Cryptocurrency Wallets : Everything You Need To Know
What is a Cryptocurrency Wallet ?
If you are going to use any type of digital currency, the first thing you’re going to need is a cryptocurrency wallet.
A cryptocurrency wallet is a program or service based on cryptographic public and private keys.
Public keys are used to receive payments while private keys are used to spend them.
Apart from sending/receiving money, digital wallets are constantly improving their functionality by adding new features.
Plain Cryptocurrency Wallet
This is the simplest form of digital wallets.
Cryptocurrencies aren’t stored in it. They are stored in the blockchain.
It is only used to send and receive payments from the blockchain.
Multi-signature wallets add another layer of security on the simple cryptocurrency wallets by requiring multiple parties to sign a transaction.
Two or more people can control funds in a multi-signature wallet.
Types Of Cryptocurrency Wallets
- Software Wallet (Hot Wallet)
- Hardware Wallet (Cold Wallet)
- Paper Wallet
Software Wallet (Hot Wallet)
Software wallets aka hot wallets are always connected to the internet and are readily accessible.
These wallets can are mainly useful if you’re going to trade cryptocurrencies on a daily basis.
Types Of Hot Wallet
- Web Wallet
- Desktop Wallet
- Mobile Wallet
Web wallets are mostly provided by cryptocurrency exchanges such as Coinbase, kraken.
All you need is a web browser to access a web wallet.
They are usually free to use but they come with high security risks as they are first choice of the hackers to steal from.
I recommend you to choose a web wallet which lets you take complete control of your private keys. Myetherwallet is a better web wallet than these exchange wallets.
Desktop wallets are programs/softwares that can be installed on different operating systems such as WIndows, MacOS or Linux.
Desktop wallets provide a better level of security than web wallets. However, you need to make sure that your desktop has anti-virus and firewall installed to keep those coins safe.
Mobile wallets are installed on the smartphones and are similar to desktop wallets.
They are the most widely used type of wallets. Easy usability, QR Code scanning for faster transactions and few more features make them better choices than desktop wallets.
Every cryptocurrency has its own wallet.
Hardware Wallet (Cold Storage Wallet)
These wallets are the hardware devices which are not connected to the internet. You can connect them to computer or smartphone via USB and use.
They are considered the most secure type of wallets because the only way to steal them is by physically stealing the wallet. Since cryptocurrency provide high level of anonymity, it is even more difficult to steal them.
They are also the expensive ($50 – $150) option.
In paper wallet, you print your public and private keys on a paper.
They are a bit technical type of wallet and need to be used very cautiously.
Also keep in mind, if you lose paper on which keys are printed, you coins are lost forever. That’s why, only advanced users should use paper wallets.
Which Wallet Should I Use ?
If you’re going to invest a good chunk of money to buy and hold cryptocurrency, I recommend you use hardware wallets as they provide you the highest level of security.
If you are going to send or receive cryptocurrencies more often, then use a mobile or desktop wallet because you can add many levels of security on them like 2FA, OTP etc.
Never keep your coins stored on a cryptocurrency exchange as they store your private keys online. They are also most prone to attacks by hackers.
Choose the type of wallet that best suits your needs.
If you have any questions, ask me in the comments below.
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