The use of crypto wallets is an essential aspects to be familiar with if you are interested in buying or trading crypto assets. Even though the crypto space has revolutionized a lot, some aspects still follow the traditional ways of the financial market. This includes the use of crypto wallets, which are essentially used to store funds.
Every crypto exchange in the market supports their own cryptocurrency wallets. However, choosing a wallet may not be as simple and seamless as one may consider. This is because there are different types of crypto wallets and as a new crypto investor or trader. You need to know about the various types and choose the one that suits your needs the most.
This is a brief guide that can help you get a better understanding of what crypto wallets are and the different types of wallets available.
What are Crypto Wallets?
Cryptocurrency wallets are like traditional wallets that are used to store the funds or crypto you own and to keep them safe from all kinds of risks as well.
If you want to start investing in a digital asset then the first basic step you need to follow is to look for a good and secure wallet to store your funds and keep them safe. Digital currencies are basically a cluster of codes that are stored on a blockchain with a specific address.
Cryptocurrency wallets do not basically store the funds but to be more specific they safekeep the storage of the keys to the cryptocurrencies.
Why Carefully Choosing a Wallet is Important?
The level of security of the crypto wallet you choose would have a major impact on your funds. If you are not careful in opting for a wallet you can end up with such a wallet that does not keep your funds safe and you can lose everything. On the other hand, if the crypto wallet you choose offers high security, you can easily store your funds without any worries or concerns.
However, before you choose a wallet, you need to know the different types of crypto wallets so you can choose the right one and proceed buying and trading crypto with minimum inconveniences.
Different Types of Cryptocurrency Wallets
As a beginner, it is crucial for you to know that there are majorly two types of cryptocurrency wallets. Both the two types are differentiated based on some technicalities and most importantly the level of security they offer.
The two types of cryptocurrency wallets are:
- Hot wallets
- Cold wallets
Further details of the wallets are mentioned below.
What are Hot Wallets?
The hot crypto wallets are a popular type of wallets. And are basically the ones that are connected to the internet. Because of their connection to the internet. They are more susceptible to cyber threats and failures as compared to their counterpart.
Even though the hot wallets are user-friendly and offer quick buying and selling of crypto. They do not offer very high security, due to their connection to the internet. This causes people to be mindful before they choose a hot wallet.
What are Cold Wallets?
The other most popular types of crypto wallets are the cold wallets. These wallets are not connected to the internet and are referred to as “cold storage wallets” as they store the funds offline. However, due to the fact that they are not connected to the internet, they offer a higher level of security.
They still offer the same functionality accompanied with high security, making them a better option for a vast audience, especially those who want to store cryptocurrencies in a large number.
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Hybrid wallets are not officially another type of crypto wallets but such a wallet is a combination of both hot and cold wallets. The hybrid wallets offer flexibility like that of a hot wallet and the high-end security like that of a cold wallet.
Sub-types of Cryptocurrency Wallets
An interesting aspect of learning about crypto wallets is that they are not limited to the types mentioned above. In fact, the two major types of wallets further have sub-types.
The sub-types of the different types of crypto wallets and their prominent features are mentioned below.
Hot wallets have the following sub-types:
- Desktop wallets
- Web wallets
- Mobile wallets – can be accessed anywhere if you have the mobile phone application
Cold wallets have the following sub-types:
- Paper wallets – this type of cold wallet does not offer high security as they offer the necessary piece of information on literal paper. It also has limitations in sending partial funds.
- Hardware wallets – the safest types of crypto wallets as they do not expose the private keys online
Understanding what are crypto wallets and what are the different types available is important for people as such information. It can help them determine which wallet is the best option for them. If you are new to the crypto space and want to choose a wallet then you need to have the information above.