Different Types of Cryptocurrency Wallets: A cryptocurrency wallet, aka a digital wallet, is a software program that stores your digital money. More specifically, it saves the public and private keys that can be used to send and receive cryptocurrencies or to pay and get paid using digital money. In fact, without crypto wallets, the whole idea of cryptocurrencies dies! In my book, Cryptocurrency Investing for Dummies, I get into details of different types of wallets and how each of them works. I also talk about how you can choose the right crypto wallet for you. Here I’ll explore the different types of cryptocurrency wallets out there, starting with the least secure ones.
Pros & Cons of Different Types of Cryptocurrency Wallets
You may already be using digital wallets, also known as e-wallets through your mobile phone. Personally, I use wallet apps for my train tickets, parking tickets, and Apple Pay. The later for instance is a mobile payment and digital wallet service by Apple Inc. that allows users to make payments in person, in iOS apps. Cryptocurrency wallets are a whole different animal comparing to these.
Furthermore, there are several different types of cryptocurrency wallets catering to different needs. Here are the five, most popular types of cryptocurrency wallets, in order of their security level.
These are arguably one of the least secure types of cryptocurrency wallets. However, there are a bunch of advantages of using it for small amounts of cryptocurrencies. An online wallet, also known as a web wallet, allows you access to your cryptos via the Internet. Therefore, as long as you are connected to the cloud (aka Internet), you can reach, store, and make crypto-payments. The online wallet provider stores your crypto’s private key on their server. The online wallet service website may send you the crypto code, they will save your keys and will give you the ability to access your keys. Different services offer various features, with some of them linking to multiple devices with an Internet connection such as your mobile, iPad, and computer.
Advantages of online wallets include:
- Enable fast transactions
- May be able to manage multiple cryptocurrencies
- Conveniently use on the go and for active trading
- Risk of online security such as hacks and scams
- Risk of personal protection such as computer viruses
- A third-party is storing your cryptos, not you
As I discuss in Chapter 5 of Cryptocurrency Investing for Dummies, mobile wallets are available on your cell phone through an app. Just like Apple Pay, you can use mobile wallets when shopping in physical stores as cryptocurrencies become more acceptable. Other types of wallets such as online wallets offer mobile versions as well. But some wallets are specifically and only used for mobiles.
Some advantages of mobile wallets include:
- Can be safer than online wallets
- Conveniently use on the go
- Offer additional features such as QR code scanning
Some disadvantages of mobile wallets include:
- Risk of losing your crypto assets if your phone is lost or damaged
- Risk of mobile viruses and malware
This is another choice that can be safer than online wallets. You can download your desktop wallet and install it on your computer. Desktop wallets are especially safe if your computer is not, or even better, has never been connected to the Internet. If a desktop computer has never been connected to the Internet, it essentially becomes a cold wallet.
Some advantages of desktop wallets include:
- A convenient choice for those who trade cryptos from their computers
- Your private keys are not stored on a third-party server
- If your computer has never been connected to the Internet, it can be extremely safe
Some disadvantages of desktop wallets include:
- Harder to use your crypto-assets on the go
- If connected to the Internet, it turns into a less secure hot wallet
- If you don’t back up your computer and it dies, you lose your cryptos
This type can arguably be one of the safest types of cryptocurrency wallets out there. They store your private keys on a device like a USB drive. You are still able to make online transactions. But since they are offline most of the time, you can consider them a cold wallet.
Some advantages of hardware wallets include:
- One of the safest crypto wallet options
- Great for storing large amounts of cryptocurrencies that you don’t want to use on a day-to-day basis
Some disadvantages of hardware wallets include:
- Most expensive type of wallet
- Not as user-friendly especially for beginners, but an absolute must for large crypto amounts
A super cold crypto wallet. To use, you’ll need to print out your private and public keys. You can send funds by transferring the money to wallet’s public address and you can withdraw or send your currencies by entering your private keys or by scanning the QR code on the paper wallet.
Some of the advantages of paper wallets include:
- Ultra hacker-proof
- Not stored on a computer or mobile
- Not stored on a third-party server
Some disadvantages of paper wallets include:
- Not user-friendly for none-geeks
- Harder to use for day-to-day transactions
- They can catch fire