Crypto Wallets – Comprehensive Guide

If you are just entering into the world of cryptocurrencies, then you must know everything about crypto wallets. Of course, the crypto exchanges have made it easier for people to get started with this realm. However, you need to know the ways of storing your coins and the options available at your disposal.

You might have heard the saying – “Not your keys, not your coins” which might appear like latin for beginners, but there is a whole story behind it. So, make sure you read this detailed blog till the end and if you have any questions, feel free to comment below and we will get back to you at the earliest.

What is a Crypto Wallet?

A crypto wallet is a digital tool that enables users to store their cryptocurrencies. It allows users to make transactions on the blockchain. Unlike traditional wallets, crypto wallets cannot always hold all types of currencies and you need to check in with the vendor before proceeding with them.

This type of wallet uses private and public keys to authenticate a transaction. In other words, cryptographic elements allow users to access and transfer digital assets.

Think of the private key as a password and the public key as an account number. Both are required to make the transaction happen. Nonetheless, you need to be careful with your private key because if it is compromised, the funds can be stolen or lost. In short, security is a critical factor and it shouldn’t be overlooked for any reason.

 

Types of Crypto Wallets

 

Hot Wallet 

Hot wallets are connected to the internet. If you open an account with the exchange, you most probably have this type of wallet. The emphasis is more on the convenience factor and it is generally less secure than cold wallets.

1. Mobile wallets – These are designed for smartphones and are user-friendly. It allows easy access to cryptocurrencies on the go.
2. Desktop wallets – The software associated with desktop wallets have to be installed on personal computers. These wallets offer more control and the security is enhanced compared to mobile wallets.
3. Web wallets – As the name suggests, these wallets are accessible through web browsers and are convenient. However, these are generally considered less secure due to their centralized nature.

 

Cold Wallet

Cold wallets are offline wallets. They are not connected to the internet and are generally much safer than hot wallets. This way of storage is preferred for large crypto holdings.

1. Hardware Wallets – Physical devices that look like pen drives are the hardware wallets that store the private keys securely. There is a learning curve associated, but compared to the upsides, it is a minuscule sacrifice.
2. Paper Wallets – A printed document that has private and public keys is a paper wallet. Although it is highly secure, keep in mind that they are vulnerable to physical damage and loss.

 

How Crypto Wallets work?

Here’s a step by step breakdown:

 

• Generating Keys – When a wallet is created, it has a set of private and public keys. Private keys provide access to funds and public keys are used to receive funds.
• Receiving Cryptocurrency – To receive cryptocurrencies, the user has to share wallet’s public address with the sender.
• Sending Cryptocurrency – To send cryptos, the recipient’s public address is required and it has to be authorized by the user’s private keys.
• Transaction Validation – As soon as the transaction is initiated, it is reflected in the blockchain network wherein it will be verified and added to the blockchain by miners/validators.

 

Factors to Consider When Choosing a Crypto Wallet

There are few things to consider when it comes to choosing the right crypto wallet.

 

• Security – Look for wallets that offer features like 2 FA, multi-signature support.
• Convenience – Whether you choose a hot wallet or cold wallet mainly depends upon the frequency of transaction you make. So, consider the number of transactions and take a call. Personally, we incline more towards cold wallets.
• Compatibility – Not all the wallet supports the cryptocurrencies you want, so check before making the move.
• Backup and Recovery – Accidents can happen at any time. So, when looking for wallets, opt for the ones that have reliable backup options such as seed phrases for stress free experience.

 

Best Practices

 

1. Store private keys securely and preferably offline and never share them with anyone.
2. Always set up two-factor authentication to add an extra layer of security to your wallet.
3. Backup wallet’s data and store it in multiple places to be on the safer side.
4. If you are planning on holding cryptocurrencies and you don’t have to do a lot of transactions on a regular basis, use cold wallets to store the assets.
5. If you are using hot wallets primarily or any software linked to your wallet, update the interface on a timely basis.
6. Be aware of scams and latest trends in the sector.

 

Conclusion

 

Cryptocurrencies have a long way to go compared to traditional asset classes. While the sector is an exciting realm, there are few things to be aware of and from that list choosing the right crypto wallet is an important one. So, consider your needs, choose the best wallet for your goals and do not forget to follow the best practices mentioned above.