Crypto is changing the way we think about and work with money. But with so many types of crypto wallets, it can be difficult to decide on which one suits your needs the best. Below, we break down the different types of wallets and how to use them.
A crypto wallet allows users to interact with the blockchain, either using a software or a specialized hardware device. Since crypto is not available in the physical form, a wallet acts like an intermediary between a user and their assets on the blockchain.
With a wallet, a user can view and manage their cryptocurrency, as well as initiate transactions. What all wallets have in common is keys (seed words), which are lengthy alphanumeric sequences used to secure your wallet. This should be kept safe as anyone with access to that private key, can have complete control over your crypto holdings.
Types of Crypto wallets
Crypto wallets can be broadly classified into “hot” and “cold” wallets.
Hot wallets connect to the Internet and generally offer less security. However, they offer better accessibility due to their online nature. Although hot wallets are vulnerable to fraudsters and hacker attacks, they are highly user-friendly.
In contrast, cold wallets are not connected to the Internet, making funds stored in them harder to use. Yet, this can be a benefit since hackers and can’t get to your assets as easily.
Types of “Hot Wallets”
These are built to be installed and run on desktop computers and laptops. They are easy to use, private, anonymous, and involve no third party. However, you need to regularly back up your computer and have a solid antivirus software because a system connected to the Internet may possess security issues.
These are accessible through a browser and do not require any software or application. Typically offered by crypto exchanges or a third-party, these wallets offer seamless access to your holdings. They are ideal for small investments and allow quick transactions. Examples of these include MetaMask and Coinbase.
These are similar to desktop wallets. You need to install a mobile application on your phone, which would serve as the hot wallet. Mobile wallets have better flexibility for exchanging funds but pose some security risks.
Types of “Cold Wallets”
This is an offline wallet solution where private keys are written down or printed and securely stored. It is a physically printed QR code, usually used for long-term storage of cryptocurrencies. These wallets are also used as gifts.
For those who prefer a more high-tech solution, a hardware wallet offers secure private key storage in several formats. These physical devices, often resembling a USB thumb drive, are offline unless plugged into a computer or mobile device. They are more secure than hot wallets and offer more accessibility than paper wallets. This is the easiest and most secure way to store and manage your crypto.
Which wallet is best for me?
Regardless of which wallet you choose, if you ever expose your secret recovery phrase or private keys to threat, your funds can be easily lost. No wallet provider can help you get the stolen funds back since blockchain transactions are irreversible.
Before deciding between crypto wallet options, take account of your priorities and ask yourself how much you value things like ease-of-use and security. Think about how easily accessible you want your crypto to be, and how much security you’re willing to trade for that convenience. That is the formula most people evaluate when choosing what wallet is right for them. As always, do your own research before making any financial decision.