Cryptocurrency can be stored, exchanged, or used to make payments. To own digital currencies, you need a place to store them. Such storage needs to be secure, private, and reliable in receiving, keeping, and sending crypto.
While handling fiat currencies, you may opt for a conventional physical wallet to keep your hard cash or a bank account for electronic money. Since crypto is entirely digital, the storage is different. Digital currencies can neither be stored on physical wallets nor kept as bank balances. You need a cryptocurrency wallet when dealing with such digital coins.
What Is a Crypto Wallet?
A crypto wallet is an online application that supports the receipt, storage, and transfer of cryptocurrencies. These wallets integrate with different blockchain networks to hold the coins issued on the platforms.
The wallets keep track of public crypto keys used for signing crypto transactions for respective distributed ledgers. These keys prove a user’s ownership of digital currency and are thus vital in the crypto environment. Crypto wallets are available for personal computers (PCs), mobile devices, and even standalone hardware.
How Crypto Wallets Work?
Digital currencies are not directly stored in the crypto wallets, as the name may suggest. Instead, the wallets store the keys that connect to the digital tokens on the blockchain networks.
To understand how crypto wallets work, consider the email. There’s an email service provider such as Google, Outlook, and Yahoo that facilitates sending and receipt of emails. When you open an account with any email service provider, it is through your email address – which is your account – that you will receive or send emails. Also, you can publicly share your address to those who need to send you an email.
Similar to emails, you need a unique personal address to receive cryptocurrency, known as public keys. You can share these keys with anyone who needs to send you digital coins, and your crypto balance will remain secure as your private keys are not shared.
Another critical feature of an email account is the password. You can securely access your email account at any time from any place, and by successfully logging in to the account, that is, by having valid login credentials. Unlike your email address, your password is more private. Similarly, for crypto wallets, you need an access key to your account, the private key. Private keys for crypto wallets are automatically generated. Ensure to keep the keys safely, preferably writing them down and keeping them offline, as anyone with access to the keys can steal your funds.
A Public Key
Public keys are cryptographic codes generated when you create a crypto wallet. The keys allow the account holder to receive digital assets in their wallet. Each wallet has a unique key for receiving its crypto assets. The keys are a long series of numbers letters.
Bitcoin blockchain addresses often start with the number “1” or “3” and could look something like 1FZbgi29cpjq2RheqL8eyHuJJnkLtktZc5. Ethereum blockchain wallets are quite longer than bitcoin addresses and often start with “0x” and could look something like 0x71T7656EC7ab09b065defB751Bh401B5f6d8976F.
Crypto wallets also often generate quick response codes (QR codes), which senders can scan to accurately transfer digital coins to your wallet as writing down these long addresses may be subject to frequent missteps that may cause a wrong address transfer. So, QR codes are a safe shortcut to typing the entire address to send funds to a recipient.
A Private Key
A private key is also a cryptographic code consisting of numbers and letters. The keys allow the wallet owner to access the funds in their address and enable the wallet to connect to the blockchain when transferring digital coins to another account.
Whoever has your private key has control of your digital assets as they can send them to any destination at any time they wish hence the common crypto phrase, ‘Not your keys, not your coins.’ Private keys can take different forms, such as mnemonic phrases, 64-digit hexadecimal code, 256-character long binary codes, or QR codes.
A private key also helps in generating public keys. This is a one-time, and one-way process thatthat helps maintain the security of wallets. You cannot generate a private key from a wallet address.
A wallet’s primary function is to create, store, and deploy the private key. The private key remains the most critical element of the wallet. For instance, if you lose your mobile device or PC which holds your bitcoin wallet app but still have your private key, you can download the app on a new device, import the keys to the and restore your wallet with all funds.
⭐️ 6 Most Secure Crypto Wallets in 2022
What Is A Cold Wallet?
A cold wallet also referred to as cold storage, is any crypto wallet that is not connected to the internet. Examples of cold wallets are hardware wallets, brain wallets, and paper wallets. Generally, cold wallets are non-custodial, meaning you alone own and control your private keys.
Hardware wallets are physical storage devices that will connect to your device to store your account’s private keys offline. Hardware wallets are designed to protect users’ private keys even when connecting to compromised computers. This is a best practice for securing crypto assets that one expects to hold for longer.
Paper wallets when one writes their private keys on a piece of paper and safely stores it where only they can access it. However, paper wallets could land on the wrong hands or get damaged. You may opt to create multiple copies of such papers and keep them safe.
The major advantage of a cold wallet is that it offers guaranteed security for your digital assets. Since the keys are stored offline, the wallets are protected from hacking, and even when they are connected to your computer, cold storages remain secure. Cold wallet hardware is designed to enter the password on your hardware device rather than on your computer. The wallets are also encrypted with pin protection, with some having extra layer protection of biometric authentication. In addition, you do not trust any third party with your keys. However, you should not carry your wallet everywhere to avoid losing it. You can even store it in a safe or bank vault.
