example of an online wallet is Coinbase. The online wallets store your private keys and facilitate crypto transactions on its platform.
Online wallets are kind of hot wallets. They can be hosted as well as non-hosted. These are best for small crypto investment and daily use.
You can choose the crypto wallet as per your usage. But always ensure that it offers maximum security.
Interested to know more about crypto and Bitcoin?
At Cryptohodly we translate crypto into simple English making it easier to understand.
Follow Cryptohodly to be updated with the latest crypto and Bitcoin news and interesting facts.