Understanding crypto wallets: A guide to secure cryptocurrencies
Purchased cryptocurrencies but are now worried about the security of your crypto? Say no more! Because I’m here to help you out. In this article, we are going to look at crypto wallets and understand the two different kinds of crypto wallets that are Hot and cold wallets. We’ll also try to understand the kind of technology they work on. Let’s deep dive into the world of cryptocurrency and the wallets securing our cryptocurrencies.
So, before we move on to discussing the crypto wallets, we need to have a basic understanding of cryptocurrency. So what is cryptocurrency? Unlike normal currencies like Dollars and Euro which you can touch or feel, governed by a central authority, cryptocurrency is a digital currency not governed by any central authority based on blockchain technology and works in the digital world. A few examples of cryptocurrencies are Bitcoin, Ethereum, etc.
Now that we have a basic idea about cryptocurrency, let's understand crypto wallets and why we need them.
Let’s try to understand this with an example, suppose you have $100 with you and you are aware of the fact that other people might try to steal that $100 from you now in this case what will you do to keep your money safe? Would you carry that $100 in your hands or will you try to keep that in a safe place such as your wallet?
You will keep that in a wallet, this is the same concept that applies to your digital currency or cryptocurrency. When you purchase a cryptocurrency there’s always a threat that someone might steal your cryptocurrency or make an unauthorised transaction. Thus, to save oneself from these frauds and unauthorised transactions, one requires a wallet to keep those cryptos in a safe place and that wallet, called a crypto wallet.
There are two kinds of crypto wallets
Hot wallet and Cold wallet. Let’s look into these two to understand the difference between these two and the mechanism each of them works.
Hot wallets are wallets, connected to the internet. In this wallet, private keys are both stored as well as encrypted on the app itself, kept online.
People often use this wallet to store their cryptocurrency. But one of the main drawbacks of this wallet is that it's connected to the internet and this flaw makes the use of hot wallets a risky game as computers have some hidden vulnerabilities and are targeted by hackers to break into your system and conduct an unauthorised transaction.
Therefore, keeping a large amount of cryptocurrency in your hot wallets is not considered a wise decision. Having said this, the risk of the hot wallets can always be lessened by using stronger encryption.
Few examples of hot wallets:
Unlike hot wallets, cold wallets are not connected to the internet and are completely offline. Due to this feature, cold wallets, considered as more secure than hot wallets. But, there are also a few flaws of cold wallets that it’s not as convenient as the hot wallet. So suppose in case you want to make a quicker payment you’ll be able to do it with hot wallets more conveniently than cold wallets.
Secondly, Cold wallets are more expensive than hot wallets thus, not everyone enjoys storing their cryptos in cold wallets.
Few examples of cold wallets:
Hot or cold: The best wallet?
There is nothing such as the best wallet, each wallet has its drawbacks and its advantages. It depends on the user and the needs of a specific user.
People who have just entered into the world of cryptocurrency or are regular traders who often make payments that are too quick and online payments. For them, the best wallet would be a hot wallet as it fulfils all the requirements of the user.
For people who have stored large amounts of cryptocurrencies for a long period and are ready to compromise on efficiency over security, cold wallets would be the perfect choice as it fulfils all the needs of the user.
There’s no thing such as a perfect crypto wallet as each user has their own needs and to understand which wallet would be efficient for you, you first need to look into your needs as a user, and then only you’ll be able to go for a wallet most suited for you.
Thus, before jumping into any of the crypto wallets, you need to first do your research, understand your needs, and then proceed further.