Crypto wallets are software, apps, or hardware devices that allow you to interact with several blockchain networks by facilitating sending and receiving cryptocurrencies. They allow you to store, send, and receive cryptocurrencies. Simply put, crypto wallets are used to manage your public keys and private keys.
You may argue, crypto coins aren’t physical but are digital codes that represent value. So, what are we storing in crypto wallets? What is a Bitcoin wallet or ERC20 wallet used for? Hold on, this article will answer these questions and many more.
Let’s get started.
Private Keys and Public Keys
When you say you own a certain amount of Ethereum tokens (or any cryptocurrency), you don’t own physical coins. Instead, you own the private keys to access those crypto funds. While your private keys give access to your crypto assets, public keys allow you to receive cryptocurrencies. Public keys are the digital addresses of your crypto accounts. Think of private keys and public keys as your bank account password and bank account number.
Remember, no one can trace your private keys using your public keys. However, compromising your private keys will cost you your crypto holdings.
Where to Store Cryptocurrencies?
Crypto thefts are all over the place; one mistake, and your crypto funds are gone.
Storing your crypto funds on exchange platforms is not recommended as they will have access to your private keys. And as discussed earlier, one who has the private keys has access to the cryptocurrencies attached to them. Thus, you should store your crypto tokens in crypto wallets as then, only you will have access to your private keys.
Different Types of Crypto Wallets
There is no one-fit-for-all crypto wallets. Different cryptocurrency wallets serve different purposes. Some are used to store funds that you trade every day, while some are suitable to store large holdings.
Also, wallets are crypto-specific; for instance, a Bitcoin wallet will store BTC units, while an ERC20 wallet is used to store Ethereum and ERC20 tokens. Nonetheless, some wallets are multi-currency wallets that support several cryptocurrencies.
There are three types of crypto wallets –
1. Software Wallets (Hot Wallets)
Software wallets are connected to the internet. These hot wallets are suitable for storing crypto tokens that you often trade.
These are the types of software wallets –
- Web: Web wallets are used to access your funds via a browser interface without downloading any software. Most of the browser-based wallets hold and manage your private keys, while some wallets give you total control of your private keys.
- Desktop: A desktop wallet is a wallet software that is locally stored on your personal computer. These wallets give you full control over your funds.
- Mobile: As the name suggests, mobile wallets are applications installed on your smartphone. Such wallets are convenient when you access your funds more often for trading. Mobile wallets give you full authority over your crypto assets.
As software wallets generate your private keys over the internet, they cannot be labeled 100% safe.
Take the following measures to secure your hot wallets –
- Activate two-factor authentication and set a complex password/pin.
- Keep your software wallet updated.
- Run virus checks on your devices frequently.
- Keep a backup ready
2. Hardware Wallets (Cold Wallets)
Hardware crypto wallets are devices like USB sticks that store your private keys offline. Such wallets are the safest way to store cryptocurrencies as they do not generate your private keys over the internet. As a result, cold wallets are perfect for storing large crypto funds.
These wallets are not compromised even if you plug them into a malware-infected device. Also, you must not worry about your cold wallet being lost, given that you have secured it with a robust password and have a backup. Ledger devices are the most popular cold wallets.
3. Paper Wallets
A paper wallet is a piece of paper with a crypto address and private keys printed on it. These wallets are not for inexperienced users as you must be extra careful while you generate paper wallets.
Paper wallets are indeed secure; however, they are now deemed unfit for usage as these wallets can only transfer funds in their entirety. For instance, if you want to transfer funds 2 BTC from your 10 BTC balance, you will first need to transfer 10 BTC to a different wallet and then spend 2 BTC units from that wallet.
The Bottom Line
How you manage your private keys determines how safe your crypto funds are. Considering numerous attacks on several cryptocurrency exchanges, holding your cryptocurrencies in an exchange platform is a big no.
To choose a crypto wallet, ask yourself whether you are storing funds for daily use or you want to hold them for a longer period? Depending on your answer, select a crypto wallet. After you have your wallet ready, employ additional security measures such as two-factor authentication and strong passwords. Moreover, you must always keep your backup ready.