If you are just hitting the crypto world, it’s important to have proper insights into the crypto basics and one of them is understanding the right way of storing the cryptocurrency that doesn’t have any compromises on security. For this reason, crypto wallets are used but there is a variety of crypto wallets out there. So, with this article, we are sharing what a crypto wallet is and what are commonly used wallets.
Table of Contents
Understanding The Crypto Wallet
The crypto wallet is allowed to store, receive, and send cryptocurrencies. It wouldn’t be wrong to say that it’s a digital bank account for storing cryptocurrency. Crypto wallets are software solutions that can store the private and public keys that enable you to manage your cryptocurrency or digital assets and interact with the blockchain networks. Now that you have information about the crypto wallet, we are sharing the types of crypto wallets. More to that you can also read how Bitcoin is used for money laundering, as crypto wallets are mainly used on to these activity.
Hot Wallets
Hot wallets are usually more common in the crypto world because they are more convenient to use and can be set up within a few minutes. Whenever you create your account on the cryptocurrency exchange, you will obviously download the mobile wallet or a desktop wallet, and that’s what you call a hot wallet. These hot wallets are suitable for regular cryptocurrency users who need to make regular transactions.
If you trade the cryptocurrency on a specific exchange or make purchases with the crypto daily, it is suggested to store the digital assets in the hot wallet. These wallets are connected to the internet for streamlining crypto transactions with a help of a few buttons, whether on your computer or smartphone. In the majority of cases, the exchange wallets are the hot wallets, but various leading exchanges have preferred storing the users’ funds’ share in cold storage for enhancing security.
However, these features are not available in mobile-based or web-based hot wallets. While these wallets are the easiest of use, they hold back when it comes down to security. This is because the cryptocurrency in large sums should not be stored in a hot wallet because it puts your entire crypto portfolio at security threats, commonly known as cyber threats. For this reason, it is better that you hold a limited amount of crypto assets, and if you have a bigger investment to hold, opt for cold storage.
The hot wallets are also known as desktop wallets, mobile wallets, and web-based wallets but the last ones are the least secure. However, it doesn’t take away from the fact that hot wallets are always vulnerable to online threats. On the other hand, the hot wallets are quite easy to use. This is because these wallets are based on an online platform, so you don’t need to shift between online and offline platforms to make transactions.
Cold Wallets
Cold wallets are known for their highest security standards for storage wallets. This is because the cold wallets are not connected with the internet, and you can connect it to the internet only when you’ve to make transactions. Both paper wallets and hardware wallets are cold wallets, but the hardware ones are more common since they are easy to use. In addition, the hardware wallets come with customer support from the manufacturer.
The hardware wallets are designed with the physical medium for storing the private keys of the wallet, which means it is safe from malicious attacks and hackers. For storing your crypto assets in a hardware wallet, you’ve to send it from your hot wallet to the public address of the hardware wallet. On the other hand, if you need to send your digital currency to an exchange friend or a friend, there are dedicated software available that has to be used.
As far as paper wallets are concerned, it works the same as hardware wallets because these are paper pieces that have a public address and a private key. For this reason, you need to ensure secure storage of the paper wallet to avoid the theft of your digital assets. Also, as far as transactions are concerned, the wallet must be imported into the hot wallet by scanning private keys, so the cryptocurrency can be spent.
