Crypto wallets fall under three main categories; software, hardware, and paper wallets.
Depending on their mechanism, a wallet can be “hot” if it connects to the internet or “cold” if it does not. Let’s take a deeper dive into each kind of crypto wallet.
Software Wallets
Web wallets access the blockchain through a browser or app, requiring an internet connection. Some service providers manage private keys upon the creation of a new wallet. This can be very dangerous as anyone with access to a private key has the power to act fraudulently on the wallet holder’s behalf. It is important to check the technical approach to each wallet before making a selection.
Desktop wallets are software that is downloaded to a computer and gives users complete control over private keys and funds. When a new desktop wallet is created, a file containing the private key is saved locally on the computer. Desktop wallets can be encrypted for added security, but, if the file containing the private key is lost or deleted, the user will also lose access to their funds in that particular wallet.
Desktop wallets are more secure than most web versions.
Mobile wallets are similar to desktop wallets, but they are designed specifically for mobile apps. They allow users to manage cryptocurrencies using a QR code. Mobile wallets are great for day-to-day transactions, making them very applicable to real world use cases. Mobile devices can be more vulnerable to malicious behavior, so encrypting these wallets is recommended.
Hardware Wallets
Hardware wallets are physical devices that create public and private keys by using a random number generator. Hardware wallets are cold wallets, meaning they are not connected to the internet. These kinds of wallets tend to be less user-friendly but are more secure due to the lack of internet connection.
These wallets are recommended for long-term use and if the user is holding large amounts of crypto.
Paper Wallets
Paper wallets are a more uncommon set of physical documents with a private key and wallet address printed in the form of a QR code. The QR codes are then scanned to make transactions. One of the major downfalls of paper wallets is that they are not compatible with sending partial funds. To make a transaction with a paper wallet, the user must send all funds from the paper wallet to a different type of wallet to make a partial transaction. Paper Wallets offer theoretical secure holding of crypto, but due to the increased risk of human error they are not common used.
The most important thing to remember when dealing with cryptocurrency wallets is to never share private keys or seed phrases and make sure they are saved in a safe and secure place. Backing up your seed phrases regularly can help prevent loss in the event of tech issues, or a broken, lost or stolen computer.
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