What are Crypto Wallets? 5 Types of Crypto Wallets

Source: Coinbase

We all have seen a wallet right? What's the function or in simple terms use of a wallet?

The answer to that question would be to store your money or something that can hold actual cash but unlike normal wallets, crypto wallets function a bit differently. So first let's understand what exactly is a crypto wallet.

Crypto wallets are wallets that store a person’s private keys, keeping the crypto safe and ready to use. The other function of the wallet is to send, receive and spend cryptocurrencies for example bitcoin and Ethereum. These wallets come in many forms from hardware wallets like ledgers to mobile apps like coinbase wallets. These features of the wallet are what make using cryptocurrencies easy and handy to use.

Crypto wallets are an extremely efficient way of storing one’s crypto coins. A crypto wallet is used to interact with a blockchain network, there are three major types of crypto wallets that are hardware, software and paper wallets and based on the work they can further be classified as cold and hot wallets.

The software-based wallets are comparatively more convenient and accessible to use than a hardware wallet but the other one is more secure. Paper wallets are printed out on paper and are now obsolete.

Crypto wallets like I said before act as a tool of interaction with blockchain which means that basically, it facilitates generating the necessary information via the blockchain technology.

This information comprises pairs of both private and public keys. An alphanumeric identifier called address is generated based on these keys. Basically, this address specifies the location to which coins can be sent to the blockchain. The address can be shared but private keys are never disclosed. This private key can be used on any type of wallet for accessing cryptocurrency. Coins are just transferred from one address to another address without leaving the blockchain.

Source: Newgenapps

Categories of Crypto Wallets

The crypto wallets can be categorised on the basis of method and location of storage in the following segments:

Hot and cold wallets: Internet connectivity is the factor that basically differentiates hot and cold wallets. Hot wallets are connected to the internet which means that it might create a security risk but they are very user friendly and convenient to use. On the other hand, no internet connection is required for cold wallets. Cold wallets are more for long term holdings than daily transactions.
Hardware wallets: Hardware wallets are those types of wallets that look like a USB with an OLED screen and side buttons. These wallets are hardware devices that individually handle public addresses and keys. It can be connected to a PC and accessed by native desktop apps. They are secure and also quite a user friendly and are available in different forms, offering a reasonable amount of control.
Paper wallets: A paper wallet is a physically printed QR coded form wallet. Transaction of partial funds can happen which is one of the major flaws of the paper wallet. It can't be reused which added to the already existing disadvantage.
Desktop wallets: They are the third most secure way of storing cryptocurrencies and the best method for cold storage in a completely clean system. They are quite easy to use, giving privacy and anonymity to users. Popular desktop wallets are bitcoin core, exodus etc. these are installable software packs available for operating systems.
Mobile wallets: These are just like desktop wallets but are made for smartphones. They are also convenient to use as it uses QR codes for transactions. They are suitable for daily operations and the encryption of mobile wallets is necessary. Examples of mobile wallets are Coinomi and Mycelium.
Web wallets: These wallets are accessed by internet browsers. The private keys are held in some web wallets and they can be either hosted or non hosted. These wallets are ideal for small investments and allow quick transactions. They are not similar to hot wallets and also are not very secure. Examples of web wallets are metamask and coinbase.

Conclusion

There are many different types of crypto wallets that exist and it might be confusing as to in which wallet should one choose to store their crypto. Each and every crypto wallet has its own set of advantages and disadvantages so the choice should be made according to the need of a person.

Written by Aayushi Kumari Singh