Once you have decided to invest in, or trade with cryptocurrency, you must then decide how to store it. If you are not aware of the different types of crypto wallets, along with their advantages and disadvantages, there is a high chance that you may fail to choose the correct one for you.
Cryptocurrency being stolen through computer hacks is often heard of happening in the crypto field. One of the main goals of traders and investors should be to hold their crypto safely and securely.
There are different types of wallets serving different purposes in different situations.
The first differentiation is between hot or cold wallets, which will depend upon their operating processes.
What are Hot and Cold Wallets?
Hot wallets are internet-connected cryptocurrency wallets, while cold wallets are where cryptocurrencies are stored offline. Hot wallets have a higher risk when compared to cold wallets, as they are more susceptible to hacks and other risks associated with the internet.
Cold or Hot Wallet: Which is better?
Both wallets have their own pros and cons. The best way to store your funds is in both wallets, by distributing your funds depending on any transactions you are planning to process. If you wish to do more transactions, you can keep more funds in a Hot Wallet, and a lesser amount can be stored in a Cold Wallet.
There are five types of wallets available, namely: online, mobile, desktop, hardware and paper wallets.
1) Online Wallet/ Web Wallet
Online wallets are always internet-connected and are accessible via various internet browsers. These Wallets allow you to access your crypto whenever you’re online and can reach, store, and make crypto transactions until you are connected to the cloud. In these private keys are held online, which means that the third party stores your private keys.
Online wallets are easy for managing various cryptocurrencies, as they transfer or integrate directly into an exchange.
The pros are ease of use, but the con is that as the wallet is online, there is always a risk of scams, hacks and malware.
2) Desktop wallet
You can download Wallet software from your desktop and only access it from that PC or laptop. It is known to be one of the safer means to transact cryptocurrency. Nonetheless, the risk here is that there is always a risk of getting hacked or contacting a virus attack.
Here you get to maintain your private keys. There are chances that you may lose your funds if you don’t have a backup though.
3) Paper Wallets
It’s more like a physical copy of your private and public keys that is generated and printed along with a QR code on a sheet of paper.
It is possible to transfer funds from the wallet to another wallet using private keys or scanning QR code. Such wallets are hard to use for daily transactions and supposedly not user-friendly. Another con is that there is a chance that the paper copies could be destroyed or lost, as they are physically available.
4) Hardware wallets
As the name suggests, indicates the private keys stored in hardware such as USB drive. Such wallets store keys offline and do transactions online. By plugging in any internet-enabled computer or device, the wallet holder can enter a key and confirm it to send money.
Hardware wallets are safer than other types of wallets. Cryptocurrencies are not vulnerable to hackers because they are held offline.
5) Mobile Wallets
In general, mobile wallets are designed for mobile applications and for people who want to trade on the go. Most of the desktop wallets do have their own mobile version, but many other wallets are just for mobile users.
Individuals who are using mobile wallets should be cautious when it comes to their mobile device because if they lose it, there are chances of losing their funds as well.