The choice of which cryptocurrency wallet to use could not be more important. You would not choose a physical wallet with a fake bottom, and you should at least be generally aware of cryptocurrency wallet options so you do not choose a crypto wallet with potentially critical flaws.
It may be helpful to start by defining what a crypto wallet is. Cryptocurrency wallet is the digital storage locker for cryptocurrency, though many serve additional functions. Unincorporated cryptocurrency requires a digital wallet, as well as private keys that identify who owns the wallet (and the cryptocurrency within). Crypto wallets serve both of these functions.
To set up an active crypto wallet, a person may have to:
- Choose a wallet provider
- Input specific personal information
- Connecting a source of financing and deposit, such as a bank account
Once a consumer takes these steps, they may be able to buy and sell cryptocurrency, purchase goods and services using crypto, and engage in decentralized finance products (DeFi) such as decentralized exchanges and lending services.
Choosing a larger crypto wallet requires more consideration than you might think.
There are two broad categories of crypto wallets: hot wallets and cold wallets. Hot wallets refer to those who are (generally always) connected to the internet. Cold wallets are not directly connected to the internet, but can become so to complete transactions. Let’s dive further into the specific types of crypto wallets.
Crypto Wallet Type # 1: Paper Wallet
Services like the Dash paper wallet generator allow users to print their:
- Private keys, or the encrypted signature that makes a wallet specific to an individual
- Random public address, which Coinbase similar to an email address, in that it allows other users to know where to send cryptocurrency
A paper wallet can also include a scannable QR code for easier transactions, including but not limited to crypto payments and trades.
Here are some benefits of a paper crypto wallet:
- That a user can have physical possession of his public and private keys
- A paper wallet is not immediately traceable
- A paper wallet is disconnected from the internet, and therefore not as vulnerable to energy or internet related problems as hot wallets are
Paper wallets can be as safe as the user possessing it. While digital hacking can be avoided with a paper wallet, it is essential that the owner of a paper wallet makes sure it is kept secure, as losing it could have catastrophic consequences.
Crypto Wallet Type # 2: Desktop Wallet
Desktop wallets can generally lag behind paper wallets in terms of security (hacking-related security, at least), but ahead of online crypto wallet alternatives.
The difference that can be seen between an online-only crypto wallet and a desktop wallet is the act of downloading the wallet itself. This act allows a user’s private keys to be stored on their computer’s hard drive rather than on an online server. In some cases, this information could be stored on a desktop and server online.
Saving a wallet on someone’s desktop may come in handy if:
- An online wallet host has been hacked
- An online wallet maintains accidents
For functionality purposes, desktop wallets are connected to the internet. They allow users to see real-time value changes in their tokens and, depending on specific wallet features, can also allow them to complete transactions.
Although desktop crypto wallets offer some separation from complete internet dependency (thanks to downloading keys and addresses), they are still directly connected to the internet. This always means hacking is a possibility, but users can see a desktop wallet as a safer alternative to a third-party hosted wallet via the internet.
Crypto Wallet Type # 3: Online Wallet
Online crypto wallets (or the Web) may be the most accessible and low maintenance instant way to store and trade tokens. Occasional crypto traders and investors may gravitate toward online wallets because:
- All heavy lifting can be done by a third party service (providing the wallet, keys, and server maintenance)
- An online wallet may have a user-friendly interface
- An online wallet may be accessible from any device with an internet connection
- An online wallet may allow crypto wallet trading and services in a single platform
Crypto Wallet Type # 4: Hardware Wallet
Hardware wallets offer the physicality of, in your hand, paper wallets, but can offer additional features and many more pieces. Hardware wallets generally have common features including:
- Hand size
- Buttons or other methods of operating the wallet
- Ability to store significant quantities and different types of cryptocurrency
- Computer connectivity
Ledger produces hardware wallets that have proven popular with crypto owners who want physical control over their ticket stores, as it did Trezor.
Online wallets may simply be the convenient option. History has shown that they are not the security first option, however. Always connected to the internet, your online wallet could suffer from hacking, and if the host becomes corrupt, then your wallet can be compromised exactly the same. You may also be taking a gamble that the hosts of the online wallet service are ethical.
Hardware wallets store users’ private keys. Unlike paper wallets, hardware wallets may have security features that prevent access to private keys in case the wallet falls into the wrong hands.
One draw factor for hardware wallets is their offline nature. This, like paper wallets, makes them less vulnerable to hacks, third-party abuse, and other threats that push over internet-dependent wallets. And yet, crypto hardware wallet owners can connect their device to the internet at any time to conduct transactions.
This gives hardware wallets a kind of hybrid nature that may be appealing to security-conscious crypto traders.
Crypto Wallet Type # 5: Mobile Wallet
Mobile phones have become extremely sophisticated and ever-present, and many buyers, sellers, and cryptocurrency holders prefer mobile wallets. Many online wallets offer a mobile version, while some wallets are specifically designed for mobile use.
Mobile wallets can guarantee the same security-related concerns as any hot (internet-connected) wallet does. The funds in your mobile wallet may be just as secure as the host providing it. In that respect, it can be just as secure as your mobile device. So there is definitely an element of “buyer beware” for anyone using a mobile crypto wallet.
However, there are obvious benefits from mobile wallets. They include:
- Extreme convenience
- All-in-one platforms that allow banking and trading
- Compatibility with Android and iOS operating systems
- Ability to pay from mobile wallet via QR-enabled scanning
In a world increasingly dependent on mobile phones, mobile crypto wallets offer clear benefits. You may weigh these advantages and disadvantages of different types of crypto wallets when choosing the right wallet for yourself. Names provides a comprehensive degradation of cryptocurrency wallets in their many forms.