There is no fool-proof way to shield your digital assets from cyberattacks, but there are ways to tighten the security of your assets and minimize risks. One of them is securing a cryptocurrency wallet, which is representative of your physical wallet but it is more secure and it holds your digital assets.
It’s like a traditional wallet that stores your credit cards and ATMs so you can access your money any time and anywhere. But instead of physical cards, a crypto wallet holds private and public keys that enable you to carry out transactions such as sending and receiving crypto.
What are private and public keys?
A private key is a secret code comprising randomly generated numbers. It holds the access to your crypto on the blockchain and prove ownership of your virtual tokens. No one should know your private key but yourself, like how you store your ATM pin or email passwords.
On the other hand, a public key works like your bank account number. It is a cryptographic code composed of randomly selected numbers that you and other parties use to send crypto in your account.
Now that you know why it is crucial to add a crypto wallet to your digital arsenal, let us examine its various types.
What are the two main types of crypto wallets?
In general, there are two types of wallets in the cryptoverse: hot wallets and cold wallets.
What are Hot Wallets?
A hot wallet is connected to the internet and the rest of the crypto network. Among its functions are sending and receiving cryptos, as well as displaying how many tokens are available at your disposal.
On the user end, a hot wallet is an interface where a user accesses and stores their crypto. For the network, it is responsible for updating the record on the blockchain ledger as new transactions come in. Most software or web wallets fall under this type because they need to be connected to the internet to function.
One advantage of hot wallets is the ease of use. Because they are connected to the internet and are online by default, hot wallets are great for immediate transactions like trading or spending without the hassle of transitioning from offline to online. This all-digital nature, however, makes hot wallets vulnerable to attacks. That is why it is discouraged to put large amounts of crypto in a single hot wallet to minimize your risks.
What are Cold Wallets?
Also called cold storage or hardware wallets, cold wallets refer to a physical device that keeps your crypto keys. They usually look and function like a flash drive: you connect it to a computer or other device via a USB drive and access its data from there. Cold wallets work offline, making them more secure than software or web wallets.
They are also recommended if you plan to park your crypto for a long period. But there are trade-offs, too. If you want to make a transaction and are on the road, you must find a device and connect the flash drive first before you can access your keys. There is also a risk of losing all your investments if you misplace your hardware wallet since it offers no backup storage.
It is extremely more difficult to hack a cold wallet than its hot counterpart, but it is still a possibility. Hence, it is important to purchase your cold wallet from authorized manufacturers only. A cold wallet also tends to be more expensive than a hot wallet, with prices going as much as $200.
Other types of cryptocurrency wallets
Web Wallets
As the name implies, web wallets work via a web browser. That means you do not have to install any software to access their features; all you need are a device with a web browser and your password.
Web wallets typically share the key to the website, giving you less control of your crypto. In these cases, it is recommended to find websites that support multisignature wallets, which give two or more keys (one for you and the other for the website). This lends you more control of your holdings while adding another layer of protection.
Desktop Wallets
Like web-based storage, desktop wallets fall under hot wallets. It requires you to download an app that will generate a file that holds your key. You can back up this data file in case you need to access your keys remotely or your computer gets corrupted.
Desktop wallets lets you create your own password, making you the only one who has access to the keys and adding another layer of security. But since you are running the app on your desktop, you have to ensure that your computer has no viruses that could put your holdings at risk.
Mobile Wallets
Mobile wallets are also app-based but for your smartphone. They often support QR codes or NFC to make quick payments in regular shops. They are user-friendly and one of the most flexible hot wallets to use. However, malware often targets mobile wallets so make sure that your phone is virus-free to avoid compromising your holdings.
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