“Cryptocurrencies and especially Bitcoin are considered to be a store of value but do you know where this store of value is actually stored. Every cryptocurrency requires a cryptocurrency wallet to store, manage, send and receive the cryptocurrencies. The cryptocurrency wallets are as important as the blockchain network in handling the crypto transaction. Let us explore the types of cryptocurrency wallets and when to use them.”
On the Basis of Storage
Hardware wallets are the wallets that are built upon the hardware devices such as USB drives. Users can plug in these USB devices to a system and connect to the blockchain. They are known as cold wallets as they are not connected to the internet. These wallets are considered to be one of the safest means of storing the cryptocurrencies as they are offline and only connected to the network when required. Though there is always a risk of theft of the USB device itself. Also, these wallets are not free and cost around $100. They also require a system to connect to.
Software wallets are computer software programs that are stored on the computer or a mobile system and are connected to the internet. The software wallets are very easy to use as they are simple programs with a simple layout. They are also known as the Hot wallets as they are always connected to the internet. Due to their constant connection with the blockchain, they have security vulnerabilities and if the system on which the wallet is stored gets compromised, it can lead to compromising of the wallet as well. The software wallet is of mainly three types; Mobile Wallets (The wallet application is stored on the smartphone), Desktop Wallets (They are stored on a desktop), Web Wallets (They are stored on the web as a browser extension). They are best suited for users who frequently trade in cryptocurrencies due to its accessibility.
The public and private key or the QR code of a wallet written or printed on a piece of paper is known as a paper wallet and was used in the initial days of crypto. This is the safest way to store a cryptocurrency; the only downside is the paper is prone to destruction and being misplaced.
On The Basis of Control
The wallets whose keys are controlled by the third party service providers are known as the custodial wallets. The best example of such wallets is the wallets on the crypto exchanges. These wallets are under the custody of the exchanges, it makes them extremely risky but the benefit is that multiple wallets can be used on an exchange without the hassle of saving multiple keys.
The non-custodial wallet is the wallets whose keys are in control of the owner of the wallet and these are termed to be more secure when compared to the custodial wallets. Various wallets such as Metamask are examples of such wallets.
Disclaimer: The article should not be considered as any financial advice. It is advisable to conduct thorough research before investment.
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