If you are going to start investing in crypto assets, you have probably heard about crypto wallets. Knowing how they work is essential to investing in cryptocurrencies like Bitcoin or Ethereum.
There are multiple types of crypto wallets, and you must learn which is most suitable for you. Below we will briefly explain the wallets, their kinds, and how to choose the one that best suits your needs.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet is a medium where you can store and keep your crypto capital safe. These can be independent of the Exchange you usually use to buy and sell your crypto assets, generating more security and diversification. Cryptocurrency wallets also allow you to send and receive cryptocurrencies much more securely.
How Does A Cryptocurrency Wallet Work?
Since the primary function of the cryptocurrency wallet is to store and protect your cryptocurrencies, it is easy to have your crypto assets in any medium that works with blockchain technology. These means or platforms are compatible with the offer of the different wallets in the market, allowing the investor to use their cryptocurrencies decentralized. You can research and review additional cryptocurrency guides to learn how wallets work.
Types of Crypto Wallets
There are different types of wallets that we can separate into two main categories:
Hot Wallet
These are online wallets, which can be applications, or you can install them as a browser extension.
Within these categories, we can find several types of wallets:
Hosted Wallets
This point can be confusing as some people consider Exchange or hosted wallets a type of wallet. The reason is logical since these wallets are hosted directly on the Exchange where you purchased your crypto. They can also be used with other cryptocurrency buying and selling platforms.
What happens in these cases is that the exchange platform itself stores and monitors your cryptocurrency. Many users consider it more secure since there is no absolute independence between the wallet and the Exchange. You should assume that your capital will be vulnerable to an attack if the platform is hacked.
Online Wallets
Online wallets are connected to the web, allowing you to store, manage and monitor your crypto assets. Interestingly, you don’t need accounts on some Exchange platforms to use their wallets since these are independent of the Exchange. Some wallets use a technology that prevents external agents from tracking your IP address, significantly increasing their security.
Cold Wallet
These are hardware wallets whose main appeal is that they work without any internet connection, which makes them a safer option for investors.
On the Cold Wallet side, we also have two types of Wallets:
Hardware Wallet
This type of wallet has a particular security system that will prevent your private keys from being stored on your computer. To use the wallet, you must enter a personal password to which only the user has access. This dramatically increases the security of this type of wallet concerning other wallets.
These wallets are the most secure, but they are also the most expensive. Although it is less versatile than an online wallet, with hardware, you can carry it in your pocket wherever you go. Also, some hardware wallets have ‘seed’ passwords that allow you to recover your cryptocurrencies if there is a problem with the hardware or you lose the device.
Paper Wallet
Paper wallets cannot be hacked in any way, mainly because this is a physical document with the security keys and the exact address for sending and receiving the capital. This option is excellent if you do not plan to move your investments for an extended period.
These wallets are created as they will be used. It is at that precise moment that you must be established all precautions. As you can imagine, you will have to hide this paper in the best way possible. This type of wallet cannot be used for exchanges since they only serve to manage cryptocurrencies by uploading or sending them.
Using your paper wallet in separate software would be best to use your funds. These usually carry a blockchain-verified QR code you can scan to use your wallet.
How To Select The Best Type Of Wallet For Me
Each person may need a different type of cryptocurrency wallet. And we must first consider the kind of investment we will make since this is a crucial point when choosing. Wallet providers can offer you and, of course, know what you want as a cryptocurrency investor.
Study these options:
– How much capital are you going to invest in crypto assets?
– What number of operations will you carry out, that is, how much will you use your investments to buy or sell?
– If you want to work in the short, medium, or long term.
– What is your intention with your investments?
For example, if you want to use your investments for quick exchanges and transactions, it is best to use an online wallet. If you wish to large sums of money, it is best to use a hardware wallet. Ultimately, it will always depend on the user’s needs.