Cryptocurrencies are more popular than ever, thanks to the increase in mainstream media attention, active social communities, and continuous developments by different crypto projects. If you’re an outsider looking in, you might feel excited to convert your cash into digital tokens. But before doing so, it’s best to equip yourself with the right information on how you can store, send, and receive coins using cryptocurrency wallets.
You can think of cryptocurrency wallets as similar to physical wallets which you use to stash your cash and carry them around. Of course, crypto wallets are used to store digital coins instead of fiat money. Technically speaking, these wallets don’t really store cryptocurrencies. Instead, they refer to any device, software, or web-based application that safely stores private keys which, in turn, provide access to cryptocurrency.
Most wallets back in the day only specialized in storing Bitcoin, thus the term Bitcoin wallets. Ethereum wallets were also popular, used to store Ethereum and other tokens based on this platform. But since most investors hold multiple cryptocurrencies, multiple currency wallets or altcoin wallets increased in popularity.
Picking a wallet doesn’t only boil down to which coins you want to hold. Wallets fall under two broad categories: hot wallets and cold wallets. Learn about the differences between the two so you can better decide what to go for.
Hot wallets refer to any cryptocurrency wallet stored online. It’s called hot because it’s always connected to the internet. Online wallets, in general, are less secure compared to offline wallets. Just like getting your Facebook or email account hacked, it’s possible for fraudsters to hack your local computer to access your hot wallet.
If hot wallets aren’t secure, why do they still exist? The simple answer is because they offer the quickest way to send and receive cryptocurrencies. Many users rely on these wallets for fast transactions.
Web wallets are often used to refer to either crypto exchanges or online wallet platforms.
Crypto exchanges are websites in which you can buy and trade digital coins. They’re great if you plan on trading on a regular basis, but it’s unwise to keep all your coins in an exchange. There have been numerous instances in which exchanges got hacked, leaving users regretting their decision of using exchanges as a long-term storage option.
Online wallet platforms, on the other hand, give users the ability to make online transactions without the need for a private key. They’re more secure than exchanges, but it’s still not recommended to keep you’re a substantial amount of coins in these online wallets.
As its name suggests, this type of wallet can only be accessed using a mobile device. It’s an excellent way to always stay on top of your cryptocurrency balances. Mobile wallets are also the most convenient option for sending and receiving digital tokens on the go.
But since they’re connected to your mobile device, mobile wallets are susceptible to hacking and theft. You can use biometric login and two-factor authentication to boost the security of mobile wallets.
Desktop wallets can only be used on a single computer. Internet connectivity is still required to send and receive coins, but these wallets are considered the most secure out of all types of hot wallets. The reason is that your wallet resides in software, not online. You only need to connect to the web when performing transactions. Still, there’s the risk of getting hacked because most computers are always connected to the internet, so be sure to use strong passwords and install virus and malware protection software.
Cold wallets are stored offline, making them much safer than hot wallets. They can be stored in a hardware device, a piece of paper, or your brain. While hot wallets prove more convenient, cold wallets are unmatched in terms of security. They’re the best option for storing cryptocurrencies for long periods.
Hardware wallets came into prominence soon after the rise in popularity of cryptocurrencies. They’re specifically designed to store cryptocurrencies. Typically, a password or phrase is required to access the wallet. You have to connect the device online to perform transactions.
Paper wallets serve the same functions as hardware wallets, but without the technological advancements. Essentially, you’re keeping public and private key information on a piece of paper. This leaves no trails online to ensure utmost security. Just be sure to keep the paper in a secure location.
As noted earlier, wallets don’t actually store cryptocurrencies. They only store the public and private key information necessary to access the coins. This means you can memorize the passphrase if you don’t feel confident in using hardware wallets or paper wallets. It’s an extreme measure, but many investors have taken this route.
Nearly all cryptocurrencies use public key cryptography, the same technology implemented in secure email systems. Two keys are in action here, a public key and a private key. Basically, the private key should match with a public key so you can perform your transaction. These keys are stored in cryptocurrency wallets.
The private key can be used by anyone with the public key for transaction verification even if they don’t have access to the private key itself. It functions as proof that the user is the owner of the account. For this reason, it must be kept secret even to your closest friends and family.
The public key is the unique identifier of your crypto wallet. This is the key you can share with the public. It is used to record all transactions on the public blockchain.
This is the unique identifier which you can give out to people so they can send you digital coins. It’s a good idea to use a new address for every transaction to increase security and privacy.
There are tons of crypto wallet brands, making it confusing to pick which one to go for. The following are our top picks for each type of crypto wallet so you can narrow down your options quickly:
Now that you know pretty much all there is about digital currency wallets, it’s time to make a decision: which wallet should you choose? What you must keep in mind is that you should use different wallets for different applications. Using only one wallet for a variety of purposes only increases the risk of losing your coins.
Spending Coins – For fast transactions, mobile wallets are the way to go. They have all the features and functions that enable you to spend your coins with minimal fuss. Make sure to keep the right amount of coins for your transactions.
Trading Coins – If you’re a fan of crypto trading, then you should use web wallets that are connected to online crypto exchanges. This allows you to trade your coins into other digital assets or fiat currencies.
Storing Coins – Many crypto investors are in it for the long haul. If you fall into this category, then be sure to invest in a hardware wallet. You must keep your coins as far as possible from internet connectivity, especially if you’re already holding a considerable sum.
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