What is a Crypto Wallet? – Understanding Different Types of Crypto Wallets

The demand for cryptocurrencies has drastically increased in recent years. Although the crypto market has been struggling for a few months, more investors are now choosing it as an asset class. It ultimately increases the need for different crypto wallets. The users can securely send, receive, and store their digital assets in these crypto wallets. This in-depth article will help you understand what a crypto wallet is and what are the different types of crypto wallets.

Understanding different types of crypto wallets is essential for all types of crypto investors.

What is a Crypto Wallet?

A crypto wallet, aka a digital wallet, is pretty much similar to a bank account where users can store multiple keys that are required to access cryptocurrencies. The crypto wallet provides two types of keys including a public key and a private key.

The wallet owner must write down the private key on paper and store it in a secure place because a private key is required to access the funds and sign transactions. The public key, on the other hand, is the key that wallet owners can share with other users to receive funds.

Understanding Different Types of Crypto Wallets

Crypto wallets can be divided into four different categories including hardware wallets, software wallets, paper wallets, and online wallets. They all have their own advantages and disadvantages. Some are widely recognized for their high-security standards while others offer more convenience and accessibility.

Hardware Wallets

Hardware Wallets were the only option available in the early stages of crypto. These wallets are considered the most secure type of crypto wallets because they store data in the form of physical devices. These wallets can be connected to a computer or mobile device using a USB or Bluetooth.

These wallets are protected against hacking attacks. They’re also protected against physical theft because the owner needs to enter a PIN or password to access the funds. Furthermore, the hardware wallets enable users to store a wide range of cryptocurrencies.

The problem is that the hardware wallets are the most expensive option. Similarly, the user won’t be able to access the funds if he forgot the PIN or lost the wallet. Ledger Nano X, Keepkey, and Trezor Model T are some of the leading examples of hardware wallets.

Software Wallets

Software Wallets enable users to store their keys on a computer or a mobile device. These wallets are more popular among active traders as they can easily access their funds on the go.

Software wallets can also store a wide range of cryptocurrencies and most of these wallets are available for free. These wallets provide the convenience of accessing funds throughout the world as long as the user has access to the internet. Software wallets are a popular choice among beginners as they can easily create an account on these wallets.

Software wallets offer limited security features compared to hardware wallets. Moreover, these wallets are also vulnerable to hacking attacks. Exodus, Coinbase Wallet, and MyEtherWallet are some of the leading examples of software wallets.

Paper Wallets

The security standards of paper wallets are similar to those of hardware wallets. These wallets are susceptible to hacking attacks because they’re only available offline. The best part is that the users can create a paper wallet for free. Similarly, they’re more convenient to use as compared to hardware wallets.

The problem with these wallets is that the users can’t access their funds if they don’t have the physical paper with them or if the paper is damaged. Moreover, these wallets are vulnerable to physical theft because they don’t need a PIN or password to access funds.

WalletGenerator and BitAddress are the leading examples of paper wallets.

Online Wallets

Online wallets, aka hot wallets or web wallets, are the most popular type of crypto wallets because they’re easily accessible through the internet. These wallets are managed by third-party companies. The best thing about these wallets is that they enable users to buy cryptocurrencies with fiat currency.

Similarly, they enable users to trade cryptocurrencies on an exchange. These wallets are usually available for free. However, these wallets are at a high risk of hacking attacks because the servers of third-party companies can be compromised if they aren’t properly managed.

Coinbase, Blockchain.info, Binance, Kucoin, and ByBit are some of the leading examples of online wallets.

Things to Consider When Choosing a Crypto Wallet

Security – PIN codes, two-factor authentication, and biometric authentication are the most important security features to look for when choosing a crypto wallet. Hardware wallets can be the safest option for those who are more concerned about security.

Convenience – Although hardware wallets offer the highest security standards, they aren’t easily accessible like software wallets. The users need to evaluate their particular needs to determine which wallet may best suit their needs. If they need to access the wallet more frequently, software wallets might be the right choice for them.

Cryptocurrency support – Some wallets only support a limited number of cryptocurrencies. Therefore, the users must check the cryptocurrency support offered by the wallet before choosing one.

Reputation – The users can easily verify the reputation of a crypto wallet through online reviews. The users must go through multiple reviews to decide whether their potential wallet is well-established in the crypto community or not.

Cost – Only hardware wallets are the expensive ones whereas other types of wallets are mostly available for free. However, it’s worth noting that these wallets usually charge some amount as transaction fees when a user transfers or receives funds. So, users must consider all the important costs while choosing a wallet.

Conclusion

A crypto wallet is a kind of wallet that is used to store digital assets. There are four different types of crypto wallets that crypto investors use to store, send, and receive crypto assets. Hardware wallets are the safest option whereas online wallets are the most convenient option.

Software wallets are a reasonable choice for those who need a combination of safety and convenience. Paper wallets can be the right choice for those who need high-security standards but can’t carry a hardware device with them all the time. This article highlights all the important features of different types of crypto wallets.

If you need more information about crypto wallets, feel free to get in touch with us. We also invite you to subscribe to our weekly newsletter if you need regular updates about Bitcoin and the crypto market.