What is a crypto wallet?
Do I really need a crypto wallet?
By standard definition a “wallet” is supposed to be a portable object which has the sole purpose of storing your money by keeping them organized and easy to reach when needed. Just like fiat money, crypto coins have to be stored in a wallet of some sort, in order to be put in a safe place until you may need them. A cryptocurrency wallet is, however, a bit more complicated and less stylish than its ordinary counterpart, because it is created not to keep actual money, but rather a digital set of data representing a certain amount of value, identical to the evaluation of fiat currencies. Whether you like that or not, crypto wallets in their different forms cannot be avoided, if you trade or hodl cryptocurrencies of any kind.
Before you gather more information about the different types of crypto wallets, you should know that having a crypto wallet is not just a matter of choice, but rather a compulsory part of the cryptocurrency marketplaces.
Each crypto wallet is programmed to interact with the blockchain where all cryptocurrency transcations are recorded. These wallets have the main purpose to allow any user to:
- have their public and private key information stored in a secure platform;
- receive crypto;
- send crypto;
- keep track of your cryptocurrency balances;
So, if you ever want to invest in any cryptocurrency, the moment you create an account on the crypto exchange of your choice, a hot wallet will be issued to collect your newly purchased crypto coins and tokens. Or you may even like to be prepared for providing extra security for your digital assets by purchasing a hardware wallet, which would come in handy, if you have large crypto funds and you prefer them not to stay in the initial hot wallet.
Whether you prefer long or – short term investments, there is a crypto wallet, which would help you keep your digital assets in a safe space until you decide how to deal with them. The most important part of any financial endeavour is to know that your assets are being managed properly and no other person or authority can interfere with your personal monetary resources.
Here is a list of reasons why cryptocurrency wallets are vital for your trading experience:
- Higher level of security – depending on the type of wallet you use;
- Efficient cryptocurrency management options;
- Flexible trading procedures;
The most significant characteristic of any crypto wallet is that it defines the type of cryptocurrencies you can store and trade. For instance, you can only send and receive Bitcoins from Bitcoin wallet addresses.
Types of crypto wallets
Although regular wallets come in different shapes and prints, crypto wallets have a less eccentric appeal and a rather more complex application, and greater responsibility. But beware, the dangers of the counterfeit wallets do creep behind the corner, regardless of their usability in either physical or digital space.
Hot wallets work online and are programmed to issue and store the public and private keys of the user, that’s why they are also called desktop wallets or mobile wallets, because they operate on the Internet and therefore can be accessed only through a device which can be connected to the Internet. Everyone who has crypto assets has a software wallet, which could be either part of a certain exchange or a standalone crypto wallet app.
The most popular hot storage wallets among crypto users are Exodus, Mycelium and Coinbase Wallet.
Pros of software wallets
- Fast and easy access to your funds – this makes a significant difference, if you’re trading on the go and you know that all you have to do is be connected to the Internet, in order to navigate your deals.
- User-friendly interfaces
- Quick crypto transactions – suitable for more active traders; all you need is a good Wi-Fi connection.
- Affordable – these hot storage apps are way more affordable than a cold storage device and if they require maintenance fees, they’re still pretty low.
- Less responsibility – since these web wallets are custodial, that means that a third party manages most of the important data going through the wallet and the user has to trust that feature.
Cons of software wallets
- Vulnerable to hackers – everything that operates online is vulnerable to being hacked and stolen and that’s why hot wallet providers are doing their best to protect the software so many users rely on.
- Dependency on a third party – the user who uses a hot wallet provided by the crypto exchange doesn’t have direct access to their private keys and are always dependent on the intermediary to facilitate transactions. However, the software wallets, which are not part of an exchange, do not work with such custodial practices.
- Not a good option for long-term hodling – since they are more prone to becoming the focus of malicious intentions, software wallets are not the best option for storing larger sums of cryptocurrencies. Sure, hot wallet developers are constantly trying to improve their software products, but it is recommended to opt for a cold wallet, if you want your cryptocurrencies to be extra protected.
These types of crypto wallets are meant to store cryptocurrency offline, which makes them the best option for anyone holding greater crypto funds. They are also called hardware wallets because of their physical format – a special USB device which stores your public and private key information. Once taken out of the computer, this device has almost invincible security, unless you have bought an already modified hardware wallet or somebody actually steals it.
Some of the most used physical wallets are KeepKey, Ledger Nano X and Trezor Model T.
Pros of hardware wallets
- Safe – this cryptocurrency wallet is rarely connected to the Internet, therefore it provides a higher level of security and even if it gets stolen there are many user verification steps which would jeopardize the thief’s intentions.
- Privacy – the cold wallets can also be referred to as non-custodial crypto wallets because the intermediary doesn’t keep track of your private keys, it is the crypto owner who has access to this important information.
Cons of hardware wallets
- Expensive – these USB crypto wallets vary in price, but they are not as affordable as assumed. They’re definitely not as budget-friendly as the regular software wallets, but that shouldn’t be a valid reason not to purchase one, if you want to protect your crypto. There are many different hardware wallets on the market and each has special characteristics and they could cost on average from $60 to $200.
- Time-consuming – it takes more time to access your device and facilitate transactions.
- Accept only specific cryptocurrencies – yes, even in the crypto world there is no such thing as a viable one size fits all option. The hardware wallets support certain crypto coins, which may be disappointing for people, who are rather interested in less popular altcoins. It is very important to look into these details before purchasing a hardware wallet – some devices are not programmed to store all types of cryptocurrencies.
Paper wallets are a form of cold wallet storage but they don’t integrate different means of technology to store crypto. By far, this is the most traditional way one could try to save their public and private keys. You simply write them down on a regular piece of paper and store them in a safe and hidden place, which could be either a vault/safe or somewhere it won’t be prone to damage. Although it may seem like an outdated way of keeping track of important information, this exact method still works for those who prefer to have extra back-ups and don’t want to rely on any form of technology for it.
Although we have put crypto wallets into well-defined categories, there is still a confusing myriad of wallets to choose from. Some may prefer the convenience of the hot wallets, others may stick to the security of the cold wallets, but as a whole the purpose of the crypto wallet is to help both the user and the exchange to complete their duties properly. It would be unthinkable to own crypto without a storage facility to put it in. The wallet is your digital key to accessing the funds you have acquired and if you forget your private keys then all you have been holding onto for this long will never be retrieved.
*The given information just outlines a part of a greater subject matter and is not labelled as professionally acclaimed data. Always consult with a professional, before conducting any financial aspirations.
Zornitsa is the Editor-in-chief at Coinlabz. She is involved in researching the impact of blockchain technology and the way crypto is transforming peoples’ perceptions of finances.