A cryptocurrency wallet is a must-have tool if you already have or want to buy a cryptocurrency. A wallet is an application, device or way to store cryptocurrencies, and in most cases, cryptocurrencies can be sent directly from them. In this text, we will explain which types of wallets exist and give examples of them. This is a great text if you are a beginner or choosing your first cryptocurrency wallet.
Types of crypto wallets
There are two types of crypto wallets, hardware or software, also known as Hot and Cold and Online and Offline wallets. The basic characteristic of a cold or hardware wallet is that it is not connected to the internet in any way. It is usually a USB device or paper wallet. Hot or Online wallets are usually applications or extensions which are connected to the Internet and are less secure than offline ones.
The best way to visualize these two types is to look at a cold wallet as on the bank account, and on a hot wallet as a physical wallet in your pocket. A leather wallet is a place where you won’t keep your live savings or bonds, but just a few dollars for everyday use.
In this article, we will tell you more about hot and cold crypto wallets so you can choose one that suits your needs.
Hot crypto wallets
You create a hot wallet by opening an account on one of the websites specialized for that purpose. You access the crypto wallet by setting up an account. And then you can log in and send transactions from the crypto exchange to your wallet. This is the type of wallet where you have the lowest level of control over your assets and the highest probability to lose them. Besides your mistake, we can also lose crypto due to security breaches. It is certainly not recommended to keep a large amount of crypto in such a wallet. These wallets are recommended if you get crypto from the best place to buy cryptocurrency 2022, want to trade with it and need a place to safely keep it.
Desktop crypto wallets
Desktop crypto wallets are stationed on our computers/laptops, as the name suggests. Here there is an option to install only a wallet with private keys and addresses, but also a complete “full node” that contains the entire blockchain, that is, the entire history of transactions. In this case, the wallet takes up a lot of space on a hard disk, which in the case of some currencies is measured in hundreds of gigabytes.
Desktop wallets are as secure as your computer. Backup is of course mandatory because you can always lose your laptop, someone might steal it or the hard drive can damage itself. With backup, the wallet can be easily re-installed on another computer without any losses.
Mobile crypto wallets
Mobile crypto wallets are certainly the most practical and easiest to use. They are always with you and in a few seconds, you can send or receive cryptocurrencies. Therefore, they are ideal for everyday use. They are protected by a pin in case someone comes into possession of your phone.
When installing most mobile wallets, we have the option to enter 12 (or 24) words, and this option should be used. This allows us to transfer our addresses and private keys to another phone in case you lose or change your smartphone.
Mobile wallets are good for storing anything that ranges from crypto to NFT Games collectible items.
Cold crypto wallets
If you want your cryptocurrencies to be secure, keep your private keys offline. You can do this in two ways: on paper wallets and hardware wallets.
Paper crypto wallets
Paper crypto wallets are a great solution for long-term storage. There are specialized websites where paper wallets can be generated as addresses or QR codes. Your computer must be offline while generating the address so that private keys are not compromised at any time. When generating, it is possible to insert an additional code. This way you prevent someone who might come across your paper wallet from withdrawing crypto from it.
Paper wallets have an address that we use to transfer funds to that paper wallet, as well as a private key that we use when we want to withdraw crypto from it. This is usually done with the help of mobile wallets, which have the option of reading a paper wallet and withdrawing money from it.
A paper wallet is disposable. Once you use it to withdraw cryptocurrency, it is no longer 100% secure and if you want to return crypto to your paper wallet, you need to create a new one.
Paper can be easily damaged, torn, or lost. Take care about how and where you keep paper wallets and make sure you have more copies at all times.
Hardware crypto wallets
Probably the best way to store cryptocurrencies are hardware crypto wallets, but it is also the only type of wallet that costs money because you have to buy it.
The hardware wallet looks like a small USB device. They have a complex system for storing pairs of private keys and corresponding addresses. When using such wallets for the first time, the user copies 12 words (or 24) from the device, which can later be used to recover crypto in case you lose the device.
Hardware wallets are used with another type of wallet, most often a desktop wallet or an online wallet, but in this case, the private keys are only on the hardware wallet. A desktop or online wallet only serves to create a transaction. This transaction is then sent to the hardware wallet for signature and the hardware wallet returns the signed transaction which is then sent by the desktop or online wallet through the network.
Private keys never leave the hardware wallet, which is why transactions are signed on it.
Hardware wallets are more practical than paper ones because they can be used multiple times without compromising private keys. Since the hardware wallet can be both damaged and lost, it is very important to safely store the 12 words (or 24) that appeared on the device during the first use. Of course, those words shouldn’t be kept in the same place as the hardware wallet itself.
Conclusion
In the end, it is necessary to point out one very dangerous practice, and that is to keep cryptocurrencies on crypto exchanges.
People usually buy cryptocurrencies on crypto exchanges, so it is easiest for them to keep them there. This is the least secure way to store cryptocurrencies! Crypto markets are constantly under attack by hackers and from time to time these attacks are successful, which has caused millions in losses. Crypto exchanges are used to buy and sell cryptocurrencies, not to store them. If you are not a trader, remove cryptocurrencies from the stock market!
Our recommendation is to keep cryptocurrency on a hardware wallet since it is the most secure way. Of course, many factors can determine what type of wallet you need. If you are a trader then you will keep it in an online wallet. If you are an investor then we recommend a hardware wallet. Paper wallets are also good but are outdated. And to keep crypto on a desktop wallet is just not practical since it can take a lot of hard drive memory.
