What Are Crypto Wallets and their Different Types?
Storing crypto assets is much like storing traditional money and requires crypto wallets, which are somewhat like the traditional wallets. Since cryptocurrencies are not like solid money. They are susceptible to a lot of threats and risks that exist in the digital world. To make sure that they remain safe from any kind of security threat and failure. It is essential that crypto investors opt for a crypto wallet that is suitable and most importantly offers high-end security.
However, as a new crypto enthusiast, you should know that choosing a wallet for digital assets is not as simple as you might anticipate. This is because there are different types of crypto wallets available that are known for offering varying services.
Therefore, as a beginner, one of the first steps you need to take to ensure a secure crypto investing experience is choose the best kind of crypto wallet. This will be much easier to tackle if you have the information mentioned below.
Understanding What are Crypto Wallets
Owning crypto and fiat assets is different. However, storing them are somewhat similar as they both require a secure place, such as a wallet. Digital assets are a cluster of codes that are stored on a blockchain with a specific address.
Despite this difference, the cryptocurrency wallets serve as a way to safely store these codes. To be more specific, the wallets safekeep the keys to the crypto assets.
Since there are unexpected risks posed by the crypto space, it is crucial to opt for a crypto wallet that offers the highest form of security. The level of security available varies among different types of wallets that are discussed below in detail.
Two Main Types of Cryptocurrency Wallets
As a beginner, if you invest in digital assets, you can store your funds on the exchange you choose to purchase them from. This acts as a default wallet that users generally get. However, to enhance the security offered to your funds, you need to opt for a suitable and secure crypto wallet.
The two main types of crypto wallets available in the market are:
- Hot wallets
- Cold wallets
These types of wallets are the most prominent type and are identified as the crypto wallets that are connected to the internet. These wallets are generally more flexible but come with a few drawbacks as well.
Since these wallets are connected to the internet. They do not offer high-end security and are vulnerable to cyber threats and failures.
However, the benefits of hot wallets are that they are user-friendly and offer better accessibility due to their connection to the internet. They also enable the users to buy and sell crypto without any delays because they are connected to the internet.
The second type of crypto wallets are cold wallets, which are a much safer option for the crypto enthusiasts. This is because the cold wallets are not connected to the internet and are therefore. Safer from the risks actively posed by the digital world.
Storing funds in cold wallets is referred to as cold storage or storing funds offline. These types of crypto wallets also offer the highest form of security as the funds stored in them can only be accessed by you for daily transactions.
There are some sub-types of cold wallets that maintain their basic functionality but connect to the internet at the same time.
There is also an unofficial type of crypto wallets called the hybrid wallets that are a combination of both cold and hot wallets. These wallets offer the flexibility of the hot wallets and the high-end security of the cold wallets.
Sub-types of Hot Wallets
The hot wallets further have a few sub-types that are essential for you to explore so you can make an informed decision.
These are accessible through the web browser and enable the users to access the funds from anywhere. As long as they have their login credentials. This is a somewhat convenient option but it does not give ownership of the keys to the users.
These are accessible through a mobile application that users have to download. This offers higher flexibility and enables users to access their funds while on the go. However, the level of security is still in question.
This type of hot crypto wallets is also accessible through an application that requires the users to create a password for the keys and gives you ownership of the keys.
Sub-types of Cold Wallets
The different sub-types of cold wallets are discussed below.
These types of crypto wallets are the safest type of wallets as they offer high security and prevent the funds from being exposed online. The private keys are stored on an offline physical device like a USB drive. Even if the device you connect the USB to is connected to the internet, your funds are still secure.
This type of cold wallet are unsafe because they have the private keys on a physical piece of paper and if it is lost the funds are lost to the users as well.