Getting cryptocurrency is one thing while storing it safely requires entirely different skills and knowledge. This guide teaches you how to protect your funds, choose the right wallet, and avoid the most common hazards of crypto security.
A cryptocurrency wallet is a software program designed to store your public and private keys, send and receive digital currencies, monitor their balance, and interact with various blockchains. You need to have a cryptocurrency wallet to manage your crypto assets and keep them secure.
There are many cryptocurrency wallets out there, but the essential distinction between them is whether they are hot or cold.
Hot wallet – A hot wallet is connected to the internet and can be accessed at any time. It includes all online cloud wallets, most mobile, and software wallets, and exchanges.
Cold wallet – A cold wallet is not connected to the internet and allows you to store your funds offline. You can still receive funds at any time, but no one can transfer them out. Cold wallets are hardware wallets, offline kept paper wallets, USB and offline similar data storage devices, and even physical bearer items such as physical Bitcoins.
Most cryptocurrency holders use both cold and hot wallets. Hot wallets are handy for frequent trading, while cold wallets are better for long-term holding of crypto assets.
Types Of Cryptocurrency Wallets
There are four distinct categories of cryptocurrency wallets
Paper wallets are generally classified as cold storage. The term “paper wallet” generally refers to a physical copy or paper print of your public and private keys. Other times it means the software is used to generate a pair of keys along with a digital file for printing. Whichever the case, paper wallets can grant you a relatively high level of security. You can import your paper wallet into a software client or simply scan its QR code to move your funds.
If a paper wallet is available for the cryptocurrency of your choice, you’re likely to find a guide on how to make one on the project’s website or community page.
Although paper wallets are cold, they come with their share of risks, too. For instance, paper wallets can be easily damaged, burned, easy to copy and take pictures, and require mutual trust if you’re not making one yourself. To make paper wallets less fragile, sometimes people laminate them, create multiple copies and store them in different locations, engrave them on pieces of metal or other sturdy materials, etc.
Online wallets, by definition, are hot. Using a cloud wallet, your funds can be accessed from any computer, device, or location. They are super convenient, but they store your private keys online and can be controlled by third parties. Therefore, they are more vulnerable to attacks and theft by design.
A safer version of cloud wallets is non-custodial online wallets. They are accessible via the web and apps but the service provider does not have access to your private keys. In most cases, not custodial wallets are a part of the exchange platform, meaning that they let you trade your coins in a safe and secure manner.
Software wallets are downloaded and installed on a personal computer or smartphone. They are hot wallets. Both desktop and mobile wallets offer a high level of security; however, they cannot protect you against hacks and viruses, so you should try your best to stay malware-free. As a rule, mobile wallets are way smaller and simpler than desktop wallets, but you can easily manage your funds using both of them. Besides, some software wallets allow you to access funds via multiple devices simultaneously, including smartphones, laptops, and even hardware wallets.
Unlike software wallets, hardware wallets store your private keys on an external device like a USB. They are entirely cold and secure. Also, they are capable of making online payments, too. Some hardware wallets are compatible with web interfaces and support multiple currencies. They are designed to make transactions easy and convenient, so all you need to do is plug it in any online device, unlock your wallet, send currency, and confirm a transaction. Hardware wallets are considered the safest means of storing crypto assets. The only drawback is that they aren’t free to use.
Typically, your wallet choice depends on your portfolio. Every serious project should have its native wallet which should be found on its website, but sometimes it may be more convenient to have a multicurrency wallet. Keep in mind that not all multicurrency wallets support all coins. Even hardware wallets have a limited amount of coins they support. On the other hand, there’s no shortage of wallets for popular cryptocurrencies like Bitcoin or Ethereum.