cryptocurrency wallet

What is a cryptocurrency wallet? Introducing different types of cryptocurrency wallets

deltafx writer 29 June 2021

Since buying cryptocurrencies has become one of the most popular ways to invest these days, using a valid cryptocurrency wallet that protects your capital is one of the key principles of entering the cryptocurrency market. In this article, we will introduce the different types of cryptocurrency wallets, and by specifying the features of each one, we will help you choose the best digital currency wallet for yourself.

Crypto Wallet allows you to receive, send and maintain digital currencies (digital currencies are the same as cryptocurrencies). In other words, a crypto wallet is like a bank account for digital currencies. Crypto wallets are divided into two general categories, which include:

Hot wallet

Cold wallet

First of all, it is better to get acquainted with the term hot and cold; the terms hot or cold cryptocurrency wallets are used to distinguish different wallets for cryptocurrencies.

 Hot wallets are digital or software wallets for storing cryptocurrencies, while cold wallets are physical tools in which cryptocurrencies are stored. Once you have purchased any amount of digital currency and decide to store it, you should choose to keep them in a hot or cold wallet or even a combination of both.

In the following, we will talk about each of these wallets in more details.

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Crypto wallet

Hot cryptocurrency wallet

These wallets are simply available through devices such as cell phones, laptops, and PCs. These wallets are custodial, meaning that a third party controls the private keys associated with the assets in the wallet, which indicates a security vulnerability because third parties themselves may become a security threat.

Meanwhile, due to the exposure of hot wallets to the Internet, they may become attractive targets for hackers. Still, because of their ease of use by users, they are very popular, but it should be kept in mind that large amounts of digital currency should not be saved in hot wallets.

Due to the high popularity of hot wallets, many reputable companies offer high-security hot wallets to users.

we brought you some examples of hot wallets in the following:

  • Green address
  • Coinomi
  • Mycelium
  • Trust wallet
  • Edge
  • Bitcoin Wallet
  • DropBit
  • Blockchain

Cold cryptocurrency wallet

on the other side, there are cold wallets that work offline based on industry standards to store crypto assets securely. This type of cryptocurrency wallet is not exposed to the Internet and is often used in the form of hardware or paper wallets.

Due to the offline nature of this type of wallet and the lack of exposure to the Internet, cold wallets have a higher level of security. Hardware wallets such as Ledger have the highest standard security level.

Cryptocurrency traders use cold cryptocurrency wallets for the long-term storage of large amounts of cryptocurrencies. It should be noted that a cold wallet is an encrypted and offline tool for secure storage, and it is suitable for crypto and all other kinds of digital currencies. While we see widespread security vulnerabilities, hardware wallets are a safe and secure choice for maintaining digital currencies. Since cold or hardware wallets have an encrypted physical design, they take all security measures to counter physical and digital threats.

ledger wallet
ledger wallet

Cold wallets are divided into 3 categories:

  • Hardware wallets: these physical tools protect your cryptocurrencies against hackers.
  • Paper wallets: These wallets are made of paper, and private or public cryptocurrencies can be printed on them. Due to their paper nature, they cannot be connected to servers so they cannot be hacked.
  • Mental wallets: Mental wallets provide a way to create a private password without using text or letters, and you can create a private password for yourself without receiving a random “Mnemonic” using a simple algorithm.

How to increase the security of hot cryptocurrency wallet?

  • Use Google’s two-step verification feature to increase the security of hot wallets that are always exposed to the Internet.
  • You can activate face or fingerprint recognition to log in to your account.
  • Define a safelist for your account. After that, only some valid addresses can receive currencies from your account; by doing this, you can no longer send currencies from your account to another address.
  • Do not use the same passwords on different platforms; also note that your passwords are made of combinations of uppercase and lowercase letters, numbers and symbols.
  • You can increase the security of your hot wallet by activating a disposable password to log in and withdraw from your wallet.

Cold wallet or hot wallet? Which one is better?

You should know that:

  1. The hot wallets usually support a wider range of cryptocurrencies.
  2. The cold wallets have higher security standards.
  3. Cold wallets are not suitable for small trades.
  4. Due to their ease of use and their availability in different operating systems, hot wallets are more popular and acceptable than cold wallets.
  5. The hot wallets are free, but you need to buy the cold wallets.

Conclusion

cryptocurrency wallets are divided into two categories of hot wallets and cold wallets. Hot wallets are connected to the Internet and have attracted the attention of many traders due to their ease of use and easier access. However, they have lower security due to their permanent connection to the Internet and their vulnerability to hacks. Traders usually store small amounts of cryptocurrencies in their wallets for everyday use.

On the other hand, cold wallets are more secure due to their hardware nature, and they work offline and without an internet connection. They only get connected to the internet for transactions for a very short time. After that, they can be kept offline.

And at the end, we can recommend “blockchain” hot wallet and “ledger” cold wallet as examples of the best and most trustworthy cryptocurrency wallets.

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