Cryptocurrencies, just like the fiat currency, are needed to be stored and secured. And just like the physical wallets, the cryptocurrencies also are kept in the wallets and generally, referred as Crypto wallets. In Crypto wallets, it is not the real coins that are stored inside, rather digital codes or two types of keys i.e. Private and Public key. Public key is visible to everyone and is used by others to send money. On the contrary, private key is used only by the owner of the wallet to perform send transactions. Losing the Private Key can result in loss of the currencies, since you lose whole control over your wallet and this is the reason it is recommended that at least two different techniques should be used for saving and storing of the private keys.
Cryptocurrency wallet is a digital wallet that is used to send, receive and store various cryptocurrencies safely and in secure manner. The process of getting a crypto wallet can be quite confusing when it comes to choosing the safe cryptocurrency wallets since making a wrong decision can cost you dearly. Some basic features that should be noted and followed before opting for a wallet are:
- Good Reputation: It is necessary to make sure that the wallet you are using has good reviews and reputation. The status of any wallet including the pro and cons can be known by checking out the features and feedbacks.
- Software solutions: It is always recommended to avoid using certain software solutions that carry the malwares under the disguise of wallets. Wallets with such software solutions are always prone to be attacked and infiltrated. The best way to choose safe wallet is sticking to reputed providers.
- Best Practice: Apart from the above considerations, the principle of sticking to the best practices helps in keeping the crypto wallets safe. It is a wise practice to keep a backup of your private keys using a storing device. It is also recommended to add an extra layer of security, for example, one can use Google authentication etc.
Types of Wallets
There are several types of wallets and choosing one depends on the requirement of the user and also on their purpose. Crypto wallets differ from the features point of view and can be selected on the basis of their pros and cons. It is essential to understand the difference between the cold wallets and hot wallets.
Hot wallets: Hot wallets are like the cash in your pocket and it is accessible through a web portal or mobile app. It is called Hot because of its ability of greater accessibility and activity. It facilitates an environment where easily the activities like trading and other transaction can be performed. But this feature also poses threat since it makes it more vulnerable to attacks
Cold wallets: Cold wallets are analogous to the saving accounts that are more secure and harder to access. It is less prone to attacks as compared to the hot wallets because it is held offline. It is best suited to the cryptocurrency that is not meant to be used frequently but meant for long-term holding. Although the accessibility in terms of performing transactions is limited but it also reduces the chances of loss of your fund.
Furthermore, different kind of wallets has been categorized and discussed below in detail.
1. Hardware wallets:
Hardware wallets are considered as the most secure form of wallets for storing cryptocurrencies and accessing them is easy but relatively less friendly than a web or desktop wallets. They are in form of a portable device like the USB drive. It acts as wallet that can store various cryptocurrencies and are offline, thus, also considered cold wallets. Trezor, KeepKey and Bitbox are some examples.
2. Software wallets:
These are considered as ‘Hot’ wallet as software wallets are frequently used with the internet. These can be stored on different devices such as a computer, phone etc. and thus provides easy accessibility to tokens. Software wallets are of different types and it can be described as following:
– Desktop wallets: It is one of the most secured options available for keeping the cryptocurrency. It is accessed through the software installed in the devices and the private key is stored locally. Desktop wallets can be used with the system or other device connected to internet and it can also act as a cold storage device if used without internet.
– Mobile wallets: Wallet for the cell phones are very convenient to be used and come with decent security features. Easily a mobile app can be downloaded and quick transactions can be performed using features like QR codes.
– Online web wallets: Online wallets require internet connectivity for operation and used online only. These are also referred as “cloud wallets” as several third-party wallets allow their software to be used through the cloud. Here the major issue is that the private key is generally stored on the centralized server.
– Multi-Signature Wallets: Multi-signature wallets make use of multiple keys to operate. It reduces the chances of attacks to minimal since it is very difficult to get access to more than one private key. Another advantage is during the incidence of loss of a private key, the alternative key may help in getting the backup. The main motive behind deploying multiple keys are:
- Adding an extra layer of security to the wallet and preventing the possible attacks from hackers.
- Creating a wallet that can be used by one or more user.
Paper wallets provides a way to keep the cryptocurrencies completely in undigitized form or in hard copy format. These can be termed as the true cold storage wallets for cryptocurrencies. The process of using these wallets involves printing out the public and private keys (in the form of QR codes to be scanned for performing the future transactions) or the generated paper wallet and then, storing it safely. Here there is no scope for any form of online attack or malware.