What is a Wallet?
Cryptocurrencies are virtual. Since they do not exist in physical form, they require a different kind of storage from physical wallets or bank lockers.
Enter: the crypto wallet.
What is a crypto wallet?
Crypto wallets store digital currencies safely. They don’t literally store cryptocurrencies; instead, they store public and private keys to access your crypto holdings on various blockchain networks. Crypto wallets monitor your funds, allow you to make transactions, and interact with multiple blockchain networks. A crypto wallet is for digital currencies what a bank account is for fiat money.
Types of crypto wallets
There are different types of crypto wallets. They can be broadly classified into two types: hot wallets and cold wallets. A hot wallet is connected to the internet and easily accessible at any time to make transactions. On the other hand, cold wallets store cryptocurrencies offline. Cold wallets are better suited for long-term storage of digital assets and are not recommended for regular transactions.
We can further classify the crypto wallets into the following types:
Software wallets: These come under the category of hot wallets. You can download software wallets on a mobile device, PC, or laptop. You can access it instantly if you have a customized passphrase. Software wallets include mobile wallets and desktop wallets. They are accessible on only the device in which it’s downloaded. These wallets are user-friendly with high security.
Web wallets or exchange wallets: These are also hot wallets. Several exchanges allow you to store cryptocurrencies on exchange-hosted wallets. This is a web-based wallet. You can sign in to a web wallet on any device with an internet connection, and these wallets are beginner-friendly.
Hardware wallets: These are physical electronic devices and come under the category of cold wallets. To send or receive cryptocurrencies, you need to plug a hardware wallet into a device with an internet connection. Hardware wallets store cryptocurrencies offline, which makes them highly secured. But, they are not accessible instantly and are less user-friendly.
Paper wallets: Another cold wallet, a paper wallet is a physical copy that contains your public and private keys. You need to have a software wallet along with a paper wallet to access the funds. Paper wallet software prints keys on paper and if you keep this secure, then your funds will be secured too.
Each wallet has its own pros and cons. It is important to choose a crypto wallet based on your needs and level of understanding.