In order to increase the security level of your funds, you can use wallets. They have a higher level of protection in comparison with the exchanges. In this article, you will get to know about the advantages and disadvantages of wallets, get acquainted with their varieties and the most popular examples.
What is a cryptocurrency wallet?
A digital wallet is a place to store your public and private keys. It consists of a private key and a public key (in our previous article you can learn more about what private and public keys are).
Hot and cold wallets
Cold wallets are a way to store funds offline. These include any tools that are not tied to the network. Cold storage eliminates the interaction of the wallet and the online network, which significantly reduces the likelihood of theft.
- Higher security;
- The possibility of offline storage.
- Poorly adapted for regular payments
- May be lost with the carrier;
- Require backup.
Hot wallets are programs designed to store digital coins with a constant Internet connection which allows you to send cryptocurrencies anywhere.
- Great for regular and micropayments;
- Convenient and easy to use;
- Do not require physical media.
- Can be hacked;
- Always connected to the Internet;
- If you uninstall the program, you may lose access to your wallet forever.
Types of wallets
There are five types of digital storage that you can use.
1. Online Wallet
This is a service owned by a third party. Depending on the wallet device, the keys are stored on a remote server or downloaded as an encrypted file to the user’s computer. They allow not only to open several wallets for different cryptocurrencies but also to carry out convertible operations, trade on exchanges, calculate commissions with the help of built-in calculators, etc.
- Quick registration;
- Anonymity. Verification is not necessary;
- Ability to work with multiple cryptocurrencies.
- Risks inherent in cryptocurrency exchanges. There is a possibility of a wallet to be hacked;
- Additional expenditure.
There are no reliable ways to protect funds on such platforms. Therefore, recommendations for the protection of funds are reduced to the diversification of risks, that is, working simultaneously with several wallets.
Examples of popular online wallets:
HolyTransaction. The multi-currency wallet, founded in 2014, supports more than 10 of the most popular cryptocurrencies. It has an intuitive interface, Commission in comparison with other wallets.
Coinbase. The wallet, created in 2012, supports bitcoin and ether.
Cryprtonator. The most popular multi-currency wallet in the CIS.
2. Mobile Wallet
This is a program to install on mobile gadgets. Interesting for those for whom cryptocurrency is a means of payment for goods and services. The current version of the blockchain is usually stored on the application server that provides access to updated data and does not require a large download of data to the phone.
- It can be safer than online wallets;
- Conveniently use on the go;
- Offer additional features such as QR code scanning.
- Unfortunately, mobile wallets are not the most secure. Therefore, they are hardly suitable for storing large amounts of funds.
Examples of popular mobile wallets:
Coinomi. One of the best wallets for Android that supports more than 50 cryptocurrencies. Its advantage is the ability to enter seed-phrase, which allows you to recover wallet data.
Xapo. Wallet from California company that supports Bitcoin. Access to the funds in the wallet is insured, it is possible to issue a debit card, you need to bind a mobile number.
3. Hardware wallet
This is a separate removable device like a flash drive. This method of storing keys is not very popular yet, because it is suitable only for long-term storage (it is inconvenient to trade with it). But it does not overload the computer.
- Private keys are never exposed to your computer. The hardware is immune to computer viruses.
- Your hardware requires you to confirm a transaction on your device (not the app on your computer) before any coins can be spent.
- The only downside to hardware wallets is that they cost money. However, it might be worthwhile to consider investing in a hardware wallet because they are more secure, especially if you hold a significant amount of coins.
Examples of popular hardware wallets:
4. Desktop wallet
These are the programs that you install on your computer.
- Desktop wallets store keys on your hard drive, which is considered as one of the most reliable options among the offline wallets. It is a program installed on your computer with which you can access data about your cryptocurrency account.
- Their disadvantage is the need for constant updating, which takes plenty of memory. That’s why desktop programs are divided into “thick” and “thin”. “Thick” (“heavy”) wallets are those that download the whole blockchain on your computer and keep it updated. “Thin” (“light”) wallets download the necessary information from third-party services. Despite the fact that the file with the key remains on the computer, there is a risk that the data from the services will not be downloaded the ones that are needed.
Examples of popular mobile wallets:
Exodus. Has an integrated exchange platform ShareShift supports 7 cryptocurrencies.
Bitcoin Core. One of the best wallets for bitcoin, working with all operating systems.
Armory. In addition to Bitcoin Core, which allows you to increase the level of storage security.
5. Paper wallet
A unique option for storing keys, which is a printout of a picture with a QR-code containing a public address and a private key. Long-term storage option for those who do not trust electronics.
Each wallet has its advantages and disadvantages. Which option to choose depends on the goals.