One of the most striking features of the cryptocurrencies is that they do not exist in physical form. Instead, they exist as a record of transactions that are added to the Blockchain. For anybody to send or receive cryptocurrencies, one needs crypto wallets consisting of private and public keys.
Cryptocurrency Wallets Explained
A Cryptocurrency wallet can is an app that runs on your smartphone or computer, which you can use to send and receive cryptocurrencies. While the first wallet was released in 2009 by Satoshi Nakamoto, the creator of Bitcoin, technology has played a key role in producing different cryptocurrency wallets’ architecture types since then.
The storage of cryptocurrencies in a wallet can be likened to storing files on a pen drive. However, the information contained within the wallet has no monetary value directly. It merely points towards where your cash location is on the Blockchain. When you want to purchase a cryptocurrency through a currency exchange or through any other means, the sender uses a unique cryptographic address for your wallet to complete the move. In practical terms, the use of cryptocurrency wallets is as simple as scanning a retailer’s QR code.
The Types of Cryptocurrency Wallets In Existence
As technology has improved and the popularity of cryptocurrencies have sky-rocketed, a number of different types of wallets have emerged over the years. There are some coins which only offer their own wallet. But if you are a cryptocurrency trader, you’ll need wallets that support more than one currency.
Luckily, there are 5 major types of crypto wallets that you can use. Some wallets have hot storage, which means they are connected to the internet while the others have a cold storage process.
Hardware Wallets are typically cold wallets, not connected to the internet. Hence they’re not susceptible to cybercrime in general. They are usually small devices such as USB that you can connect to the internet whenever you want to engage in cryptocurrency transactions.
One of the major advantages of these wallets is their security. Because they primarily function offline, the chances of getting hacked are minimal except when connecting to the internet. Also, you do not have to rely on any third party to look after the wallet’s private keys.
Software or Electronic Wallet
There are different types of electronic or software wallets in existence. However, almost all of them are cloud-based services. Many electronic wallets may please you aesthetically but have some inherent risks involved. When using a software wallet, you have to put your trust in a third party to store your private keys. As the online risks such as hacks, security breaches, and theft increase worldwide, it puts software wallet users in a vulnerable position. If any unauthorized entity gains access to your private keys, the chances of your cryptocurrencies being stolen are extremely high.
It is one of the reasons why desktop wallets have been developed. These are software wallets that put you, the user in control of security over your private keys. While it is a safer alternative than a normal software wallet, you still have to make periodic backups to ensure the keys are safe. Any technical faults such as your computer device not working or your storage being corrupted can stop you from accessing your cryptocurrencies, and they can be lost forever.
A paper wallet provides you the ability to store your cryptocurrencies in cold storage, offline. To get a paper wallet, you must print out the private and public keys of the wallet on a piece of paper and store it in a secure place. One of the biggest advantages that this type of wallet provides is its nature. You do not have to worry about a software application or computer device failing, nor do you have to protect a piece of hardware and maintain it.
However, the biggest disadvantage of using paper wallets is the paper itself. Any event such as pouring water on the wallet, tearing it, or wiping some text off from it can stop you from accessing your wallet, and your cryptocurrency will be left frozen.
A non-custodial wallet will allow you to control your wallet information and, by extension, your cryptocurrency. You can keep your digital wallet address and both public and private key information under your control. This removes much of the threat posed by hackers and other cybercrimes. However, even though they’re highly secure, users still have to keep the wallet’s technical information on paper. You can lose your access to the wallet if you lose any of the keys.
With the rise of cryptocurrency trading over the last few years, the requirement of trading on the go has emerged. If you’re a serious trader who wants to access your cryptocurrency wallet no matter where you are, you might use a mobile wallet. It works similar to a typical desktop wallet, but it is optimized for your mobile device.
However, the security of your private keys and other wallet information depends on how your phone is protected against any hacking instances
Cryptocurrency wallets are part of every serious crypto-traders arsenal. However, the degree of security offered by a particular type of wallet depends on your preferences and choices of wallets. Thus, you should carefully research them before making any final decision. Different wallets are equipped with several security features, such as two-factor authentication. Exploring different wallet options and learning about their features is a good practice to ensure that you’ve prioritized security over everything else.