Cryptocurrency wallet holds your crypto fortune for you
The cryptocurrency wallet is perhaps the most important component of your cryptocurrency journey and experience. It is therefore extremely important that you choose one with prudence and protect the same adequately.
A wallet sounds like something which holds your cash and coins in them. So, that is exactly what a cryptocurrency wallet does — it holds your crypto fortune for you. But a little bit differently.
A physical wallet will store the physical banknotes and coins inside it. But, the crypto wallet stores only your passwords. These passwords give you access to your digital assets — your coins and tokens and help you transact with them.
It is therefore evident that it is of extreme importance that you keep your passwords safe, in other words — keep your crypto wallet safe.
The crypto wallets come in various forms. The forms lend ease of use and security to these digital wallets. Let’s have a look at each of them and gather a perspective that will help us choose the right one suitable for our use.
Crypto wallets have two broad categories — hot wallets and cold wallets
Hot wallets are those which have a direct connection to the internet. They are like normal wallets that we carry for day-to-day transactions, and these wallets are user-friendly.
Hot wallets are actually available online through which cryptocurrencies can be transferred in real-time.
These are easy to access and operate online 24/7 and can be accessed using a desktop or mobile device.
Since these are connected to the internet, they have a vulnerability to online hack efforts. There is the risk of unrecoverable theft. With hot wallets, private keys are stored in the cloud for faster transfer. Select hot wallets are Coinbase, Exodus and Blockchain.info.
Cold wallets are digital offline wallets — the key word here is offline — where transactions are signed offline and then disclosed online. This ensures higher safety and security from cyber theft. With cold wallets, private keys are stored in separate hardware like pen drive that is not connected to the internet or the cloud and can be used when you want to transact.
Private keys stored on a paper document is also a form of cold wallet.
With cold wallets, the method of storage and archival of the private keys helps in protecting the blockchain wallet from unauthorized access — that is hacking and other online vulnerabilities. A few examples of cold wallets are Trezor and Ledger.
The passwords can be kept in a QR code format, or alpha-numeric hash outputs, or even coded using mnemonics. It is important to keep note that the passwords if forgotten, cannot be generated again. So, committing them to memory is good if you are confident that you won’t forget any of them.
So which type of wallet would you like to store your cryptocurrency coins and tokens in?
We hope that this discussion helps you develop a perspective of what crypto wallets are, how they work, and how you should keep them safe.
To learn more on cryptocurrency wallets and a host of other themes in the cryptoverse, please take a course offered by 3.0 University.