Learn about storage solutions for cryptocurrency and explore the different types of crypto wallets: hot, cold, software, and hardware. Read on to understand how crypto wallets help secure digital assets online and offline.
There are primarily three types of wallets, each providing different methods to store and access cryptocurrency — software wallets, hardware wallets, and paper wallets.
Each wallet consists of two unique elements:
- A private key is like a password, so anyone who knows the key can access the funds in that wallet. Therefore, never tell anyone your private key unless you want them to be able to control your funds.
- A public key is like a bank account number, and is more commonly known as a wallet address. Anyone who knows this wallet address can send funds to it. People can also check its balance and transaction history, however the details depend on the blockchain used. The public key is often provided as a long string of random letters and numbers together or in the form of a QR code.
Owning a crypto wallet effectively puts the responsibility of securing funds into the users hands. Therefore, it is vital that users choose the safest storage solutions when holding crypto for long periods of time.
With that knowledge, let’s dive into the different types of wallets.
These storage solutions exist on browsers, as well as desktop and mobile devices.
- Browser wallets: These wallets operate on the cloud and you can access them anywhere, any time.
Also known as “hot wallets,” this solution is vulnerable to hacking because users rely on a third-party to store private keys. While these wallets are convenient, if the wallet provider is hacked or loses access to their private keys, users’ funds will disappear overnight.
- PC wallets: There are many wallet options that can be downloaded onto a desktop machine.
While these wallets do offer some protection, unfortunately they are not the safest solution for storing cryptocurrency. Despite only being accessible from one’s local device, they can still be hacked. Hackers today employ sophisticated methods to access and drain funds, such as password-stealing trojans, malware, or phishing.
- Mobile wallets: This solution allows users to download wallets onto their mobile devices.
These wallets can be used anywhere, including retail stores and Bitcoin ATMs. The risk with these wallets is the same as those above.
If you plan to hold digital assets for long periods of time, we highly recommend you use “hot wallets” (online wallets) in conjunction with “cold wallets” (hardware wallets).
Hardware wallets are special USB thumb drives that can be connected to and disconnected from the internet. Your private keys are stored on this device and never revealed, even to you.
With these wallets, transactions can be made online, but the funds and private keys are stored offline.
These wallets should only be purchased via the company that makes these wallets; buying second hand hardware wallets is insecure and not recommended since buyers cannot verify the source.
Hardware wallets are ultimately the safest way to store crypto when not actively trading, buying, or selling on an exchange.
If one were to ever lose or damage their device, they would still have access to a Paper Wallet (see details below).
Some users might choose one wallet over another because each supports different cryptocurrencies and are compatible with different web interfaces.
A Paper Wallet is a printout of a user’s public and private keys, and are typically stored under beds, inside books, or in bank deposit boxes, depending on the user. These wallets were popular in the early days of Bitcoin before software and hardware wallets started coming out.
A popular example of a website where a user can generate a paper wallet is MyEtherWallet. Users can send crypto to their paper wallet and view or send crypto once logged in on this website.
In the long run, the best option is to use a combination of hardware and cold storage wallets for securing and holding crypto.
In order to ensure your funds remain firmly in your hands, you should review your personal security standards. These are usually simple routines that you can adopt to reduce your exposure and limit your risk.
Examples of such routines are securing your browser by limiting trackers, using a VPN while browsing the internet, searching with DuckDuckGo, not clicking links in emails by unknown senders, verifying URLs before clicking on them, using an antivirus and firewall on your devices, and avoiding public WiFi – just to name a few.
By acquiring a discipline of these best practices, and storing digital assets with hardware or paper wallets, you can reduce your risks using and storing cryptocurrencies.