If you are investing your money into the cryptocurrency markets, you would have considered safekeeping most of it. And that is might be why you are here to figure out the various ways to store your coin and which might suit you better. Some involve storing them online or even offline. That’s where the term ‘wallets’ come into play.
What are cryptocurrency wallets?
Essentially, cryptocurrency wallets are storage mechanisms used by cryptocurrency owners to keep their digital tokens. These storage mechanisms are digital programs that store private and public keys, enabling the transaction of coins in the blockchain. Different types of wallets exist, and most are categorized under hot or cold wallets.
Hot wallets vs Cold Wallets
Hot wallets refer to the fact that the wallet is connected to the internet at all times. This means the wallet has a risk of getting compromised. Hot wallets are also frequent targets for hackers to exploit. If you are considering to store your funds in hot wallets, make sure they have layers of security mechanisms in place. Cryptocurrency owners usually have small amounts of funds in hot wallets, meant for daily transactions.
On the other hand, cold wallets are wallets that are NOT connected to the internet. These offline wallets have large amounts of funds in them, meant for long-term storage. Investors who prioritize safety and security above everything else should use cold wallets.
Various types of Wallets
Online wallets are web-based wallets that can be easily accessed anywhere from any device. Convenience is a huge reason why investors use online wallets. The downside is that most online wallets are controlled by third-party programs that store your private keys online, making it easier for hackers to steal them. Some online wallets are hybrid wallets that allow private data encryption during transactions. Online wallets store bitcoins securely but many users opt to use online exchanges instead. An online exchange is a platform on which you can trade bitcoin to fiat currencies and other cryptocurrencies like Ripple. These exchanges hold your coins on your behalf so while you have the transaction address, you will not have the private keys like you would for other wallets. Some popular online exchanges include Bittrex, Coinbase, and Gemini.
One of the best cryptocurrency exchanges on the market, Kraken provides security and reliability. In such a volatile market, Kraken is one of the few coin exchanges that actively screen out for legal repercussions that take place continually in the evolving world of the blockchain. Only 15 cryptocurrencies, as well as fiat currencies, are listed on the exchange.
Source: Wikimedia Commons
Coinbase is one of the most popular exchanges currently available. It offers coins like Bitcoin, Ethereum and Bitcoin Cash. It is the biggest and oldest exchange around, supporting 32 countries and nearly four million customers worldwide. Coinbase is touted by users to be the easiest and fastest way to trade bitcoin. Many regard the user experience as rather favourable and convenient on this exchange.
Gemini, on par with Coinbase, is a well-recommended coin exchange as well. Beginning their operations in 2015, this coin exchange, on a regular basis, has some of the biggest daily bitcoin trading volumes in comparison to other exchanges. Unfortunately, Gemini is not mobile friendly, so you will have to rely on desktops to trade on the platform.
These wallets are installed on devices like laptops and PCs. The source of the device from which they are downloaded from limits their accessibility. Although desktop wallets enforce high levels of protection, there is a huge possibility of losing funds if the desktop it is stored in gets hacked. Bitcoin core, Exodus and Electrum are some of those wallets.
Source: Crypto Economy
Being a full node Wallet, Bitcoin Core requires you to download the entire blockchain to your PC. Downloading the 100GB+ blockchain might seem tedious at first glance, but the wallet is much more secure. All Bitcoin transactions that take place are stored in the downloads of the Core software. Hence, tracking specific bitcoin payment addresses that are connected to your account will be difficult.
Source: Bitcoin Isle
Exodus is a multi-currency type hot wallet that can hold various coins. The beautiful interface and the convenience that users find with Exodus makes it a very popular choice among novice investors and cryptocurrency enthusiasts alike. One of the main drawbacks involving Exodus is that the underlying code that runs the software is not open source. Additionally, being a hot wallet, it might not be as secure as other wallets.
Electrum is an efficient and secure desktop wallet that is open source. It connects to other servers to process payments and verify transactions. The chances of malicious software running are very low because it’s code is constantly regulated in the community. Electrum enables users to replace new fees when the transaction fees increase in the network. Given the simplistic nature of the platform, users take mere minutes to set it up on their desktops.
These wallets are downloaded from smartphone apps and can operate at any location. Mobile wallets are easy to use and convenient to spend funds on daily goods. Copay, Jaxx, and mycelium are some examples of these wallets.
