Types of cryptocurrency wallets

A cryptocurrency wallet is a tool that is used to manage digital assets and interact with blockchain networks. Despite popular belief, it does not store funds, but only guarantees the user’s ownership of a part of the finances in the blockchain, which is why the principle of its operation can be compared with a classic bank account.

In simple words, if you have 10 BTC on your crypto wallet, this means that out of all the coins that are in the Bitcoin blockchain, you have the right to dispose of ten coins at your discretion – to transfer to other addresses, pay for goods, and so on.

Each crypto wallet has an address with an alphanumeric identifier generated based on the public and private keys. From a technical point of view, these are some kind of “coordinates” in the blockchain network to which digital assets can be sent.

Accordingly, you can share this data with other users to receive transfers. At the same time, the private key itself can be compared with a pin code from a card that opens access to financial management, so it must be kept secret.

All existing cryptocurrency wallets can be divided into three main types: software, hardware and paper. In addition, depending on the mechanism of operation, wallets are hot and cold. However, this is a fairly general classification, and in order to understand this topic in more detail in this article, we will delve a little into the details.

Hot and cold crypto wallets

«Hot» are any cryptocurrency wallets that are connected to the Internet.

They provide fast and convenient access to digital assets, and are often designed to store small amounts. This type of wallet is most common among active users and traders.

At the same time, «cold» crypto wallets operate offline without connecting to the Web. They often use separate physical media to store keys, which makes them the most resistant to hacking. This method is also known as «cold storage» and is intended for the long-term storage of large amounts of assets.

As the name implies, they are an ordinary sheet of paper on which an address and a private key are printed in the form of QR codes. To carry out transactions using such storage, the user only needs to scan the code and send it for processing. Some sites provide the ability to download the wallet code for further generation of the address and private key offline, due to which the security of such storages increases significantly and can even be compared with “cold” counterparts.

However, paper cryptocurrency wallets are rarely used, and one of the main reasons for this is the inability to send part of the funds. That is, if you have 5 BTC in your account, for example, and you want to send 3 BTC to someone, this will require you to first withdraw all the coins to a different type of hot wallet, make a payment, and then create a new paper wallet to put it there residual amount. Of course, this approach is not the most convenient.

Software wallets are considered the most common and can provide the user with many options for convenient asset management. At the same time, they are often connected to the Internet, so by definition they are hot.

There are several main types of software crypto wallets. Let’s consider them in more detail.

Mobile Wallets

A mobile cryptocurrency wallet is a classic application that is installed on a smartphone. This is convenient enough for daily use, since the user gets the opportunity to make transactions in a few clicks, including using QR codes.

However, along with convenience, such wallets are quite vulnerable to viruses and malware.

Therefore, in order to keep their assets as secure as possible, users are advised to create a strong password and generate seed phrases that will allow them to regain access to the vault in case the physical device is lost or stolen.

Desktop wallets

By analogy with mobile crypto wallets, they are separate software that is downloaded and installed on a laptop or personal computer.

At the same time, the private keys of the wallet are stored on the hard drive, which ensures a sufficiently high level of security, but the threats from viruses and other malware still remain. When storing digital assets in this way, it is recommended to back up the private key file and generate seed phrases so that you can restore access to the wallet in case your computer becomes unavailable for any reason.

Web wallets

Web wallets make it possible to access the blockchain directly through a browser interface, without the need to install separate software on the device.

This option is quite convenient, since the user is not “tied” to a specific computer or smartphone, but at the same time, he is the most vulnerable. This is due to the fact that you completely entrust the protection of your private keys to a third party, for example, a crypto exchange, which ensures the operation of the wallet. Plus, you should also not forget about other potential threats, such as viruses, phishing, and so on.

The choice of how to store cryptocurrency often depends on the needs and tasks of a particular user, but the security of assets always comes first.

If you want to create your own storage that will not depend on third-party services and companies, please contact AVADA MEDIA.

Our specialists have extensive experience in blockchain development and will help you create a reliable cryptocurrency wallet equipped with all the necessary features and capabilities. For the implementation of such projects, we have already formed development teams with established communication and interaction experience, which makes it possible for us to guarantee the high quality of the product, regardless of the complexity of the work.