The buzz surrounding cryptocurrency is hard to ignore. For a few years now, the talk about digital and virtual currencies has continued to increase. There is so much vocabulary and terms related to cryptocurrency that you need to know about if you may find yourself wanting in on the seemingly lucrative investment.
One of these terms is crypto wallets. Unlike fiat money (definition) that you either carry as coins, notes, or through debit and credit cards, cryptocurrency has no physical form. You can’t walk into your local bank either and get cryptocurrency. Cryptocurrency is found in the crypto market, and you need a crypto wallet to enable you to acquire the currency or execute transactions.
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What is a Cryptocurrency Wallet?
As previously mentioned, there is no physical form of cryptocurrencies as they only exist in digital formats. Therefore, you can only hold proof of your currency and not the currency itself. The place where you store the currency is a crypto wallet. It stores the private and public keys that you need to transact with cryptocurrencies.
Crypto wallet provides a digital signature for each transaction showing proof of transfer of the cryptocurrencies to you when you buy or to others when you sell. The wallets come in various physical and digital forms, such as apps, programs, or websites.
Types of Crypto Wallets
Cryptocurrency wallets come in two categories; cold and hot storage wallets. They all have their benefits and drawbacks in terms of ease of use and security. However, the biggest threat to the security of your crypto wallet is yourself. Ensure to secure your keys and gadget passwords that allow access to your wallet.
Cold storage wallets
Cold wallets are offline means of storing your cryptocurrency. The two types of cold storage are hardware wallets and paper wallets. A hardware wallet is a small encrypted, and portable device used to download and store proof of your cryptocurrencies. A good example is the hardware wallet Ethereum. They are considered more secure because there is no risk of online threats.
Paper wallets involve printing and storing QR codes that represent your private and public keys. They’re also considered more secure since their security is in your control and are among the best wallets. However, they’re unsuitable for you if you’re trading daily. It will be too much hassle managing them. But if you’re storing your coins for the long term without utilizing them, they make the best wallets.
Hot storage wallets
There are three types of hot crypto wallets, according to Investopedia; desktop, web, and mobile wallets. The reason they’re classified as hot is that they’re used in an online environment.
- Desktop wallets: These are wallets that you install on your PC or desktop. They’re regarded as secure when proper security practices are in practice. But also vulnerable to online threats such as computer viruses, malware, and hacking.
- Mobile wallets: These are similar to desktop wallets, only they’re developed for mobile devices. They’re also more convenient since you can take your device anywhere with you and transact. They make the best bitcoin wallet for on-the-go traders.
- Web wallets: These are also another type of online wallet. They include website wallets, exchange wallets, browser plugins, among others. They’re considered the least secure among the hot storage wallets.
When choosing a crypto wallet, your pick should be influenced by the amount, frequency of trade, and overall wallet security. Ensure always to keep your keys secure and devices logged out of your wallets at all times. It’s always recommended to talk to someone who has more knowledge on cryptocurrencies before you start investing.