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Cryptocurrencies Wallet Types?
Cryptocurrencies wallets are often categorised into hot and cold wallets. The major difference between cold and hot wallets is that hot wallet is connected to the internet. On the other hand, cold wallet refers to a wallet without an internet connection.
Hot Wallets
Since the hot wallets are connected to the internet, there is a higher chance of them to get compromised or hacked by hackers if multi security layers and precautions are not implemented by the user.
Hot wallets are categorised into exchange wallets, desktop and mobile based wallets.
Exchange Wallets (Online Wallets)
Exchange wallets also known as cloud based or online wallets are those offered by exchanges. Technically, any website that stores your crypto assets in the cloud can be viewed as an online wallet. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking attacks and theft. Most of the exchange services offer online wallets to their clients to keep their crypto asset.
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These wallets are the easiest to use among all. In order to get one, all you have to do is to set up an account, which is free with any exchange services. Once it is created and approved, it can be accessed by any device or server in the world as long as there is connection to the internet and the credentials are correct. These wallets are usually available on every platform, which makes them more flexible when it comes to using exchanging and trading cryptos.
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However, It’s important to take extra security precautions when using this type of wallet, and turning on two-factor authentication and implementing multi security layers is recommended by all online wallet providers.
It is also important to note that, because your funds are stored and protected by a specific exchange, once the security of the exchange is compromised you could also lose all your crypto asset stored in their wallet. Although, many exchanges claim that they keep portion of their client’s crypto asset in cold wallet and have high multi security implemented, it is recommended not to store a large amount of crypto in them and store the bare minimum that you need for exchange/trade purposes.
Below are the list of some of the well-known exchanges that offer online wallets to their clients.
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You can store dozens of cryptocurrencies in the online wallets offered by these exchanges and simultaneously trade, exchange and use your crypto asset.
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Dekstop/Mobile Wallets
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Desktop or mobile wallets are popular choices for a hot wallet. Desktop wallets are installed on a desktop computer and can be only accessible from that one device where it was downloaded. While it can be considered as a safer alternative than an online wallet, it can be quite inconvenient since you can only access the fund with the same device you downloaded the wallet.
Mobile wallets are a more convenient option to use because all you need to do is to download an app into your phone. Then you can use the app to access the fund on your phone for sending, receiving, spending and storing your crypto asset.
However, the real risk associated with the desktop/mobile wallets are when your device get lost or destroyed. In such a situation you can easily lose your cryptos permanently. Besides that, these devices could also be exposed to virus attacks that allow hackers to access your details.
Below is the list of some of the well-known desktop/mobile wallets.
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Bitpay is an app based crypto wallet that offers great flexibility for everyday spending of cryptocurrency. It is a great option for those who use crypto to pay for goods and services. It also leverages multi sig security for the higher safety of the funds stored in the wallet. They also offer Bitpay visa card for the payment of goods and services by card and the exchange of crypto to US dollars instantly.
Features:
Turn crypto into dollars & spend
Leverage enhanced security
Manage funds on any device
2. ​Abra (Mobile App)
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Abra is an app based crypto wallet that offers great flexibility for those who also exchange and trade cryptocurrencies. The Abra mobile crypto wallet is user-friendly and easy to use. You can purchase cryptocurrencies via bank transfer (No Fee) or debit/credit cards (5% Fee) directly from your Abra wallet. Abra allows users to invest in 30 cryptocurrencies and 50 fiat currencies, all from one app. Users can easily monitor the value of their portfolio by choosing a fiat currency as a base. In addition, users can keep and exchange Exchange between any cryptocurrencies and fiat instantly. The wallet supports up to 30 different cryptocurrencies. Abra wallet is based on a non-custodial wallet model, which enables users to be in control of their money at all times that eliminates the need to trust a centralised third-party.
Features:
Easy to use & Fast
Non Custodial Wallet Model
Exchange between any crypto and fiat
Purchase Crypto Directly From The Wallet
Cold Wallets
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Hardware wallets
As mentioned cold wallets are those that are not connected to the internet and because of that they are by far the safest option to store crypto asset. However, they are considered inconvenient for those who actively trade, exchange, and spend their crypto asset.
One of the well-known type of cold wallets are hardware devices that store a user’s private keys in a device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security. They are compatible with several web interfaces and usually support more than one specific cryptocurrency. In order to conduct a transaction using hardware wallets one has to connect the wallet into a computer or a device with internet, via the USB port and enter the required credentials.
Hardware wallets come in a number of different forms, so it is important that adequate research is carried out before choosing one. They are great for storing large amounts of cryptocurrency, so long as you do not want to move it around often. There are mainly two well-known brands when it comes to hardware wallets that are very popular among crypto owners. These are Trezor and Ledger also known as ledger Nano.
1. Ledger
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The Ledger offers mainly three types of hardware wallets. Ledger Nano S, X and Ledger Blue. All three represents a Bitcoin, Ethereum, and altcoin hardware wallet consisting of robust security features, which can be used for both storing digital assets and making payments. The cheapest is the Ledger Nano X, and the most expensive which comes with a touch screen display is Ledger Blue. All three wallets support more than thousands of different cryptocurrencies. Some of the distinguishing features associated with these hardware wallets include ease of use, the ability to quickly make payments, high level of security, and more.
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2. ​Trezor
Trezor was the first Bitcoin hardware wallet, offering secure cold storage plus the ability to spend with the convenience of a hot wallet. The Trezor wallet is a small, key-sized device which connects to your computer with a separate USB cable. Just like the Ledger, Trezor also support Bitcoin and thousands of other cryptocurrencies. It stores the private keys offline and It can be safely used on a malware infected computer. Trezor wallets provide top-notch security for cryptos stored in them, by protecting them against both physical and virtual theft. It is a HD wallet where the user can control the private keys, and the entire wallet can be backed up with the 24 words generated on setup. Currently Trezor offers two types of wallet, Trezor one and Trezor model T. Both the Model T and the Trezor One connect via a USB cable to the computer. The Model T offers more features than the Trezor One, as it provides a touchscreen interface, as well as a microSD slot.
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Paper Wallets
Another type of cold wallets are paper wallets. They are a form of storage where the private key to a particular Bitcoin address is printed out on a piece of paper. In this method, it is almost impossible for a hacker to steal the crypto asset through an Internet connection. However, this option is very inconvenient for those who spend, trade and exchange cryptos regularly. The paper wallets are usually practical for long-term investors who prefer to store their crypto asset in a safe place for a long term because the private key from the piece of paper must be transferred to an online wallet before those funds can be used.
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Which type of crypto wallet should we use?
There's no simple answer to this question. Every cryptocurrency user needs to evaluate their requirements. If you are a long term investor and are going to only hold your crypto asset, then cold storage is suitable option. If you are a trader, or you want to spend and exchange your cryptos regularly you should defiantly consider hot wallets as they offer better flexibility and a high level convenience. If you are going to do a bit of both, you could also utilise both hot and cold wallets to reduce the risk exposure. Also one has to note, storing crypto in a hot wallet doesn’t necessarily mean it’s unsafe, it just means your funds are more at risk to hacking.