5 July 2020
So, you’ve bought Bitcoin, and now it is sitting in your exchange account. Now, what do you do? Where do you store your Bitcoin safely and securely? All the right answers point to a crypto wallet
A crypto wallet enables you to store and manage your cryptocurrencies. There are two types of wallets; hot and cold wallets. Before you entrust your Bitcoins to one of these wallets, it’s vital to understand the benefits of each as well as the potential drawbacks.
Hot wallets are software that allows cryptocurrency owners to send and receive cryptocurrencies. They are the most common type of crypto wallet and are connected to the internet. Their connection to the internet is what makes them “hot”, thus the name hot wallet. In a hot wallet, your private key is stored online or on devices connected to the internet.
Web wallets: these are website-based online wallets. You can access them through relevant websites. Most web wallets have an account-system that gives users access to their wallets.
Examples of web wallets include Blockchain.com, Metamask, and Mycryptowallet.
Mobile wallets: these are mobile applications that manage and store your crypto funds. They are the most used wallets due to their convenience.
Examples of mobile wallets include Exodus, Coinomi, and Mycelium.
Desktop wallets: these are crypto wallets built to be installed and run on desktops, computers, and wallets. They are the most popular type of crypto wallets due to their many features. They are available for most of the desktop operating systems, Mac, Windows, and Linux.
Examples of Desktop wallets include Exodus, Atomic, and Electrum.
Convenience: hot wallets are easily accessible. This is with good internet access. They provide immediate access to funds. Mobile wallets can be accessed anywhere at any time from smartphones. They can be used on the go. Web wallets don’t need installation to use, just access to the sites.
Beginner-friendly: hot wallets are usually the starting point for most people jumping into the crypto space. They are mostly quite easy to use.
Available free of cost: you don’t have to spend anything to use the available hot wallets. It is one of the many reasons they are so popular.
Substantial security: most hot wallets are backed by multiple layers of security for your crypto coins’ safety. They tend to be hard to hack.
Internet vulnerabilities: as hot wallets operate on the internet. They are vulnerable to internet attacks. Hackers can take advantage of any system weakness to hack the systems and steal people’s funds. In September 2020, KuCoin was attacked by hackers who stole millions of USD of Bitcoin and Ethereum tokens.
They run on centralized servers: centralized servers offer a single point of attack, which hackers love. They can easily be attacked and hacked. Some centralized servers can sometimes be plagued with transaction delays due to server limitations.
Some don’t provide full control of funds: hot wallets like exchanges don’t give users access to their private keys. Without their private keys, they have no control over their funds.
Cold wallets are offline cryptocurrency wallets for storing cryptocurrencies. They are wallets not connected to the internet. In a cold wallet, the private key is stored on offline hardware like a password-protected USB or even paper. They are considered the most secure type of crypto wallets in the market.
Now, how can they work without connecting to the internet? Well, transactions take place online, but the signature of the transaction is generated offline. This way, the private key is never exposed to the internet, preventing unauthorized individuals from accessing it.
Trezor: launched in 2013, Trezor is the first cold cryptocurrency wallet made. The device is quite small and compact, making it easy to carry around. It supports more than nine cryptocurrencies
Ledger Nano S and Nano X: considered a competitor to Trezor, Ledger Nano S and Ledger Nano X are another great cold wallet option. It is quite similar to Trezor in functionality, except they offer greater scalability in terms of the available cryptocurrencies that you can store on them.
Paper wallets: a paper wallet is a piece of paper with your private keys and public addresses. The paper has to be stored in a secure place to avoid falling into the wrong hands. Paper wallets are not the most preferred type of crypto wallet but still get the work done.
Excellent security: cold wallets have a reputation for being impenetrable. As codes are stored nowhere else but in the hardware devices, security is assured. Some hardware devices come with top-notch security that guards against malware attacks.
Full control of funds: cold wallets, unlike some hot wallets, give full control of funds to users. As all your codes are in your hardware device, no one but you has access and control over your funds.
Expensive: cold wallets, especially hardware wallets, don’t come cheap. However, if you are looking for the safest and most secure crypto wallet, they are ideal and worth the money.
If you are looking to store Bitcoins for a long time, cold wallets are the best option. If you are looking to transact in small amounts of Bitcoin in the fastest and easiest way possible hot wallets are the best options. Either way, the best wallet to store your Bitcoins depends on your needs and wants.
For a step-by-step walkthrough of cryptocurrency wallets and how to set them up for your investments, check out our “How to Get Started in Bitcoin and Cryptocurrency” video course for beginners.