Getting to grips with cryptocurrency wallets.
Over the last 18 months, cryptocurrency has gone from being an obscure technology found on the dark web, to one of the most exciting and disruptive digital technologies that the world has ever seen.
Getting a cryptocurrency wallet is the first step in starting your crypto journey but for newbies, the terminology can be a little confusing. What exactly is a cryptocurrency wallet? What different types are there? Why do I need one? In this article, we will take a look at the most common types of wallet and what they are used for so you can decide which one best suits your needs and requirements.
Hot wallet/ cold wallet
Firstly, all subcategories of cryptocurrency wallet can be split into one of two types- a hot wallet or a cold wallet. A hot wallet is one that is connected to the internet and it is the less secure of the two due to the fact it is vulnerable to hackers, malware, and other internet-related security risks. A cold wallet is a wallet which stores your currency offline and offers a higher level of security that its online compatriot. Most cryptocurrency users will opt for both a hot wallet and a cold wallet- the hot wallet for small day-to-day transactions, and a cold wallet for long-term holding of their coin portfolio.
There are currently almost 2000 different cryptocurrencies in circulation and as a result, the need for multi-currency wallets is increasing. Whilst some wallets are only compatible with one currency such as Bitcoin or Ethereum, multi-currency wallets can hold entire diverse portfolios in one, easy to access place. Some wallets also allow you to convert one cryptocurrency into another so you can store it within one wallet that supports one currency.
Online Wallet/Web Wallet
A web wallet is a cryptocurrency wallet that is typically accessed via your internet browser. These are available as specific websites or as integrated services in an online exchange but users should be careful not to keep too much currency in an online or web wallet. The reason for this is that as they are online and connected to the internet at all times, they are susceptible to hackers, and as such, they should be avoided and only used to transfer your currency into a more secure option. Whilst they provide the fastest way to complete transactions and can often manage multiple currencies at once, they should not be used for long-term storage.
A mobile wallet takes the form of a downloadable application that resides on your mobile phone. It provides the user with access to their funds wherever they are, as long as they have access to their mobile phone device. Whilst they are one of the most practical and easy to use wallet types, the fact that they are on a mobile phone (not a particularly secure device) means that your stash becomes vulnerable should your phone become compromised, hacked, stolen or lost.
This type of wallet is considered as a step up from web and mobile wallets as it does offer more security- as long as you use it properly. It can be used in two ways, on an active laptop which will provide some, but not a great level of security, or on an offline laptop which will provide a much more enhanced level of security for your coins. There are several ways you can choose to use a desktop wallet; firstly you could download the application onto a pendrive and install it on a “never been kissed” laptop (one that has never been connected and is not connected to the internet) for a super-secure offline storage method. The second option is to ensure that you have cutting-edge anti-spyware, virus, and malware protection on your computer and ensure you adhere to all security best-practices when you use the software on your computer.
Whilst they may not be the most user-friendly wallet when compared to web and desktop wallets, they are extremely secure as well as being more convenient as well. Similar to a USB stick, they can fit in the palm of your hand and often feature a LED screen and buttons so that you don’t need to use the computer to input your passcode, or private keys. These are by far one of the best ways to long-term storage of large amounts of cryptocurrency for those that still want to be able to gain access to their coins at short notice.
Before hardware wallets became popular, paper wallets were the defacto method for the cold storage of cryptocurrencies. Whilst they are completely immune to hackers due to the fact that they are made out of paper, they require a huge amount of effort to move cryptocurrencies around and they also command a higher level of technological understanding. It is not as simple as printing off some numbers or a QR code- ensuring you know how to create, and properly store your paper wallet is the key to its success. For those that are not well versed in the world of cryptocurrency, we would advise steering clear of this cumbersome method.