Blockchain 101: Crypto wallets
What are the different types of crypto wallets?
To venture into the crypto space, one of the first things you need is a wallet. The different types of wallets can be confusing at first but when broken down — they are easier to understand.
Before we enter the different types of wallets though, it is important to understand the difference between hot and cold wallets, as every crypto wallet falls into one of these two categories.
Hot Versus Cold Wallets
Hot wallets are connected to the Internet while cold wallets are not.
Since hot wallets are connected to the Internet, funds stored in hot wallets are more accessible for uses like day to day trading or payments. However, since they’re connected to the Internet, they’re also susceptible to Internet risks like hacking.
Examples of hot wallets include exchange wallets, web wallets, and software wallets like Exodus. While Exodus puts you in control of your private keys, Exodus is installed on your device and requires Internet access to operate, which poses some risks depending on your security practices.
Cold wallets are not connected to the Internet, making funds stored in them harder to use. Yet, this can be a benefit since hackers and other bad actors can’t get to your assets as easily. Blockchain assets stored in cold wallets usually aren’t used on a frequent basis and instead held for long periods of time. Examples of cold wallets include hardware wallets and paper wallets.
Here Are The Different Types Of Wallets:
1) Web Wallets
As the name suggests, these are website-based online wallets which require you to open a URL to access the wallet. Most of the time, these wallets have some kind of account system with username and password to login to the wallet.
Pros
- Easy to access and doesn’t require installing anything.
- Can benefit from things like advanced buying and selling options (some centralized exchanges).
Cons
- Don’t give you control of your private keys or recovery phrase, meaning that you don’t control your money and are entrusting it to someone else (the website owners) to hold onto and protect.
- Not very secure since they’re accessed with a web browser (vulnerable to hacks and other exploits) and hosted on a centralized server (honeypot for hackers).
- Don’t always have in-wallet exchange features like other types of wallets.
Examples of Web Wallets include Blockchain.com, MyEtherWallet, MyCryptoWallet, MetaMask.
2) Mobile Wallets
Mobile wallets are mobile phone applications that manage your private keys. If you have Exodus on your phone, you are using a mobile wallet.
Pros
- Can be used on the go: especially useful for making in-person payments, such as to merchants who accept crypto.
- Most mobile wallets provide full access to private keys and recovery phrases, which means you have full control of your funds.
Cons
- Can have Internet-based risks depending on the user’s security practices.
- Someone could get access to your phone e.g. if you don’t have a password to unlock it and drain your mobile wallet of its funds.
Examples of Mobile Wallets — Exodus, Coinomi, Mycelium.
3) Desktop Wallets
As you might have guessed already, desktop wallets are built to be installed and run on desktop computers and laptops. Desktop wallets are the most popular wallets out there due to the features they can offer on powerful desktop platforms like Windows, MacOS, and Linux.
Pros
- Many desktop wallets have a big list of supported assets.
- Many also have additional features like built-in exchanges, portfolio charts, etc.
Cons
- Like other hot wallets, susceptible to Internet dangers — but usually considered more secure than web wallets depending on the user’s security practices.
Security of a desktop wallet depends on the user since these wallets are online wallets. One must maintain the security of the system these desktop wallets are installed on.
Apart from Exodus, some other desktop wallets are Jaxx, Electrum, and Atomic. The desktop wallet category also includes wallets like Bitcoin Core Wallet and Official Monero Wallet from the development teams of assets themselves.
4) Hardware Wallets
Specially designed hardware devices, such as Trezor, are considered the best in crypto security for storing one’s crypto wealth for the long term. These devices can connect to your computer and mobile via USB ports so you can perform send and receive functions. Since Trezor is integrated with Exodus, this is the easiest and most secure way to store and manage your crypto.
Pros
- Has top-level security features.
- Private keys never leave the hardware wallet protecting them from malware and hackers.
- Users approve all transactions on the device itself.
Cons
- Can be costly for some users (usually upwards of 120 USD).
Examples of hardware wallets include Trezor Model T, Ledger Nano S, KeepKey, etc.
5) Paper Wallets
Yes, you can store digital assets on good old, non-digital paper! Paper wallets are cold wallets (not connected to the Internet) and are usually used for long-term storage of cryptocurrencies. These wallets are also used as gifts — generally to introduce somebody to the blockchain asset world.
Pros
- Cold wallet and not prone to Internet dangers
Cons
- Not as readily accessible for use like desktop wallets and other hot wallets in things like everyday transactions
- While not connected to the Internet, someone could gain access to the paper wallet and steal your funds
- Can suffer from damage like paper deterioration over time and natural disasters like fires — though in general, damage can be avoided by using stronger materials
Examples of services that allow you to generate paper wallets include WalletGenerator.net and bitaddress.org.
Irrespective of which wallet you choose, if you ever expose your recovery phrase or private keys to a malicious actor, your funds can be easily taken away. No wallet provider can help you get the stolen funds back since blockchain transactions are irreversible. Always ensure you store your recovery phrase and private keys offline — never store them on any device that is connected to the Internet. There are 100s of ways hackers can gain access to your recovery phrase or private keys online.
Always ensure you store your recovery phrase and private keys offline — never store them on any device that is connected to the internet. There are hundreds of ways hackers can gain access to your recovery phrase or private keys online.
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