When you’re ready to start investing in cryptocurrency, the first step will be choosing a crypto wallet to hold your coins in. What is a crypto wallet? — some of you new to crypto might be wondering. Quick explainer — a crypto wallet is much like a regular digital money wallet, with one major difference: it only holds crypto assets.
Now, while security is the first concern when choosing a safe place to keep your coins, you would also like it to be as convenient as possible, right? In this post, we’ll explore exactly how a crypto wallet functions, and how you can leverage your understanding of one to pick the best wallet for yourself!
What is a crypto wallet?
Again, a cryptocurrency wallet is a place to store your cryptocurrency safely. Think of it like a traditional bank account that is only accessible through digital means and that you can use to send, receive, and exchange cryptocurrencies. There are many types of crypto wallets available out there that you can choose from.
Types of crypto wallets
There are many different types of crypto wallets, broadly categorized into two categories: hot wallets and cold wallets. Hot wallets are the easiest to use; they’re online and can be accessed through your web browser or an app. However, they’re not as secure as cold wallets because they’re connected to the internet and are thus vulnerable to hacking attacks.
On the other hand, cold wallets are offline, meaning you can’t access them through a browser or an app. Most cold wallets are hardware wallets and inhabit devices that look like small/medium-sized USB sticks. Cold wallets are generally the most secure option when it comes to storing your crypto, but they take longer to access than hot wallets and aren’t as easy to use. You’ll need to wait for them to sync up with blockchain networks before you can make any transactions with them. There are many other different types of crypto wallets. Some require you to download a copy of the entire blockchain, while others don’t.
Let’s see the many types of wallets (both hot and cold) you can pick when wondering zeroing in on the best wallet for crypto. Here are some of the most popular ones:
Hot Wallets
Hot wallets are the best choice for holding your crypto since they’re easy to access, but they aren’t ideal for long-term storage because they could be hacked or stolen. Hot wallets are often called “online” or “web” wallets.
There are many different types of hot wallets, but they all have one thing in common: they’re connected to the internet at all times. Here are the popular types of hot wallets you’re likely to come across:
Website and mobile wallets
Websites and mobile wallets are digital cryptocurrency wallets. They allow you to store, receive and send cryptocurrencies. You can create a wallet by registering on a cryptocurrency platform or website. You will get an address which is similar to a bank account number. To make transactions, you need to have this address, your private key, and a password for accessing your wallet.
A website wallet is a website that hosts your bitcoin, and you access it by logging into the site with your username and password. The site may also require you to enter a 2FA code sent to your phone or email.
A mobile wallet is an app that stores your bitcoin, and you access it by logging in with your username and password. You may also need to enter a 2FA code sent to your phone or email.
Software and desktop wallets
Software and desktop wallets are the most common type of cryptocurrency wallets. They’re used to store your private keys, which give you access to your fund via a phone or computer..
Software wallets are downloaded, so if you lose your device or it’s stolen or damaged, you lose access to your currency. If a hacker gets ahold of your computer, they can also steal all of your coins. The only way to protect yourself from this is to also store your private key (or seed phrase) separately.
Desktop wallets store private keys on the hard drive of your computer. If you have a good antivirus program installed, there’s not much else to worry about when using this type of wallet.
For example, the Trezor hardware wallet is one of the most popular options for storing bitcoin securely. It connects directly to the Internet via a USB port. It allows users to send and receive bitcoins with their devices without entering information other than a PIN code (which never gets displayed on screen).
Cold Wallets
Cold wallets are a great option if you want to store large amounts of Bitcoin for an extended period of time (think months or years). Cold storage wallets require no connection to the internet whatsoever — they might even be kept on a piece of paper somewhere safe! This means that hackers won’t be able to get their hands on your funds by attacking your computer or smartphone remotely. Instead, they’ll have to physically break into your home or office and steal your hardware wallet directly from its hiding place somewhere inside those walls (or under a pillow).
Types of cold wallets:
Hardware Wallet: A hardware wallet is a physical device that stores your private keys in an offline state. Hardware wallets come in many forms, including USB devices, external hard drives, and even small credit card-like devices. The benefit of using a hardware wallet is that it helps protect against malware or keyloggers that might otherwise compromise your private keys while they’re being entered into an online computer or stored on an internet-connected device like a smartphone or tablet.
Paper Wallet: A paper wallet is a form of cold storage where you print out your private key on paper (or another material) and then store it somewhere safe, like a safety deposit box or vault at home where nobody can access them except you. The benefit of using a paper wallet is that it keeps your coins completely offline until you decide to use them later on down the road when you need access again — but be careful about storing them for too long because if someone else finds them first before then they could potentially steal those funds from.
How to choose a crypto wallet for yourself
Choosing a crypto wallet is easier than it sounds.
First, you must choose whether you want a hot or cold wallet. A hot wallet is suitable for storing small amounts of cryptocurrency. On the other hand, since it should be offline most of the time, a cold wallet can be used to store large amounts of cryptocurrency.
Then consider your needs: Do you also want to trade on a crypto exchange? If so, you are likely looking for a web-based wallet that supports multiple cryptocurrencies. Do you want something that can work with multiple devices? If so, then look for an online service that offers mobile applications.
Finally, remember security. Ask yourself — what are the security features provided by this service? Does it support two-factor authentication (2FA)? Is there a backup feature?
Conclusion
A good crypto wallet can be essential in securely investing in and effectively managing a cryptocurrency portfolio. We hope you’ve gained some insight into the variety of options available today and their benefits and tradeoffs.
Ultimately, it is up to you to decide which type is right for your unique situation. Whether you use them for business or personal purposes, a good crypto wallet will help protect your assets — in the same way a sturdy home saves the lives of its occupants.
For more conversations on all things crypto, tune into the Giottus blog.
