Crypto wallets are important tools for anyone who invests in cryptocurrencies or wants to start trading. They are crucial aspects of fulfilling a crypto transaction. In this blog, we will talk about different types of crypto wallets and how you can choose the one that best suits you.
What Are Crypto Wallets?
A crypto wallet is a digital tool or place where you can store, use, send and receive digital currencies. But unlike traditional physical wallets, you cannot actually store your coins in it. Instead, the crypto wallets interact with the blockchain to manage your public and private keys. It enables you to access and control your digital assets.
Understanding Crypto Wallets
Before knowing the types of wallets let us understand how they work:
- Crypto wallets interact with blockchains to complete transactions and update balances as well. They do not store your coins but the blockchain does.
- Crypto wallets manage public addresses which are like your email address and private keys which are like your password. You have to use the public address to get funds and the private keys facilitate transactions and they also prove your ownership of the cryptocurrency coins.
- Crypto wallets are easy to use and modern wallets have a more user-friendly interface for managing crypto transactions and balance.
- Many crypto wallets have the option of containing different cryptocurrencies together allowing you to manage different digital assets.
Types Of Crypto Wallets
There are different types of crypto wallets:
1️⃣Hot Wallets
Hot wallets are connected to the internet. With these, you can do quick and easy transactions making them perfect for daily traders. Hot wallets include web wallets, software wallets and exchange wallets. However, they are vulnerable to attacks since they are connected to the internet. So, if you are an active crypto trader then this can be the best wallet option for you.
2️⃣Cold Wallet
Cold wallets are not connected to the internet and are offline. You can store your private keys and addresses offline reducing the risk of attacks and hacks. These include hardware wallets, paper wallets and computer-running wallets.
3️⃣Hardware Wallets
Hardware wallets are physical cryptocurrency wallets designed to store the private keys of your cryptocurrencies. They store your crypto private keys offline in a device’s secure chip. For making a transaction with hardware wallets you need to connect it to your phone or computer. Then you have to enter your PIN and confirm the transaction on the device only.
Hardware wallets are considered one of the safest wallet options for storing cryptocurrencies because the private keys don’t ever leave the wallet making them secure from hackers and attacks.
Best for: These are best for hodlers who like to invest in crypto for the long term. But these wallets can also be damaged or lost. Rethink your goals and then decide if you want to store your crypto in hardware wallets.
4️⃣Software Wallets
Software wallets are digital wallets used to store digital assets. For using software wallets you have to download certain apps on your phone or computer. They are very easy to handle and you can easily store your crypto coins. Without any complex methods, you can view your balance, complete transactions, send funds and do more.
There are two types of software wallets – desktop wallets which are installed on computers and mobile wallets whose apps are downloaded on mobile phones. The security of these wallets depends on the device they’re installed on. They are more vulnerable to attack as compared to hardware wallets but are easy to use at any time.
Best for: This wallet is best for regular active crypto traders who need to access to their wallets daily. So if you are looking for a wallet which you check and use daily then these are for you.
5️⃣Paper wallets
Paper wallets are physical wallets in document form containing all your public addresses and private keys. These keys are turned into QR codes. For using these wallets you need to generate your keys on a secure computer, print them out and then keep them safely with you. For using the wallet and accessing the funds you need to sweep the code on your computer screen and enter your software wallet. These are offline which means there is no threat of hackers.
Best for: Paper wallets are best for long-term cold storage investors who store their crypto coins for a very long time.
Overall
Each wallet has its advantages and disadvantages. You have to understand your goals, requirements, security needs and usage platforms and then choose the right wallet.
You can also use a combination of wallets like hardware wallets for long-term storage and software wallets for daily transactions. But make sure you keep your private keys safe and not forget them as recovering lost crypto wallets is very tough.
