Types of Cryptocurrency Wallets

A cryptocurrency wallet is a tool that helps you interact with the Blockchain network. The different types of wallets fall into three groups: software, hardware and paper wallets. Depending on their working mechanism, they can also be called cold and hot wallets. The majority of crypto wallet providers are software-based, which makes software wallets easier to use than hardware wallets. On the other hand, hardware wallets are the safest alternative.

How do cryptocurrency wallets work?

Contrary to popular belief, cryptocurrencies are not truly kept in crypto wallets. Instead, wallets serve to provide the necessary tools to interact with a Blockchain network. In other words, these wallets contain the information necessary to receive and send cryptocurrencies via Blockchain transactions. This type of information consists of one or more pairs of public and private keys.

Comparison of Hot and Cold Wallets

Cryptocurrency wallets are defined as “hot” or “cold wallets” depending on how they work. A hot wallet is a wallet that is connected to the internet in any way. For example, when you open an account on Coinpara and send cryptocurrencies to your wallets, you are depositing cryptocurrencies into the Coinpara hot wallet. These wallets are very easy to set up and have quick access to your cryptocurrencies, making them useful for traders and other frequent users. Cold wallets have an internet connection. Instead, a physical medium is used to store keys offline. This makes them resistant to online hacking attempts. This method is also known as cold storage and is especially useful for long-term investors.  

Web Wallets

Blockchain networks can be accessed with any browser without having to download or install anything using web wallets. This includes both exchange wallets and other browser-based wallet providers. When using crypto currency exchanges, it will be in your best interest to take advantage of the protection tools offered to you. Coinpara cryptocurrency exchange offers various security measures. These include device management, multi-factor authentication, anti-phishing code and shooting address management.

Desktop Wallets

Desktop wallet is known as software that you can download or use on your computer. Unlike web-based versions, desktop wallets give you complete control of your keys and funds. When you create a new desktop wallet, a file named "wallet.dat" will be saved on your computer's hard drive. This file contains the private key information required to access your cryptocurrency address, so you must encrypt the file with a personal password. 

Mobile Wallets 

Mobile wallets work similarly to desktop wallets. The difference is that they are designed as smartphone mobile applications. These wallets are very useful as they allow you to send and receive cryptocurrencies via QR codes. Trust Wallet is a prime example of mobile crypto wallets. But just like computers, mobile devices are susceptible to malicious apps and malware. That's why it's recommended to encrypt your mobile wallet with a password and back up your private keys in case your smartphone is lost or corrupted.   

Hardware Wallets  

Hardware wallets are physical, electronic devices that use random number generators (RNG) to generate public and private keys, which are then stored in the device itself, which is not connected to the internet. For this reason, hardware wallets are a type of cold wallet and are considered one of the most secure options.

Paper Wallets

A paper wallet is a piece of paper on which a public address and private key are physically printed in QR code format, which can then be scanned to perform cryptocurrency transactions. Some paper wallet websites allow you to download codes so you can generate new addresses and keys while offline. Thus, these wallets become highly resistant to online hacking attacks and can be considered as an alternative to cold storage. What is the importance of backups? Losing access to your crypto wallets can cost you dearly. That's why it's important to back up your wallets periodically. In many cases you can do this by backing up the wallet.dat files or the seed phrase. At its most basic, recovery phrases perform a similar role to private keys but are easier to manage. If you prefer password encryption, you should also remember to back up your password.