Crypto Wallet – Its Types, Importance and How To Choose One?
A crypto wallet is a software or an offline physical device that secures the private keys for your crypto assets. They store your public and private keys that prove the ownership of your digital assets.
These wallets provide you with an easy-to-access interface for managing your cryptocurrencies. Crypto wallets come in many forms, like paper wallets which store your keys physically and mobile apps, which make using cryptos as easy as using credit/debit cards.
Anyone trading with cryptocurrencies would want a crypto wallet to keep their passwords secured. There are various wallets available in the crypto universe. And each has a slightly different way of functioning as they operate on different principles and philosophies.
Types of Crypto Wallets
When it comes to crypto wallets, you have an array of options to choose from, but there are some basic types of wallets which can be categorised as below:
- Hot wallets: Hot wallets are software-based wallets that can be accessed online. On the positive side, these are easily accessible and convenient to use, but they are also vulnerable to hackers. Hence, it is not recommended to keep a large amount of currency in a hot wallet. Examples of hot wallets include mobile wallets, desktop wallets and web-based wallets.
- Cold wallets: As the name suggests, cold wallets are exactly the opposite of hot wallets. They are offline wallets hence providing better security. These are best suited for storing a large amount of currencies over a long period. Hardware wallets and paper wallets are some examples of hot wallets.
- Desktop wallets: Desktop wallets are another safe way of storing your cryptocurrencies. They are basically software apps available for multiple operating systems. However, desktop wallets become hot wallets when connected to the internet. It then becomes more vulnerable to hackers and malware. Thus, you should at least have anti-virus software installed for basic security.
- Web wallets: These are the least secured wallets among the available types of wallets. Web wallets are accessible through an internet browser and are vulnerable to DDOS threats. These are only good for storing small amounts of cryptos for a short period of time and quick transactions.
- Mobile wallets: Mobile wallets are the same as desktop wallets but are made for smartphones. They use QR codes used for transactions, and encryption is mandatory. These wallets are easy to access and use but are prone to viruses and malware.
- Hardware wallets: A hardware wallet, as the name sounds, is an external device where you save your keys. This can be a USB or a Bluetooth device which you can connect to your PC. For cryptocurrencies, you don’t need frequent access, or a large amount of currency should be stored in a crypto hardware wallet.
- Paper wallets: A paper wallet refers to a piece of paper on which the public and private keys are either written down or printed, as simple as that. This is definitely a secure way of storing your coins, but it should be noted that it can also be fragile. Once lost or damaged, the loss will be irretrievable.
How do Cryptocurrency Wallets Work?
A private key is a set of codes personal to you that gives you exclusive access to your cryptocurrency. A cryptocurrency wallet does not store your cryptos but the private key.
Your crypto is stored on the distributed digital ledger called a blockchain. Whenever you need to make any transaction, you will need to provide the private key, which generates the public key required for transactions. The security and speed of transactions depend on the type of wallet you work with.
Also Read: Best Crypto Exchanges You Need To Know About
Why are Crypto Wallets Important?
Crypto wallets do not hold your currency like a bank account but they secure the keys to cryptocurrencies. A public key is like your bank account number, which can be shared, but a private key is like a PIN or password, which should be stored securely. The loss of your private key will lead to the irreversible loss of your crypto coins.
Wallets provide security and control over your coins. It is advisable to withdraw such an amount to the crypto wallet, which is secured with complex mathematical algorithms. You can use a crypto wallet to send and receive cryptocurrencies while making sure that your private keys stay encrypted.
What are the Differences between the Coinbase App and Coinbase Wallet?
The fundamental difference between the Coinbase app and the Coinbase wallet, as can be derived from the names only, is that the former is a cryptocurrency exchange while the latter is a crypto wallet.
The following table will illustrate their differences more comprehensively:
| Coinbase App | Coinbase Wallet |
| Shows portfolio and performance | Stores keys in a device |
| Supports around 70 cryptos | Supports Bitcoin, Stellar, Dogecoin, Ripple and a few popular cryptos and ERC20 tokens |
| Fees vary on the mode of payments | Has a similar fees structure which varies between 1.49% and 3.9% |
| Two-step verification and biometric login | Biometric authentication is mandatory for access to keys |
| Aggregates the value of the cryptocurrency and stores them in custodial accounts made up of fiat currency, bonds, and market funds. | Digital assets are insured by a vendor insurance policy |
Also Read: What Is The Future Of Cryptocurrency? Is It Dim, Bright Or Just Another Puzzle?
Final Word
There are many options for crypto wallets, as discussed above. The correct option will depend on your preference. For example, if you take part in many crypto transactions, you may want to use hot wallets. In contrast, if you are in the crypto markets for the long term, you may prefer cold wallets.
FAQs
Ans: Multi-signature wallets are more secure wallets which need the user to provide more than one private key to have access to the wallet. This can prove to be very useful when a user loses one key as he/she will not lose access to all his/her crypto investments.
Ans: A hash refers to the result of a hash function on a piece of data. Hash functions refer to algorithms that convert an input value of any size to a fixed-length output.
Ans: The recipient’s address is the address or ID of the cryptocurrency wallet receiving crypto coins.
Ans: Coinbase wallets are much more reliable as it provides a user with the following facilities-
– Biometric verification
– Device storage for keys instead of servers
– Cloud backup for lost assets and keys
Ans: You should keep in mind the following factors while getting a crypto wallet:
– Don’t get yourself a previously set-up wallet.
– Always purchase a wallet from an authorised seller or manufacturer.
– Write your recovery codes on paper rather than taking a picture or saving it to the cloud.
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Disclaimer: Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions.
Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
