- July 5, 2022
- |Cryptocurrency, University
When it comes to storing crypto, choosing the right type of wallet to keep your digital assets is a crucial decision all crypto owners must make. If you have found yourself wondering “What kind of crypto wallet should I use?”, then you should find the answers you seek below.
Many different types of crypto wallets exist to hold crypto, each with specific advantages and disadvantages. When choosing the right crypto wallet for you, it is imperative to understand and weigh the differences between different types of crypto wallets, based on your cryptocurrency investing needs.
When choosing a specific type of wallet, one must consider the level of security they want for their digital assets and the amount of convenience they prefer. Ultimately, the decision is unique for everyone, and there is a cryptocurrency wallet made to fit everyone’s needs.
What Is A Crypto Wallet?
To begin, one type of crypto wallet is a hot wallet which is essentially a wallet that connects to the internet. These crypto wallets generally offer less security because they are accessible from the internet, making them more vulnerable to hacks. That said, they are still quite popular as they are easy to access and very user-friendly.
The opposite of a hot wallet is a cold wallet. Cold wallets are typically offline and are usually much more secure than hot wallets due to their offline function.
Usually, it is a more intelligent idea to store large amounts of crypto on cold wallets due to the security advantages.
Another type of wallet is a hosted wallet. A third-party provider provides hosted wallets.
Typically, platforms such as online exchanges will provide you with hosted wallets to store your crypto, but remember that this third party is actually holding your digital assets.
As a result, the security of your assets is dependent upon this third-party’s security measures which may be risky for users with a large amount of crypto. Essentially, hosted wallets are incredibly convenient to use but do not provide the best security measures as you do not actually have control of the crypto, unlike when storing them in a cold wallet.
The opposite of a hosted wallet is a decentralized wallet, where the wallet is managed and maintained by yourself. With a decentralized wallet, you are not relying on a third party. As a result, decentralized wallets are typically a much safer option for people who have a large amount of crypto. Since the wallet is decentralized, you can participate in direct peer-to-peer transactions with other wallets. Again, there is no third-party monitoring of the transactions, so your crypto is safe from security breaches.
More On Crypto Wallets
These categories break into smaller subcategories among hot and cold wallets. For example, a specific type of cold wallet is a hardware wallet.
A hardware wallet is one of the most secure cold wallets because they are entirely offline and store a private key that will never leave the device. The only way to access a hardware wallet is by having a specific private key, which makes it one of the most popular ways to store cryptocurrency due to its security.
On the flip side, a software wallet is a specific type of hot wallet where the software includes mobile, desktop, and web. This type of wallet involves using an application to help manage the wallet and provide much more flexibility when it comes to accessing it. Typically, you can access software wallets from any location, providing maximum convenience, but at the expense of less security.
Now you have the knowledge you need to choose what kind of crypto wallet you should use. Just remember, when choosing the best crypto wallet, evaluate what your specific needs are first. This decision can make all of the difference!
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