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Xpedition Week 5: All About Wallets

Type of Wallets

Unlike traditional fiat money, cryptocurrencies are decentralized and there is no dedicated bank or physical wallets that can help to keep your cryptocurrency holdings secure. Thus, we have cryptocurrency wallets, which are tools commonly used to store and protect these holdings. These wallets come in many different forms and varieties! Do you know what are the differences and which one out there is the best for you? Read on as we share more about cryptocurrency wallets!

Contrary to popular belief, cryptocurrency wallets do not store cryptocurrencies, but instead provide the tools needed to interact with a blockchain. These wallets can help to store public and private keys in order to generate information needed to send and receive cryptocurrency via blockchain transactions. Based on your keys, an alphanumeric identifier, address is generated. This address is a specific “location” on the blockchain to which coins can be sent to. This address can be shared to others for them to transfer funds to you, but you should never share your private key to anyone (think of it as an email address which you tell others, and your password which you keep to yourself).

Read on as we explain more about the different kinds of wallets!

Hot Wallets

One of the most popular kind of cryptocurrency wallet is called Hot Wallet, which is a wallet connected to the Internet and is easy to set up and use. Web-based wallets, mobile wallets and desktop wallets are all considered hot wallets. These wallets are meant for everyday cryptocurrency users who often buy and sell their coins/tokens.

However, just like anything that is connected to the internet, the ease of use of hot wallets comes with one major drawback — security. To reduce the vulnerability from attacks, your hot wallets are linked with public and private keys to act as a security measure. If you trade your cryptocurrencies in exchanges such as MEXC Global, the cryptocurrency you acquired is automatically stored in our exchange-hosted wallet and we will hold your private keys for you. By holding your private keys, it gives users like you ease of trading as well as fund withdrawals. Now you might be thinking, an exchange holding my private keys? Is that safe? This is why MEXC Global invests heavily in the best security, to ensure that your funds are safe.

Other than centralized exchange-hosted hot wallets, there are also decentralized exchanges (DEX) such as Metamask, Uniswap, Pancake Swap, 03 Wallets (watch our video here to find out more about O3 https://www.youtube.com/watch?v=QOOI1hJ0Auo&t=170s) just to name a few. With a DEX, you actually hold your own private keys and have full control over them. However, this also means that there is no centralized support to help you with any problems you encounter. Due to its complexity, DEX is usually used by traders who are more advanced.

Cold Wallets

With hot wallets, there exists Cold Wallets too! A Cold Wallet, also known as “hardware wallet” or “offline wallet”, is a crypto wallet not connected to the Internet, meaning that data will not be compromised. A cold wallet stores the user’s address, private keys, and work with compatible software in the user’s computer.

How a cold wallet achieves maximum security is that when a transaction is being initiated online, it will be temporarily transferred to the cold wallet where it is digitally signed before transferring it back online. In this process, the private keys will not come into contact with an online server, which means that even if a malicious hacker encounters the transaction, the hacker will not have access to the private keys used for that transaction.

Paper Wallets are a type of cold wallet. Just as its name suggests, a paper wallet is basically a piece of paper containing the user’s private keys in a handwritten, print, or QR code form. Once again, paper wallets may encounter theft or paper damage which is troublesome for the user. Other types of cold wallets include hardware that works and looks similar to a USB or a hard disk. When the user wants to engage in a transaction, s/he can simply plug the hardware into the computer.

In general, cold wallets are opted by users who want to hold their assets for a prolonged period of time, more commonly known as HODLers (investors who buy and hold their positions regardless of price), as well as institutions that hold large amount of funds. Of course, nothing is perfect, and a major flaw of cold wallets is that transactions take longer than hot wallets. Furthermore, there is also a risk that the cold wallet, being a hardware, may suffer a physical damage or get stolen. Hence, some users may find cold wallets more of a hassle.

In recent years, hybrid wallets have emerged as companies seek to find a balance between hot and cold wallets. A hybrid wallet uses a dual online and offline technology where users can store a set amount of crypto offline in a safe environment, and also keep some online for frequent trading. While hybrid wallets offer users a layer of protection against hot wallet risks, it also means that users have to manage two different wallets which again, can be too troublesome for one’s liking.

After reading this, we hope you are clearer about the different types of wallets and can now identify which kind you are holding! Stay tuned as we bring you more educational content. It’s never too late to start learning! Remember to check out our postings for this week here:

Day 1:
https://www.instagram.com/p/CQakVjiHC_Q/?utm_medium=copy_link
https://twitter.com/mexc_global/status/1407248648115605505?s=21

Day 2:
https://www.instagram.com/p/CQfuLYjH5Ll/?utm_medium=copy_link
https://twitter.com/mexc_global/status/1407973987150307328?s=21

Day 3:
https://www.instagram.com/p/CQk2--QH4x0/?utm_medium=copy_link
https://twitter.com/mexc_global/status/1408696995057782784?s=21

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Founded in 2018, MEXC Global is a centralized exchange that employs a high-performance mega-transaction matching technology. The CEX platform is run by a team of professionals with extensive financial industries and blockchain technology experience.

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MEXC Global

MEXC Global

Founded in 2018, MEXC Global is a centralized exchange that employs a high-performance mega-transaction matching technology. Visit us at https://www.mexc.com/

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