Today the crypto world is growing rather fast as more people, organizations, and governments appreciate the benefits associated with blockchain and cryptocurrencies. Recently, El Salvador joined in by making Bitcoin part of its legal tender. At the individual level, cryptocurrencies come with many benefits, such as making sending of value easy, fast, and affordable.
Cryptocurrencies also have awesome options for a person looking to make passive income, such as crypto staking and crypto lending. No matter how you want to use cryptocurrencies, the one must-have component is a crypto wallet. In this post, we will take a closer look and answer the big question – what is a crypto wallet?
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What is a Crypto Wallet?
A crypto wallet is a device, program, physical medium, or service used to store cryptocurrencies. Although it functions as the standard wallet used to store notes and coins, it is entirely different because crypto coins are not tangible. The wallets store a string of codes that signify that you own the coins.
How Does a Crypto Wallet Work?
A crypto wallet is designed and developed to help you send and receive crypto coins. When you log into or plug your wallet into a computer, it acts as your identity and account on the respective blockchain. Therefore, if you already have some coins and want to send them, the blockchain will be able to check back and confirm that, allowing the transaction to continue. If you do not have enough coins, the transaction will not go through.
Every wallet works with two core codes, the private and public keys, that make it possible for you to send and receive crypto coins. The public keys are a string of numbers and letters generated by the crypto provider or blockchain and can be likened to an account number. Here is an example of a public key, B1fpARq39i7L832ywJ55xgV614. So, when a person wants to send you some coins, you give him/her the public keys. See-just like you would give someone your account number to pay money into your account.
Like the public keys, the private keys are another string of codes, but this one MUST be kept private all the time. This is like your password to your crypto coins. Therefore, when you want to send crypto coins to another person, what you require is a private key. So, you first sign in or plug your wallet to the computer with a blockchain client (node), such as Eth1 mainet client, and then enter your private keys; this will help you to see your balance and history.
The Main Types of Crypto Wallets
Crypto wallets can broadly be categorized into cold and hot wallets. The main difference is that the hot wallets are always connected to the internet while the cold ones are offline. Let’s look deeper.
These are digital tools used for storing crypto coins, and they remain connected to the internet all the time. You can easily access this type of wallet via your laptop, desktop computer, or smartphone to monitor your coins, send, receive or trade them. Depending on the hot wallet of choice, it might be accessible through a wide range of browsers.
The main reason people use hot wallets is that they are very convenient. When you acquire a hot wallet, the private and public keys are stored in the wallet’s application or website. Therefore, you can easily access the wallet anywhere if you have an online connection. Therefore, people who travel a lot and use cryptocurrencies for shopping or making payments might find this wallet very useful.
Although very convenient, hot wallets always face a more significant risk of attack because they are always online compared to cold wallets. Most hackers look for hidden vulnerabilities, especially on the software that supports the wallet, or deploy malware to attack the hot wallet. Most hackers have a preference for wallets that are hosted by exchanges because they are sure of getting a lot of coins.
- Very convenient because you can easily access them from anywhere.
- It is pretty easy to recover lost private keys compared to cold wallets.
- Opening a hot wallet is a lot easier compared to a hot wallet.
- Higher risks of getting attacked compared to cold wallets.
- Your keys are kept on the website, and there is a risk of other parties, such as the wallet developer, accessing them.
Cold Crypto Wallets
Cold crypto wallets are the direct opposite of hot wallets. Instead of storing your keys online, they are stored in hardware or a sheet of paper. Hardware wallets are designed in the form of
USB drives that allow you to access, sell, or buy the preferred coins when plugged into a computer. Another type of cold wallet is a paper wallet, which can have private keys engraved on any material, written on a piece of paper, or printed as a QR code.
Unlike hot wallets, cold wallets are designed to be hard to crack. Simply put: unless the hacker uses some form of a phishing attack, there is no way he will be able to get the private keys remotely. So, a hacker would first have to steal the drive and then crack the password to access your coins.
The biggest challenge when using cold crypto wallets is that losing the hardware or the paper and having not backed the code means losing the coins stored in it. Therefore, you must be extra careful with the wallets and keep them safe.
- It is more secure compared to hot wallets.
- Many hardware wallets today are supported by hot wallets.
- You feel that you are the one holding your coins (no reliance on third-party websites/providers).
- Recovering your coins without a backup is nearly impossible.
- Most transactions take longer when using hardware wallets compared to hot wallets.
