Cryptocurrencies arrived at finances without prior notice. They’ve brought a significant change in DeFi economies in which users have major control over their currencies, values, and digital assets. And just like most transaction methods, bank accounts, and new finances, cryptocurrencies come with several risks despite their blockchain nature.

This is one of the reasons for creating crypto wallets – platforms that, beyond managing your crypto funds, protect your crypto money thanks to several security measures. There are several Types of Crypto Wallets you can use to protect your crypto transactions. In the subsequent sections, you will find crypto wallets explained. So, let’s delve into this important topic of the cryptocurrency and blockchain space.

A crypto wallet is a virtual purse where you save all your cryptocurrencies to carry out transactions based on blockchain technology. In honor of the truth, they do not store your cryptos but work like an intermediary tool with blockchain to send or receive money.

A cryptocurrency wallet encompasses public and private keys. When you need to approve a transaction, the wallet generates a unique combination of numbers and letters, which indicates where the money has to be sent or received.

Your private key can be used on many different cryptocurrency wallets. When the private key is known, the funds will be accessible in that wallet or device. Then, you can manage your funds from different wallets, either hardware or online wallets, at the same time.

Using crypto wallets during transactions in cryptocurrency exchanges is fundamental to a safe experience in the blockchain space. The direct benefits of using different wallet types are the following.

• They provide transaction confidentiality. One of the reasons for the existence of crypto wallets is to protect your funds and provide safe accessibility. When using a crypto wallet, all your data is confidently managed, i.e., your identification numbers, keys, and funds available. 

• They are easy to use. Crypto wallets are commonly designed to be easy to use and provide a smooth experience regarding transactions. Within a crypto wallet, you can manage multiple cryptocurrencies just with one click and conduct transactions. 

• They are an option for the long run in crypto exchanges. Even though cryptocurrencies are not publicly traded or are not so popular yet, it’s likely that in the near future, they will cover new markets, and most people will access them. This way, over the years, you can use your crypto storage across a wide range of institutions, markets, and other media. You can store cryptocurrencies and access various markets.

• Portfolio management. Crypto wallets provide a real-time glimpse of digital assets to crypto owners so they can better manage all their cryptocurrencies in a secure location. Within a crypto wallet, you will have access to graphs and techniques to measure the efficiency of blockchain transactions. This data is crucial to making the best financial decisions, after all.

There are two types of wallets: hot and cold crypto wallets. The first are commonly known as software wallets since they are based on applications that are connected to the Internet. Cold wallets, on the other hand, are commonly hardware devices whose crypto funds are stored offline.

Hot Wallets

A hot wallet corresponds to a wallet that is connected to the Internet. It makes them really easy to use, either directly from the browser extension or the crypto application. Most types of wallets you can find on the web are hot wallets since the velocity of processes requires transactions to be completed as soon as possible. There are three types of hot wallets.

Mobile Wallets

A mobile wallet is a kind of hot wallet that is designed to be used on mobile devices, mainly smartphones. This way, you can access your crypto funds quickly and securely directly from your mobile device with an activated Internet connection. The only problem with mobile wallets is they can be compromised if the mobile device is stolen. Besides, like computers, mobile devices are vulnerable to malware and viruses.

Desktop Wallets

As its name indicates, a desktop wallet is a type of hot wallet that encrypts your private keys in the security of your hard drive. This way, you can maintain your data secure in case you do not have your PC connected to the Internet.

Popular desktop wallets are great for conducting small crypto transactions and even use them as cold storage. However, since they are allocated to your PC, they are also vulnerable to malware, viruses, and hacks.

Web Wallets

These are wallets that rely on the web, and you can access them through a browser extension. They are commonly offered by a third party, like a crypto platform or an exchange. Web wallets are ideal for newcomers in the crypto space and those who want to buy, sell, and swap cryptos.

An important disadvantage of web wallets is that the third party will secure your private keys, which can be a bit risky, especially while hacking.

Cold Wallets

A cold wallet is exactly the opposite of a hot wallet; it means offline storage that is not connected to the Internet. Cold wallets are also known as hardware wallets since they work through a physical device that saves your public and private keys. Cold wallets depict the next level of security regarding crypto storage and cryptocurrency transactions. There are two types of cold wallets.

Hardware Wallets

A hardware wallet is a device that “stores” the public and private keys of your crypto account and gives you the proper key when you need to access your funds. These correspond to small devices you can easily port from one side to another. Hardware wallets are great for crypto users who manage a huge amount of crypto or manage multiple wallets at the same time and have an extra level of security.

Paper Wallets

For a long time, paper wallets were very popular, especially among Bitcoin enthusiasts who knew or speculated about the price of Bitcoin. In a nutshell, a paper wallet is a physical wallet, literally a piece of paper that contains a QR code. The only way of accessing funds or approving transactions is by scanning the code. These crypto wallets work incredibly well, although nowadays, they are not so popular. Some paper wallets allow you to print a different code every time you need to complete a transaction. Still, they are a good way of keeping your private and public keys and digital assets safe.

Although hot and cold wallets are the two main types of wallets, they still can be sorted into different categories. These categories are custodial and non-custodial wallets.

