Just as you have wallets and bank accounts for your regular fiat money, cryptocurrency wallets are the digital alternatives to hold digital currencies. Every wallet contains information that identifies its owner – so no two people in the world can have the same wallet address. This identification comes in the form of public and private keys. Your public key can be likened to your account number while your private key may be considered your PIN. For this reason, it is necessary that you keep this info safe because anyone with both info can access your wallet.
Bonus Tip #1: Digital wallets don’t store money per se. What they store is data (keys) which authorize you to perform transactions.
Types of Wallet
There are different types of wallets, each with its pros and cons. While some are more convenient to use, with a trade off on security, others are more complex and secured. For beginners and small crypto holders, accessibility and ease of use are of utmost priority. Now, let’s explore the various types of wallets.
These wallets operate through the cloud. They can be accessed through the browser of any internet-enabled device. Exchanges and trading platforms that offer wallet services all come under this category. One of the advantages of online wallets is the convenience, and ease-of-use. However, as a downside, these wallets are weak on security. In comparison with other kinds of wallets, they are easy to hack. Also, your private and public keys are stored on the company’s server. What this means is that your funds will be compromised if the database is hacked.
In other to protect your online wallet at your end, always enable second factor authentication (2FA). Also, ensure you are not clicking on phishing mails.
Desktop & Mobile Wallets
As the names imply, desktop wallets run on your desktop, while mobile wallets run on your mobile devices. You simply download the software or apps, install, and run them. Examples of Desktop wallets include Jaxx, Electrum, Copay, and Exodus. Mycelium, Bitcoin Wallet, and Airbitz are all examples of mobile wallets.
As you already know, your pc or device can become corrupted, infected, or damaged and your information may become compromised. For this reason, it is ideal to install some form of backup procedure. Also, as a safety measure, do not store so much funds on either of these wallets, and watch who gets hold of your device.
Bonus Tip #2: Never believe anybody who asks you to send 0.5 ETH and get back 5 ETH in return. They are all scams!
Hardware & Paper Wallets
These are the most secured wallets, and are recommended for moderate/big players and investors. Hardware wallets are not stored on the cloud or on any device – they are typically offline, and come in the form of a USB drive which can be connected to a system when intended to be used. Private keys are also generated offline, making it hard to hack. Some common examples of hardware wallet include Ledger Nano S and Trezor. The only downside of hardware wallets is that they are expensive and require some form of technical know-how.
Paper wallets are the most secured on the list. In this case both your private and public keys are printed on a piece of paper. Once you have these keys, they can be used for transactions by simply adding them to existing wallets. If you are a careful person, securing a piece of paper should not be hard.
Bonus Tip #3: All wallets can be generally grouped into hot or cold wallets. Hardware and paper wallets are cold wallets, while online, desktop, and mobile wallets are hot wallets.
In general, none of these wallets are bad. What really matters is the functionality they provide, and how you intend to use them.