- Compared to hot wallets, they are less convenient when targeting to make regular payments, especially on the go.
How to Select the Best Wallets?
Now that we have looked at the top categories of crypto wallets, it is time for you to select the preferred one. There are so many options, which is a good thing, but it can also make choosing the right one a big challenge. So, here are crucial tips to help you pinpoint the best option:
1. Check the Manufacturer or Developer’s Reputation
One way of establishing if a crypto wallet is a good pick for you is by looking at the developer or manufacturer. The best option is to go with brands that have demonstrated commitment to
quality and value. To know this, check the developer’s websites to establish if their mission and vision are focused on customer satisfaction. In addition to checking their site, consider following back to see what past clients have to say about the wallet. If they were satisfied, this might be an excellent option for you too.
Even if past users indicate they liked the wallet, carry additional due diligence to establish if it is okay for storing your coins. For example, does the wallet support the type of coins you hold?
2. Look for Crypto Wallet that Comes with Good Security Features
It is not uncommon to hear people crying that their crypto coins have been stolen from their wallets after hackers broke them. Therefore, it is paramount to look for a wallet that offers maximum security to your coins, and you can know this by checking security features. One of the most important of these features is the 2-factor authentication (2FA).
This feature helps by requiring you to confirm that you are trying to access the wallet, not an imposter. In most cases, they send push notifications to your phone or email and will only open if you confirm. So, if the hacker accesses the wallet and manages to hack the first layer, it will be impossible to access the coins without your confirmation. This will also alert you about the attempted theft, prompting you to change the password. Other security features to check include:
- Authentication via biometrics
- Password protection
- Auto-log off session after a long session of inactivity
- Multiple signature support
3. Technology Use in the Wallet
As technology advances, it is vital to select a progressively improved wallet without risking your crypto coins. For example, many open-source wallets are designed with codes that are surveyed by third parties, which is a good thing because emerging issues can be detected early and rectified on time. However, many people feel insecure when using such advanced wallets.
Therefore, ensure that the selected wallet is clear on who will hold or be responsible for the private keys. Although there are wallets that allow servers to hold the private keys, the best way is to only use wallets where it is only you who has the private keys.
You might also want to work with different wallets to keep your coins safer. For example, a combination of hot and cold wallets can be an excellent choice. This means that you will not lose all the coins in the event of an inevitable hack.
4. Go for the Wallet with Features for Reinforcement
In selecting a wallet, such as a software wallet, you are at risk of a loss if the PC crashes; this is a common risk that could easily wipe away your coins. A good crypto wallet should come with reinforcement that makes it possible to recover the coins. For example, the software might have some backup on the cloud to create an account, backing up your work, including the private keys. Again, make sure to review such backups to ensure the presence of good security features.
Whether you prefer a desktop, hot or cold wallet, one fact is that it should be structured to work with different gadgets that you use. If you want to use a hardware crypto wallet, it should be easy to plug into your computer, no matter the operating system, and allow you to send your coins. Again software wallets should be easy to install and run in your operating system. Good examples of crypto wallets that work with most operating systems, from Linux to Windows, are those designed with white label biting programming.
Before selecting a crypto wallet, check the developer’s description for confirmation that it can work with your operating system. If unsure, you might want to reach out to the company’s support that developed for verification.
6. Secrecy of Clients
Every person wants to know that his/her financial information with financial providers will always remain confidential. Most hot wallets require one to create an account with information such as email and other personal details, it is crucial to ensure they are kept as confidential as possible. So, check the wallet provider’s confidentiality policy to confirm that at no time will your information get to third parties without consent.
7. Good Customer Support
Like other devices or computer programs, the best crypto wallet should come with good customer support. With reliable support, it implies that you can solve any issue that might arise when installing or using the crypto wallet. Good support should be available in different channels, including live chats, a knowledge base, and a phone line. Email support would also come in handy, especially when making lengthy and extensive inquiries.
This post has demonstrated that a crypto wallet is one of the most important things when you decide to get into the crypto world. Whether you simply want to buy cryptocurrencies for investment or trade them regularly on the exchanges, among other uses, it is a must to have the right wallet. In addition to using the tips we have highlighted above, it is crucial to work with hi.com for assistance with navigating through the complex landscape of the crypto world. At hi.com you can buy cryptocurrencies using fiat or other cryptos, and get all that you need about cryptos. Visit us today for assistance, guidance, and services related to cryptocurrencies.