What is a Crypto Wallet?
A cryptocurrency wallet is a secure digital wallet that allows you to access your cryptocurrency. Unlike traditional wallets, which hold physical currency, crypto wallets do not hold currency themselves. Instead, cryptocurrencies are securely stored on the blockchain.
Crypto wallets allow you to safely store your keys, view your balances, and send/receive cryptocurrencies or other digital assets.
What are keys and where do you get them?
When you set up a cryptocurrency wallet, public and private keys are automatically created. A public key can be compared to a bank account number in that you provide it to others so that they can send you funds. On the other hand, private keys function similarly to a username and secure password used for online baking.
Hot Storage Vs. Cold Storage
There are many different kinds of cryptocurrency wallets, each with varying degrees of security and convenience. These wallets fit into one of two categories: hot and cold storage wallets. The terms hot and cold simply refer to whether the wallet is connected to the internet or not.
There are advantages and disadvantages to both types of wallets. Hot wallets are connected to the internet, which makes them very convenient and easy to use. They are also more vulnerable to the security threats that come with using internet-connected accounts. Cold wallets store your crypto keys offline, which provides higher security but can be less convenient.
Let’s examine some different types of hot and cold wallets:
Types of Hot Wallets
Desktop wallets are software that is installed on your computer. They are easy to use and provide privacy because there is no third party storing your private keys.
Desktop wallets can be more secure than other forms of hot wallets. Since most computers connect to the internet, however, there are still security issues associated with desktop wallet storage. It is essential to update operating systems, have anti-virus/malware protection, and keep all security measures up to date. It is also vital to always backup your computer because if the computer dies and there is no backup, you will lose your crypto.
Mobile wallets are very convenient for mobile devices and allow you to scan QR codes to execute quick transactions. Like all hot wallets that connect to the internet, mobile wallets can be prone to cyber-attacks, so it is important to keep the software updated and use available security measures.
Web wallets are hot crypto wallets accessed via a web browser. Web wallets store your keys with third parties such as crypto exchanges. Many people do not advocate for allowing third parties to control your keys. After all, giving platforms the ability to control your keys and access your assets does take away from one of the core principles of blockchain, decentralization.
On the flipside, billions of dollars worth of crypto have been lost forever due to individuals losing their private keys. No matter the standpoint you take, one thing is certain; If you plan to be your own bank, keep your keys safe and secure!
People who frequently trade cryptocurrency often use web and mobile wallets connected to exchanges for practicality and ease. Many of those same traders choose to use cold wallets as well, for safely storing crypto they intend to hold, rather than trade.
Types of Cold Wallets
Hardware wallets are physical devices that individuals can use to store their private keys. These devices are often used with internet-connected computers and cell phones via apps and software. In general, hardware wallets are not as user-friendly as hot wallets but are more secure because the user’s private keys are not exposed to the internet when connected.
When you first set up a hardware wallet, you are given a recovery phrase, which is a list of words that you use to recover your accounts. This provides a way to access your assets should you lose your physical wallet. You must, of course, be sure to safely store your recovery phrase and have access to it for this loss-prevention strategy to work. Should you lose both your wallet and your recovery phrase, you will likely lose your assets.
It is crucial to avoid entering your recovery phrase on any internet device due to security issues. One of the safest methods for storing your recovery phrase is to write it down on paper and keep copies in multiple different places that are both safe and easy for you to remember.
Provided you can keep track of your recovery phase and keep it secure, hard wallets offer an extremeley safe choice for storing crypto.
Paper wallets are created using online wallet generators. Some crypto holders opt for paper wallets as a means of long-term cold storage as they are not prone to device failure that modern technological devices can sometimes incur.
Reputable wallet generators delete all traces of your data once you have generated your wallet code and have written it down on paper. If you plan to make a paper wallet, choose only wallet generators with excellent reviews that have proven to be trustworthy.
Paper wallets can be a bit complicated at first, but they are simple to make once you get the hang of them. As long as you use a reputable wallet generator, keep track of your paper wallets, and use fire-safe storage, paper wallets are a perfectly safe cold storage solution.
- A cryptocurrency wallet is a secure digital wallet that allows you to access your cryptocurrency.
- Wallets fit into one of two categories: hot and cold storage wallets. The terms hot and cold simply refer to whether the wallet is connected to the internet or not.
- Examples of hot wallets include desktop wallets, mobile wallets, and web wallets. Examples of cold wallets include hardware wallets and paper wallets.
- When using hot wallets, keep all security measures up to date and always backup your computer.
- When using hardware wallets, be sure to store multiple copies of your recovery phrase in safe places that you can easily remember. Should you lose both your wallet and your recovery phrase, you will likely lose your assets.
- If you plan to make a paper wallet, choose only wallet generators with excellent reviews that have proven to be trustworthy.
- Regardless of the kind of wallet you choose, always protect your data and make the safest choices available to you that meet your needs.