CRYPTOCURRENCY 101 (#4): TYPE OF WALLETS
Hot and cold wallets
By determining whether a wallet is connected to the Internet or not, we can distinguish the category of that wallet. The reason why we should recognize those two categories is that there are pros and cons for each type of wallets.
“Hot” wallets are those which connected to the Internet. We can use our devices to access our funds anytime that we want. However, by connecting to the Internet, it is quite obvious that “hot” wallets are invulnerable, but it depends on which type of “hot” wallets to identify how secure it is. Typically, for “hot” wallets, we have online desktop wallets, mobile wallets, web wallets.
“Cold” wallets are not connected to the Internet. We can store our funds offline, so basically this method is considerable more secure than “hot” wallet. However, there are risks that remain. For “cold” wallets, we can include offline desktop wallets, hardware wallets, and paper wallets.
Desktop wallets are the most commonly used type of wallet. They are software programs that can be installed to our computers. Therefore, we can connect to a coin’s client platform through those software programs, via the internet. Some offline desktop wallets (“cold” wallets) do not connect to the internet in order to serve storing crypto purposes.
Offline desktop wallets are built to operate with lesser risks and are perfect for storing a large amount of cryptocurrencies. They work with numerous platforms including Windows, Mac and Linux, and some are also compatible with hardware wallets.
They are easy to use.
It is considerable secure by using offline desktop wallets.
Our computers or laptops can be manipulated by hackers.
There are viruses and malwares can infect our computers.
Our computers get damaged.
Please notice that if any of those cons happen, you will lose your funds without any chance to regain them.
Examples for desktop wallets: HB Wallet, Bitcoin Core, Electrum desktop wallet, MultiBit HD, Exodus, etc.
Mobile wallets are software programs that can be installed on our phones. Those allow us to send, receive and transact crypto on the go. We just simply download and install on our phones. Commonly, they also come with additional security features such as QR code scanning.
They are convenient, and the easiest way to store crypto.
They are more secure than web wallets.
There might be a chance to regain our authority over our assets, in case we lose our phones.
Someone manage to access our phones.
We might lose the authority over our phones by forgetting passwords or losing managing accounts.
Examples for mobile wallets: HB Wallet, Android Bitcoin Wallet by Coinbase, Android Bitcoin Wallet by Blockchain Luxembourg, etc.
We can access our wallets over a web browser. This is a quite risky method, although we can complete a transaction very quickly. Besides, we can store and manage different cryptocurrencies with transfers between them with a very low cost.
We do not have to install software on our phones or computers. Cautiously, do not store a large amount of cryptocurrency on these wallets.
They are convenient, and fast with low cost.
We can store different cryptocurrencies at one place.
We can be hacked while using web browsers.
Those websites can be hacked. It happened.
There is not a chance to get our funds back when these wallets are hacked.
Examples for Web wallets: Coinbase wallet, Bitalo web-only wallet, BitGo web and desktop wallet, etc.
Hardware wallets are physical devices used for storing and transacting cryptocurrencies. They have special physical security features such as need to physically click on buttons to authorize a transaction. Another feature is a screen where you can track transactions and confirm that it is being sent to the said person.
They are easier to work with than paper wallets. Most can be integrated with software wallets or platforms.
They are also more useful in storing large amount of cryptocurrency.
It is not cheap to get one of those devices.
There is a risk to lose the device that we possess.
The device can get permanent damaged.
Examples for Hardware wallets: KeepKey, Trezor, Ledger Nano S, etc.
Paper wallets are physical documents that carry all the necessary data needed to generate private keys of a given cryptocurrency. The paper contains copies of the public and private keys that make up a wallet, and QR codes that can be scanned when adding keys into software during the making of a transaction. For this type of wallet, we create some randomness by typing characters into the generation form as we generate the wallet, generate the form and then print a hard copy.
They are hack-proof and more secure than other types of wallets.
It is easy to create.
Our documents can be damaged or lost through time.
There is a risk that printers do not work properly.
Examples for Paper wallets: They can be generated with resources such as BitAddress.org, LiteAddress.org, etc.