What are cryptocurrency wallets?
A crypto wallet stores public or private keys for cryptocurrency transactions. These keys are passwords that give you access to your cryptocurrency. These wallets keep these private keys, making sure that your cryptocurrency is safe and accessible at all times. They come in a plethora of forms such as hardware wallets like Ledger or digital wallets such as Coinbase wallet (a mobile app).
In short, crypto wallets are much like your real wallets except it stores cryptocurrency instead.
What can you store in cryptocurrency wallets?
Crypto wallets generally store:
- Private keys
- Public keys (cryptographic code used to facilitate transactions between parties – e.g. to verify a digital signature)
It becomes important to note that crypto wallets do not store the cryptocurrency itself but rather the keys to access them. These allow the user to access their cryptocurrency and NFTs which are commonly stored on blockchains. (Find out more about NFTs here and EFTs here).
What’s a hot wallet?
A hot wallet also known as a software wallet acts as a form of digital storage that you can access either from your computer or mobile phone. It can be accessed via these devices due to it being connected to the internet.
Hot wallets are often free and commonly connected to cryptocurrency exchange sites. This type of crypto wallet is user-friendly and makes it easy for users to transfer cryptocurrencies back to an exchange for trading or to cash out their coins.
However, a disadvantage of hot wallets includes their susceptibility to hacking and digital attacks. This often occurs due to the wallet’s connection to the internet.
What’s a cold wallet?
A cold wallet also known as a hardware wallet acts as a more secure type of cryptocurrency storage. Moreover, it also stores valuable digital assets such as NFTs.
What’s a cold wallet?
Cold wallets are physical devices that keep cryptocurrencies offline. They often look like USB drives. Storing these assets offline help protect them from digital attacks and hacking that occurs in hot wallets.
However, this type of wallet does not include any backup form of storage, meaning that if you lose the wallet you risk losing all your investments. Additionally, cold wallets often need to be bought and cost anywhere from $50 to $200.
What is the best type of wallet for you?
The best type of wallet for you depends on your investments and goals.
- A hot wallet is recommended for smaller investment sums. They also can help investors that often trade their cryptocurrency.
- Cold wallets are recommended if the investor has a large amount of cryptocurrency or valuable digital assets such as NFTs. They can benefit investors that plan on holding their cryptocurrency for longer periods of time.
