Crypto has become an important investment and trading tool for people. But behind the scenes, blockchain is the infrastructure propping up all digital currencies. It is the critical concept that helps facilitate the secure storage and transactions of crypto assets. And with the recent events in the crypto sector in 2022 – with users losing their funds across a variety of scandals, bankruptcies and what not – which crypto wallet should I use? is a good question to ask.
To answer this, we must first understand what a crypto wallet, or a blockchain wallet really is.
A crypto wallet is required for all transactions related to cryptocurrencies. Think of it as similar to the payment apps that people use for conventional fiat transactions. The only difference here is the generation of private and public keys related to the wallet and that it is hosted on the blockchain network.
The blockchain wallet makes use of a public key as your “wallet address” (like your bank account number) and your “private key” (like your ATM pin), to operate. So now you know that you can receive crypto by sharing your public key, and you can access or spend your crypto by using your private key.
A public key is generated for every user that creates an account on a blockchain wallet. This key is provided for transactional usage and is like the user id of your wallet. In order to access the wallet, a private key is provided to the users, which is highly secure and needs to be confidential as it works as the password for the wallet.
Types of Crypto Wallets
Source: ArbiSmart / Hot and Cold wallets
Based on the level of encryption offered and the use of private keys, blockchain wallets are of two types as well – Hot Wallets and Cold Wallets. They are meant for different purposes and thus have different levels of security as well.
Hot Wallet
The first kind of blockchain wallet is a hot wallet, which can be considered the same as a conventional payments app. They are generally meant for quicker cryptocurrency exchanges and also offer slightly lesser levels of security to the users. A hot wallet is available for use through a website or app-based login, which is connected to the internet. One of the reasons why a hot wallet offers faster transactions to the users is that it often stores its private key on a cloud for quicker access. It can be used by traders for the purpose of peer-to-peer transfers as it is fast and easy to use.
Types of hot wallets
- Desktop wallets: It is one of the most commonly used hot wallets since it only requires the users to download software on the desktop. Such software then allows the users to create their id on the wallet and store the private key on their desktop cloud for transactions.
- Web Wallets: Another kind of hot wallet is the ‘on-the-go’ kind, i.e. a web wallet. Users can access this wallet through a website which in turn also stores the private key for your account. Some multi-signature web wallets also offer encryption by asking for co-applicant and their logins to access the account.
- Mobile Wallets: If you want to perform the transactions and store your crypto assets on your mobile phone, then a mobile wallet is of use to you. This kind of hot wallet stores the private key on the mobile cloud and offers flexibility to the users for exchanging funds.
Examples of hot wallets
Hot wallets are commonly used globally for the purpose of faster transactions and trading. Some of the most commonly used hot wallets are; Enjin wallet, Exodus wallet, Metamusk, Lbank, Phantom, etc.
Advantages & Disadvantages of hot crypto wallets
Merits:
- They offer an easy setup and are pretty intuitive to use.
- 24/7 connection with the internet offers faster transactions and easy access to funds.
- They are generally free for download and use.
Disadvantages:
- In case a hot wallet is hacked (via a crypto exchange or an app, for example), exploited, or shut down, it may cause a loss of investments as there are no chances of recovery from a hot wallet whose funds have been moved.
- Hot wallets are themselves vulnerable to hacking as private keys are stored on the cloud and can be stolen.
Cold Wallet
Another kind of blockchain wallet is the cold wallet. Users of a cold wallet have generally higher security for their funds and lower stress. A cold wallet is also called a hardware wallet since the private keys are not stored online. They are stored in devices like a pen drive or a storage vault. Such wallets are also used for day-to-day transactions, but the users have to provide a private key to access the secure storage vault. A cold wallet basically stores crypto assets in offline form and thus offers high levels of encryption.
Types of cold wallets
- Paper wallets: As the name suggests, they are basically crypto wallets that store all the wallet information and private key on a paper document. In order to access the cryptocurrency storage, the users would require all the information from the secure paper document, which thus offers additional security to the funds.
- Hardware wallets: These are the true definition of a cold storage for cryptocurrency. A hardware wallet stores private keys and other confidential information about accessing the funds on an offline hardware device like a USB drive. Users have to first access the storage device by passing the encryption and then upload the wallet details online to complete the transactions.
Examples of cold wallets
Cold wallets are usually more secure and are used by people who have huge amounts of valuable crypto assets. Some of the commonly used examples of cold wallets are Ledger Nano X, Trezor Model T, Coolwallet Pro, KeepKey, Keystone Pro, etc.
The Benefits & Drawbacks of cold crypto wallets
Benefits of cold crypto wallets
- They offer cold storage and confidential blockchain wallet credentials non-custodial in nature.
- They are highly secure and thus least prone to any theft.
Drawbacks of cold crypto wallets:
- Cold wallets require extra effort to complete the transactions as the wallet info is stored offline and needs to be uploaded every time you want to do any transaction.
- Hardware wallets can be expensive, as the users need to have access to a complete computing setup to enable them.
- They can be inconvenient at times for users who just want faster transactions like that of a mobile wallet.
Which Crypto Wallet is Best For You?
Source: Antier Solutions / Right kind of crypto wallet
Hot and cold wallets both have their own pros and cons. The question about their usability depends upon the kind of user depending on whether they want to invest for the long term or do short-term trading. Since both wallets offer different options to users, it is best that one uses both of them through a crypto exchange that offers both services.
Millionero is a crypto exchange that offers users hot wallet functionality. So users get convenience, as well as highly secure SSL-level server encryption to keep funds safe. Sure, such a hot wallet may still not be as secure as a cold wallet. So we encourage users to keep a majority of their funds in cold wallets, while retaining their trading or investment funds in Millionero’s secure hot wallet.
In case you want to perform short-term trading, the hot wallet option by Millionero will suffice all your needs and thus provide secure and fast transactions.
To conclude, choosing the right crypto exchange like Millionero and balancing your storage amounts can fulfill both your needs for a hot and cold blockchain wallet.