Copay is a multi-signature wallet that was created by Bitpay. This wallet is user-friendly for users to access on desktop, mobile or online platforms. Novices will enjoy the convenience of accessing the wallet while more experienced cryptocurrency enthusiasts will be impressed by the additional perky features. Although the wallet provides privacy and security, it can be unresponsive and fairly slow at times.
Jaxx is a feature-rich multi-currency bitcoin wallet that serves a wide range of cryptocurrencies, including Litecoin, DASH, Ethereum, Ether Classic, and more. The wallet offers wallet conversion between Ether, DAO and bitcoin tokens through the Shapeshift platform. The constant addition of new currencies makes Jaxx a wonderful wallet for users who need multi-currency signatures. The only disadvantage with Jaxx is that it is not open source.
Source: Bitcoin News
Mycelium is a free app that was designed with advanced users in mind. Enterprise-grade level security and cold storage features in his app enable users full control over their bitcoin. Although it has features like PDF encryption backups and QR-code scanners, mycelium is a hot wallet that will confuse novice users as it’s interface takes time to get used to.
Hardware Wallets store the private keys of the user on hardware devices like memory drives and USB memory sticks. These Wallets provide enhanced protection in comparison to software wallets as they are stored offline. Hardware wallets support various currencies and can be used with different web interfaces to enable the transaction of coins. Some hardware wallets include Trezor and Nano Ledger S.
Source: Bitcoin News
Suitable for storing enormous amounts of bitcoins, Trezor is the first ever secure hardware wallet that was created by SatoshiLabs. Small devices like Trezor sign offline transactions and store the private keys of the user. You can even use this with Mycelium as well as the Trevor app. The only drawback is that it has a price tag of 99 USD, and you will need the device at all times to send and receive bitcoins. Additionally, the active Trezor community is always involved in the technical improvements of the wallet.
Source: The Ubiq Report
Nano ledger S is a multi-signature wallet that utilizes a secondary layer of security. This reduces the attack vectors present in the system, meaning that it prevents hackers from successfully gaining access to the network or computer. With a price of nearly 65 USD, it is cheaper than Trezor and useful to users who want to install third-party apps on their device.
Paper wallets are known as cold wallets, as they can store cryptocurrencies offline for long-term use. Providing sky-high levels of security, these wallets come in the form of hard-copy printouts. These physical copies include QR codes that contain the public or private keys that are associated with the account. You can transfer funds from paper wallets to software wallets by ‘sweeping’. Sweeping refers to importing private keys by scanning the QR code on the printout. Examples of paper wallets would be WalletGenerator.net and bitaddress.org.
Users normally create a Bitcoin address with public and private keys. All of this is done offline to prevent hackers from infiltrating the information. Once users send bitcoin to the address, they can print the address offline. The paper would normally contain a QR code in which the private keys are stored in.
Are cryptocurrency wallets secure?
All wallets have varying levels of security. Desktop and mobile wallets are the most vulnerable types as the nature of their wallets require them to be kept on an online server. Hence, hackers can easily exploit weaknesses and hack the servers, regardless of the security protocols in place. Offline wallets, on the other hand, are much harder to hack into since they are not connected to an online network. Regardless of which wallet is used, misplacing your private keys would result in the loss of your money. Thus, security precautions have to be taken to ensure nothing of the sort ever happens.
So which wallet should I use?
It is advisable to create a hot wallet and a cold wallet. The hot wallet can be used for daily purchases of goods, and the cold wallet could be utilized for long-term storage of cryptocurrencies.
The wallet that you choose, however, depends on your preferences, and what type of cryptocurrency investor you are. Are you a casual cryptocurrency investor, dipping your toes into the market with small investments? If so, a hot online or mobile wallet would be useful as they are relatively easy to use. Or are you a cryptocurrency enthusiast who purchases daily goods with Ethereum? Then you should find solace in desktop, hardware or mobile wallets. Convenience would be an important factor to consider. Maybe you’re a serious investor, planning to hoard a thousand Bitcoins till the price skyrockets. In that case, Security should be the key consideration in deciding a wallet to use. It would be in your best interests to get a paper or desktop wallet that is a cold wallet in nature.
Either way, various wallets cater to different needs of the users. In the end, it is really up to you to find a wallet that’s best for you. It is important to have a good understanding of the types of wallets in the cryptocurrency world, so that you can find a wallet that is tailored to your needs.
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