What are the different types of wallets?

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What are the different types of wallets

Pros and Cons Explained

Cryptocurrency is the in thing. The frenzy is on the rise. However, before even beginning to invest, you first need to look at the various options to store them securely.

Just like you keep your currency notes and coins safely in a leather wallet, you need a container for your valuable cryptos too. Yes, we are referring to the crypto wallets.

This blog delves into what is a cryptocurrency wallet, the types of crypto wallets, their pros and cons, and more.

Let’s get started.

What is a cryptocurrency wallet?

A blockchain or cryptocurrency wallet is used to secure, manage and store cryptocurrencies like Bitcoin, Ethereum, or other digital assets. It is essentially a software program that stores your public and private keys. 

Types of Wallets 

Hot Wallets and Cold Wallets

Cold Wallets – These are usually used to store funds offline and are not tied to any network. Cold wallets do not allow interaction between the wallet and the online network, thereby reducing the chances of cryptos being stolen.

Advantages

  • They offer a very high level of security
  • Do not require software installation or any internet connection

Disadvantages

  • As they are stored on a piece of hardware, they can get lost
  • Need manual backup
  • Not suitable for regular payments

Hot Wallets – These are software programs that require a constant internet connection and let you send your cryptocurrency anywhere.

Advantages 

  • They are convenient and easy-to-use
  • Do not require physical media
  • Good choice for regular and micropayments

Disadvantages

  • They are relatively less secure and vulnerable to attacks by hackers
  • They require a constant internet connectivity
  • In case you uninstall the program, you may lose access to your crypto wallet forever

There are four major wallets to store your crypto holdings:

Online Crypto Wallets

This is a service owned by a third party. The keys are either stored on a remote server or downloaded as an encrypted file on the user’s computer. They provide various options like having different wallets for different cryptocurrencies, trading on exchanges and calculating commissions, and more. 

Advantages

  • Quicker registration
  • Ability to work with multiple cryptocurrencies.

Disadvantages

  • It is risky as the online crypto wallet might be hacked
  • Incurs additional expenditure

Some examples include Cryptonator, HolyTransaction, and Coinbase.

Mobile Crypto Wallets

This is a software program that is installed on mobile phones and is preferred by those who wish to use cryptocurrency to buy and sell goods and services.

Advantages 

  • Provides useful features like QR code scanning.
  • They are safer compared to Online Crypto wallets.

Disadvantages

  • They are not very secure to store huge amounts of funds.

Some examples include Xapo and Coinomi.

Desktop Wallets

These are software programs installed on your computer.

Advantages

  • Desktop wallets store keys on your hard drive which is the most reliable option for offline crypto wallets. It is a program installed on your computer with which you can access data in your crypto account.

Disadvantages

  • One of the key drawbacks of a desktop wallet is that it needs constant updating which consumes a lot of memory.

Some examples of desktop wallets include Exodus, Armory, and BitcoinCore.

Hardware Wallets

These are separate removable physical devices, which therefore do not overload the computer. They are however inconvenient to trade and are not very popular for storing cryptos except for long-term storage.

Advantages

  • Your private keys never get revealed to your computer.
  • Hardware wallets require your device confirmation before any cryptos can be spent
  • These wallets are not affected by computer viruses

Disadvantages

  • The only limitation is that they are expensive. However, it is a great investment if you wish to store large amounts of crypto holdings for a longer time.

Some examples of hardware wallets are KeepKay, Ledger Wallet, and Trezor.

Final thoughts

Crypto wallets offer a highly secure means to store your digital assets safely. Different types of crypto wallets have different properties, advantages, and limitations. Depending on your requirements, choose the right wallet and keep your cryptos secure.

Posted in Bitcoin, Blockchain, Ethereum