Cold wallets also have a recovery feature. During the initial configuration, you will need to write down a seed phrase recovery that you can use to recover your tokens if your wallet device is lost or damaged. You can also import recovery data when you get a new device and access your assets immediately.
The signing of cold storage transactions is done in-device – meaning your private keys never leave your device. So, you can only lose your funds from your cold storage if you lose your hardware wallet device and its password.
One major disadvantage of hardware wallets is the inconvenience of carrying your physical wallet when you need to send crypto. Despite being usually small and easy to carry around, you might easily lose the wallet and irretrievably lose your digital assets.
Additionally, cold wallets are expensive compared to hot wallets. For example, to own a Ledger Nano X and Trezor T cold wallet, you’ll have to part with at least $100.
What Is A Hot Wallet?
Hot wallets are forms of cryptocurrency wallets that are connected to the internet. They are the most common cryptocurrency wallets. They include web-based wallets, desktop wallets, and mobile wallets.
Mobile wallets store keys on your mobile device. Although mobile devices could get lost or damaged, you can securely store recovery phrases for your wallet to recover your crypto funds on a new device. You can also enable two-factor authentication (2FA) to boost the security of your mobile wallet. Such wallets are highly convenient, as you can access your wallet and funds any time you connect to the internet.
Desktop-based wallets store your private keys on your PC. Your digital funds will remain safe as long as your computer is free from malware attacks. However, it is barely possible to protect our PCs from such attacks. Users may avoid such vulnerabilities by deploying cybersecurity best practices to avoid phishing and other malware attacks that could expose their crypto wallets to threat actors.
Web wallets are also web-based applications that store crypto. They include crypto exchanges, betting sites, wallets, and other service providers platforms. The operators of such platforms keep users’ private keys for crypto funds stored on their sites – also referred to as custodial wallets. Such hot wallets are also more vulnerable to hackers since those platforms act as a single target for cyber threats.
Hot wallets enable instant access to your tokens. If you are making quick transactions, you do not have much time to fumble with a USB connection. Mobile wallets enable you control over your digital assets at any time and in any circumstances.
Most hot wallets are also easy to install and operate. They have user-friendly interfaces. Some wallets also have inbuilt exchange within the application, improving users’ experience.
Hot wallets also beats hardware wallets in flexibility. These wallets allow storing multiple cryptocurrencies. Additionally, they are updated and can continue improving user experience.
Hot wallets are free, unlike cold wallets, which require users to buy gadgets. You only need to access the app through a web or an application, create an account and start using the wallet.
Most hot wallets also enable wallet key recovery. You can easily retrieve your lost private key and take back control of your wallets.
Since they are software, hot wallets are immune to any physical damage. This is a key benefit since lost private keys vehave locked many millionaires out of their fortunes. For example, Stefan Thomas, a German-born programmer living in San Francisco, lost 7,002 Bitcoins because he forgot the private keys to his wallet. To put this into perspective, 7,002 bitcoins are worth $312.9 million. Thomas’ case is just one of many such cases happening in the crypto industry. Statistics published in the New York Times show that 20% of the existing Bitcoin is lost in a stranded wallet!
Hot wallet providers also offer custody of digital assets. Some investors prefer not to bear full responsibility for keeping their digital tokens. The opt for the services of third-party custodians. A custodian wallet means another party controls your private keys. In addition, since custodians are fully focused on keeping them safe, there are fewer chances of losing them.
Hot wallets are less secure since they are connected to the internet hence vulnerable to online attacks.
Having a hot wallet also means you are dependent on a third party to keep your keys. Many wallets provided by the exchanges do not give you access to your private keys. You only get a login and password to access your account. Additionally, you cannot do any transaction without an intermediary. In this case, you do not have complete control over your funds.
Finally, you may lose your tokens in a cold wallet if your hot wallet provider closes and your funds are not insured. The same happens if the wallet is hacked.
Hi Wallet – Beginner’s Crypto Wallet of Choice
Hi.com is a blockchain-based crypto services provider, offering users a secure digital cryptocurrency wallet and high-return staking program. Its highly convenient wallet is available across major mobile platforms (iOS and Android) and PC. hi wallet is free, and signing up is simple.
What’s more, hi wallet allows you to send funds to your friends at no extra cost. You can also trade your coins via the Hi.com exchange as a one-stop platform. Hi also has a native cryptocurrency known as HI. Currently, the platform has over 3 million active users and rewards users with HI through interactive and referral programs. Users can additionally secure their wallets by completing the platform’s multifactor authentication (MFA) and knowing your customer (KYC) requirements.
Hi’s staking program offers one of blockchain’s highest annual percentage yields (APY), up to 40% for holding your funds on the Hi wallet. The wallet supports many cryptocurrencies, including DAI, BTC, ETH, DOGE, LTC, USDT, USDC, and HI. To sign up for your Hi Wallet, you can use WhatsApp, Telegram, or visit this page.