CRYPTOCURRENCY WALLETS
OPEN A WALLET
HOW TO OPEN A BITCOIN WALLET?
5 TYPES OF CRYPTOCURRENCY WALLET THAT YOU SHOULD KNOW ABOUT.
If you are considering investing in cryptocurrency, you must know the different types of wallets to keep your crypto secure. In this guide, we will look at the different types of wallets and the ones that are most secure to store your investment.
WHAT IS A CRYPTO WALLET?
A crypto wallet is a tool that allows users to store and retrieve their digital assets. The wallet interacts with the blockchain network. As with conventional currency, you need a bank account to store your cash securely in one place.
When users acquire cryptocurrency, such as bitcoin, ethereum, ripple, etc., they store it in a cryptocurrency wallet to make long or short-term transactions. The users are provided with a unique cryptographic address issued by the wallet to conduct transactions.
Bitcoin is the most widely used cryptocurrency, and it was the first digital asset to have a wallet on the blockchain. However, as the market grew and other coins start emerging on the scene, other wallets were created. There are various crypto wallet types that can be divided into three groups: Hardware, Paper, and Software. Depending on their process system, they may also be referred to as hot or cold wallets.
Cold wallets are offline, meaning it’s off the internet and less prone to be hacked. It’s more secure and is recommended especially if you are planning to invest in cryptocurrency for long-term growth. And hot wallets are connected to the internet and are more vulnerable to attacks. This type of wallet, though, is great for day-to-day crypto transactions.
HARDWARE WALLETS
Hardware wallets are physical, electronic devices that use a random number generator to generate public and private keys to conduct crypto transactions offline. Hardware storage is a type of cold wallet and is deemed as the most secure wallet to store Bitcoin and some popular ERC-20 tokens. The major advantages of a hardware wallet are as follows:
- private keys are often stored in a protected area of a microcontroller and cannot be transferred out of the device in plaintext;
- immune to computer viruses that steal from software wallets;
- can be used securely and interactively, private keys never need to touch potentially vulnerable software; and
- much of the time, the software is open-source, allowing a user to validate the entire operation of the device.
Even though these wallets offer higher security levels against online attacks, they may present risks if the firmware implementation is not done properly. Further, hardware wallets tend to be less user-friendly and not easily accessible to conduct day-to-day transactions.
However, you should use a hardware wallet if you are planning to hold a large number of cryptos for a long time. Currently, most hardware wallets allow you to set up a PIN code to protect your device, as well as a recovery phrase – which can be used in case your wallet is lost.
Below are the three most popular and secure hardware wallets that support multiple coins and over 500+ ERC-20 tokens.
PAPER WALLETS
As the name suggests, paper wallets are a piece of paper on which your bitcoin is stored. It works by printing a private key and a public address on a piece of paper in the form of a QR code, this code can then be scanned to execute bitcoin transactions.
A paper wallet like www.bitaddress.org allows you to download a code to generate new addresses and keys while being offline. This is a cold wallet, which is highly resistant to online attacks. However, the use of paper wallets is now considered dangerous and full of flaws. If you are considering using this option to store your bitcoin, you should understand the risks.
A major disadvantage of this option is that you are unable to send your digital assets partially. If you want to conduct a crypto transaction, it only allows you to send your cryptos entirely. Basically, you have to send the entire balance to a different crypto wallet (software wallet or hardware wallet) to make a partial crypto transaction, which is unsafe if a mistake is made.
Furthermore, you have to send the remaining cryptos to a newly generated paper address, and If you don’t manually set the change address to one that you control, you will likely lose your funds.
Also, not all cryptos come with a paper wallet. Below is an example of a paper wallet.
SOFTWARE WALLETS
This type of storage is called a hot wallet, and it is a software application that sits on your device and gives you security and control of your digital assets. This type of wallet can be divided into three parts. Let us take a look at them.
1. Web Wallets
Web wallets are hot wallets that have access to the blockchain through a browser interface (Google Chrome, Firefox, etc.) without having to download or install anything. This type of wallet is prone to attacks, and some service providers do hold and manage the private keys on your behalf. This type of wallet is convenient for an inexperienced user, it’s a good start, but it’s not a great practice to keep your valued assets.
However, web wallets can be hosted wallets and non-hosted wallets. To have full control of your funds, it’s best to use non-hosted wallets.
Some non-hosted wallets:
Some hosted wallets: