Are you interested in cryptocurrencies? If yes, the first thing you need is a crypto wallet where you can organize your crypto portfolio. The crypto wallet is protected by your own private key so that only you can access your wallet. You should be aware of how to set up and use a crypto wallet before entering into the crypto ecosystem.
There are many crypto wallets available nowadays. It will be difficult to decide what are the attributes required for your personal requirements. In this article, we will understand the basic concept of crypto wallets, how cryptocurrency wallets work, and how to choose the wallet that suits you most.
Let’s get started
What are crypto wallets?
A crypto wallet refers to a physical medium, service, or application that maintains private or public keys for crypto transactions. It also provides pseudonymous IDs for its users.
The crypto wallet allows users to interact with the blockchain. It can be a software or a dedicated hardware device. In reality, the crypto is stored in the blockchain itself and a wallet acts as an intermediary between the user and his holdings.
How Do Crypto Wallets Function?
The wallet can be either a dedicated hardware or software. Both of these are designed to allow secure access to your cryptocurrency. The crypto wallets don’t store a cryptocurrency but they store the private and public key information required to carry crypto transactions. The actual storage of crypto happens in the blockchain.
Private Key VS Public Key
- Public Key – The public key is like your account number which can be shared with a third party for performing transactions without compromising the security of the wallet. The wallet address is a compressed form of a wallet’s public key.
- Private Key- The private key allows you to access the cryptocurrency on the blockchain. Anyone with the private key can access your account so it should be kept private.
How to transfer crypto from the crypto wallet?
Transferring crypto from one wallet to another is relatively simple .it can be done by entering the wallet, selecting the amount of crypto to be sent, and sending it to the recipient’s wallet address.
Types of Crypto Wallets: 5 Types of Crypto Wallets
Now let us explore the five different types of crypto wallets. The broad classification of different crypto wallets is mentioned below:
Hot wallets
Hot wallets are wallets that require an internet connection for their operations. They are subclassified into Mobile wallets, Web wallets, and Desktop wallets.
- Mobile wallets: Mobile wallets are mobile applications that execute and store your private keys for your cryptocurrencies in your smartphone. These mobile wallets allow users to pay for goods and services, and trade or buy cryptocurrencies by using their mobile phones. The major drawback of mobile wallets is the chance of Fraud, Malware attacks, and loss of the device.
- Web Wallets: Web wallets are wallets that store private keys on a server. These servers are owned and operated by third parties called cryptocurrency exchanges. Web wallets also allow users to access their data online as long as they have a stable internet connection. So like mobile wallets, it is easy to handle web wallets. Web wallets also have similar drawbacks to mobile wallets such as hacking, or gaining access to the private key can cause the loss of crypto from the wallet.
- Desktop Wallets: A desktop wallet is software that is installed on your computer that stores the private keys of the users in the hard disk of the system. These wallets are comparatively safer than web and mobile wallets since the private key is stored in the hard disk of the computer rather than on a third-party server. Desktop wallets also require an internet connection to buy or use the cryptocurrency. Some programs can be used to download the entire crypto chain into the computer. But it requires a lot of space and fast internet connectivity.
Cold wallets
These are crypto wallets that do not require internet connectivity. They are again classified into Hardware wallets and Physical media wallets.
- Hardware Wallets: Hardware wallets are secure physical devices similar to that of USB storage devices. These devices contain additional security measures like biometric authentication. These additional security measures make it a secure way of storing cryptocurrency. These devices need to be connected to computers to perform transactions. The major risk of the hardware wallet is the risk of misplacing the wallet. The use of fake hardware wallets makes you vulnerable to hackers. So selecting a genuine hardware wallet is of utmost importance
- Physical Media: Physical media wallets are like QR codes that are scanned by a hot wallet for making transactions. It reduces the risks of using hot wallets. But as a physical media, the safety, and storage of these documents will be a challenge.
Final Thoughts
Different types of wallets are discussed in this article. All these wallets have their advantages and disadvantages. Do your research and compare each wallet to ensure the safety, credibility, and functionality of a wallet. For a beginner, it is advised to use mobile wallets or web wallets. But for storing large amounts of crypto for a longer time it is always advised to use hardware wallets. Take enough time to decide as this is crucial. Always decide after careful consideration of your trading preferences. You can have your research to know more about the best suitable wallet option.
Read More:
Crypto Exchange vs Crypto Wallet: What Are The Key Differences?
