What is a crypto wallet?
Crypto wallets are software programs that store a user’s public and private keys. These wallets interact with different blockchain networks to send and receive cryptocurrencies. Many have a misconception that crypto wallets literally store digital currencies, but that is not the case. Cryptocurrencies always reside in the native blockchain network, and their ownership is just signed off to others based on their public keys to the address of the crypto wallet. If the owner of the crypto wants to spend the money, they spend the currency using their private key in the wallet. So when we say, the cryptos are stored in the crypto wallet, essentially, we are storing the corresponding public and private keys in them.
Types of crypto wallets
There are different types of crypto wallets, and they are differentiated based on how they can be accessed. The fundamental classification is online and offline wallets. Online wallets are those wallets that can be accessed by connecting them to the internet. Contrarily, offline wallets are those that can never be connected to the internet. Let’s understand each of the types below.
These wallets are installable software packs for operating systems like Windows, MAC, and Linux. Any crypto company which is serious about their outreach would start a desktop wallet on day one of their ICO. Since these are accessible only from the installed device, they are considered to be secure, but there is always a risk of virus attacks on a user’s device. Hence it is advisable to always keep up with the security patches of the device to safeguard cryptos. These wallets stand in third place in terms of security.
Exodus, Bitcoin Core, Electrum are few examples of desktop wallets.
Mobile wallets for different cryptos are the most used digital wallets because of the ease and agility they provide. Most of the mobile wallets available in the market support both Android and IOS. The least famous ones at least support the Android version. One needs to seriously consider the security provided by the application while choosing a mobile wallet. These wallets occupy fourth place when it comes to safety.
Mycelium, Coinomi are examples of mobile wallets.
These wallets run on the cloud and are accessible through any device which has browser access. These are very convenient but also prone to theft, thus needs multiple layers of security. There are hosted and non-hosted wallets when it comes to online wallets, and it is always recommended to use non-hosted wallets. These wallets occupy fifth, which is the last place in the wallet types available, thus making them the least secure.
MyEther Wallet and Coinbase are examples of online wallets.
As the name suggests, these wallets are hardware devices that store public addresses and private keys. It is a USB kind of equipment that can be connected to any computing device, and they come with their native apps. These are the most secure as these are not connected to the internet all the time, making them resistant to hacking. Most hardware wallets allow us to store more than 22 cryptocurrencies.
Ledger Nano S, Ledger Nano X, and Trezor are some of the best examples of hardware wallets available in the market.
In paper wallets, one must print the public address and private keys of the user on a paper and store them securely. Not all the cryptos offer paper wallets, but most of the famous cryptos do. These are the second safest option after hardware wallets as these are offline as well.
Security is not the only thing one must consider while choosing a wallet. Because convenience also plays a critical role. It is often advisable to select hardware wallets if a crypto trader wants to store huge quantities of crypto for a long term use. Online or mobile wallets can be used to store smaller amounts of cryptos for short term usage.