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The cryptocurrency phenomenon is one that has been growing substantially in the past few years. This has been brewing for a while now, but the popularity of these decentralized coins has exploded in recent times.
What are crypto wallets?
A crypto wallet stores the private keys to your cryptocurrencies, allowing you to access and manage them at any given moment. those wallets are necessary in order to make any kind of transaction – buy, sell, send and receive.
Similar to a real wallet, it allows you to store your money, but in this case, that money is virtual and you never have it in a physical location; These wallets aren’t physical, and they can be software. device or an app.
Given that crypto wallets don’t store any physical currency, the use of blockchain technology makes all transactions faster and easier, but most importantly, they are very safe and there is no traditional financial entity involved.
How does it work?
As mentioned, unlike the traditional wallets we carry around in our pockets, the crypto wallet does not store any currency in it, but the pubic (compared to a username) and private keys (compared to a password) that had to match each other in order to have to ownership of it.
Everything related to cryptocurrency is stored in the blockchain and it is entirely digital. Meaning that when you transfer crypto from your wallet to another, there’s no physical transaction happening, but is simply a change of wallet address for the coins that are to be “exchanged”, performed by blockchain technology.
Types of crypto wallets explained
The three main types of wallets are Software, Hardware, and Paper wallet.
We are going to explain the basics of what each of these wallets does and their differences:
Software/online wallet (Hot wallet)
The software wallet, also known as a hot wallet, is software that you install on a computer or mobile device. They can only be accessed from the specific device that they are downloaded and installed. This is the type of wallet that is most commonly used by people and it is mostly installed on mobile devices. Some people do use desktops for this purpose, but the mobile era is more present than ever and that is the reason why most people prefer to use their smartphones to install this kind of software.
- The software wallet offers a substantially higher level of security when the user’s computer is properly safeguarded.
- Your wallet is also protected with an extra layer of safety by password-protecting your computer.
- The security of the software wallet depends greatly on the security of the computer that stores the wallet.
- Any computer virus that is meant to retrieve or spy on your activity could make it vulnerable
Hardware wallet (Cold wallet)
The hardware wallet is one that can be even safer because it is stored in a device such as a flash drive. This means that the user is only going to be accessing the wallet when they plug the device into a computer. The wallet is still a software installation, but it is installed on a device that is not permanently connected and vulnerable.
- When using a hardware wallet, the possibility of a compromised wallet is much lower due to it being offline most of the time.
- A hardware wallet allows you to go anywhere without having to carry a computer with you.
- Security may be better, but it is still not optimal as some virus threats can infect USB drives when they are plugged into infected computers.
- The device you use to carry your crypto wallet could malfunction and this would be an inconvenience if you relied on that particular device for access to your crypto wallet.
A paper wallet is simply a print on a piece of paper – the keys are printed and they allow access to your cryptocurrency and the QR codes that can be scanned for ease of transaction; This is not a popular type of crypto wallet,
but some crypto owners prefer this one over the digital ones.
The main problem with this wallet is that you can lose the piece of paper and this would compromise your cryptocurrencies if it falls in the wrong hands; also, if you lose it, you will lose access to the currencies you own.
Using this kind of wallet requires to be very careful even when printing it.
Advantages of Using a digital wallet
Given the information provided, it is evident that the advantages of a wallet are the ease of use and the relative safety involved. This is the best and most practical way for people to send and receive cryptocurrencies.
It also allows you to control your private keys and manage them in a very reliable and protected environment.
All you need to remember is that the level of efficiency in terms of security is going to depend on how well you protect your personal computer and the security of the wallet you use.
Disadvantages of using a digital wallet
Just like anything that happens on personal computers, there is always the possibility of a virus infecting your computer and compromising the safety of your crypto wallet. Hackers are always trying to come up with new and sneaky ways to plant viruses on computers and this is why you need to be extra careful with your computer and with the way you handle online activities in general.
How to keep your crypto wallet safe?
When it comes to wallets, the main treat 99% of the time is a virus on the computer that hosts the software. This means that your main goal is always going to be to ensure that the software is installed on a computer or mobile device that is protected.
Tips that will help you to make sure your crypto wallet is safe:
- Never open any emails from unknown sources
- Always keep a firewall and antivirus active when browsing the internet
- Avoid clicking on executable files from sources you don’t trust
- Be aware that even images, text documents, and video files can contain a virus
- Even a website URL can infect your computer by simply visiting the infected site
- Use online file and URL virus scanners to identify potential dangers if you have any doubts
With that said, it’s also important to ensure that you change your passwords regularly and that you maintain several wallets to avoid putting all of your eggs in one basket. Browsing the web is always a dangerous activity if you don’t follow the most basic rules to avoid viral threats, but fortunately, these issues can be avoided.
Popular cryptocurrency wallets
There are many different types of cryptocurrency wallets available. They all have their own features and they tend to have various degrees of complexity. We are going to list some of the most popular wallets available and this is going to give you some details that will help you decide which wallet to use.
Coinbase Wallet: This one is ideal for beginners who want to get started with cryptocurrency and don’t want to complicate themselves too much. It has a simple interface with very straightforward functions.
Trezor Model T: If you want the best security available, this is the wallet that most professionals would recommend. It has a very robust security system and it offers all the features you need.
Mycelium: if you are the type of person who prefers mobile solutions, this is the crypto wallet for you. This wallet has been optimized for maximum performance on mobile devices. It is ideal for people on the go who want to have a reliable wallet.
Exodus: if you are looking for a great desktop wallet, this one is known for being ideal for people who use desktop computers at home or laptops.
Ledger Nano X: If you seek balance on both security and accessibility, you will find both of them with this wallet. It is known for being very user-friendly, but also for the robust security it offers.
Other wallets include:
- Green Address
- Defi Wallet
The value of using crypto wallets is undeniable and they make buying, selling, and trading cryptocurrencies very easy. It is always important to learn as much as you can on your own about this topic, but we have covered the basics to help you gain some insight on how to use wallets and the level of security that they provide.