Custodial Wallets

A custodial wallet, as its name suggests, is a digital purse nearly always based on the Internet. A centralized crypto exchange generally provides custodial wallets. Custodial wallets are commonly user-friendly since users do not need to manage their keys. This situation really boosts operations regarding crypto assets. Some of the most relevant characteristics are the following:   

• A third party controls the private keys.

• They are vulnerable to exchange hacks.

• They are easy to set up and user-friendly.

• They offer account recovery.

• Data may be collected due to limited privacy.

The most common custodial wallets are Coinbase, Kraken, and Binance.

Some of the pros of using custodial wallets are the less responsibility for users and the capacity to reset passwords to recover access to the funds. A big con is that custodial wallets have less advanced features.

Non-Custodial Wallets

A non-custodial wallet, AKA DeFi wallet, is a type of wallet that gives you total control over your private key as well as your funds. They are very technical, so you probably will need certain knowledge of their functionality to unleash their “power.” This type of wallet is designed for experts in the blockchain network and crypto enthusiasts. Some crucial aspects of non-custodial wallets are the following: 

• You have full control over your account and funds.

• Almost no vulnerability issues.

• They may require certain tech-savvy skills.

• It’s not possible to recover funds if you lose the keys.

• High anonymity and privacy.

Some common non-custodial wallets are Ledger Nano S, Trust Wallet, and Electrum.

The best of non-custodial wallets is that you can create them quickly and in a matter of seconds and that funds won’t be affected in case of hacks. An important con is whether you lose your private key or recovery phrase, you can’t recover your funds.

Regardless of the security features of cold storage wallets or software wallets, you still may need some extra levels of security to ensure access and the integrity of your funds. Now, let’s describe some strategies you should adopt to protect even the most modern wallets.

Two-Factor Authentication

Two-factor authentication is a must-have practice you should adopt for any type of digital purse you manage. Its functionality is pretty easy. When you go to your wallet and type in your keys, the system will automatically prompt you to enter a new code that is generated in the authentication tool.

A good two-factor authentication is Google Authenticator, a useful tool that you can easily install on your smartphone or mobile device. This way, physical devices will help you protect your keys and funds even if you’re using a software wallet.

Secure Passwords

This practice is a classic and a must-have one. In a few words, the passwords you use to access any of the services related to your crypto wallets should be the strongest possible. It means using unique passwords containing over ten digits and letters.

Besides, you can always use a password manager such as LastPass to create powerful passwords that are almost impossible to decipher. A tool of this nature will also help you store passwords to protect your wallet address.

Multi-Signature Wallets

Some popular hardware wallets can also be configured to demand several private keys. This way, they ensure even more accessibility and safely store your funds. These are great alternatives when you use different types of crypto, or your account is shared for multiple users, and you need the approval of all of them. Wallets that use this system correspond to the most secure wallets you can find on the market.

Some of the most popular multi-signature wallets are Armory and BitGo. Armory is an open-source wallet that supports cold storage and multi-signature. BitGo is a web and mobile wallet with a strong focus on Bitcoin.

VPN for Extra Protection

A VPN should be a common policy within any business and people who manage huge amounts of money or cryptocurrencies. This is because hackers and other entities can be constantly looking for your public key to get crucial data from your platforms. In a few words, a VPN with encryption will help you create a tunnel that all your data will pass through, ensuring that nobody can access it. Wallet providers emphasize the relevance of using an extra level of security to store private keys and keep the integrity of funds.

Use a Secure Environment

Boasting complete control over the environment where you use the Internet is crucial when accessing wallets and funds. What’s more, this is one of the main premises of cold wallets since they are totally separate from other devices and Internet connections. In this sense, no matter whether you boast a Bitcoin wallet or any type of crypto wallet, you should access the key just in secure environments—for example, your house, considering that no other device can access your network.

Biometric Authentication

A good hardware device should integrate biometric authentication. Most crypto wallets include this extra layer of security, but many others don’t, so you must check the product before buying. An isometric authentication can include from fingerprint identification to retina scan. Still, it would help if you always complemented this authentication with QR codes, a PIN, and other security measures.

Trusted Sources

You should acquire the wallets from reputable vendors or official websites or distributors. Many cyber pirates will try to access your keys through your mobile phone or physical device. For this reason, you need to acquire the product from trusted sources with a high rank and positive reviews.

Seed Phrase Backup

A seed phrase, or recovery phrase, is a set of from twelve to twenty-four words that decentralized wallets use as a security backup when accessing the wallet. When creating self-custody wallets, the system will provide you with a series of words in a specific order. You probably will be prompted to fill empty boxes with the words you prefer to create your seed phrase. It is commonly carried out through a user-friendly interface and intuitive system. Please remember to save your seed phrase in a safe place, take a photo, or note it on a paper.

A crypto wallet is a must-have to access the crypto universe. These contain the necessary keys that work as a bank account number to carry out transactions and buy and sell cryptos. Thanks to these keys, you can also create digital signatures to spend your cryptocurrencies.

To know more about crypto wallets and blockchain, remember to check our blog on a daily basis. We’re continuously uploading articles related to the crypto world to teach about security, hidden vulnerabilities,  online threats, cryptos, and other related topics! Keep with us and learn everything about crypto, tech, and the gaming world as never before!