In our previous post, we learned that there are three main classes of crypto wallets:
1. Software
2. Hardware
3. Paper
Wallets can also be classed as
1. hot or cold
2. centralized or decentralized
Each kind of wallet caters to different needs.
SOFTWARE WALLETS
There are three types of software wallets:
Web Wallets
Web wallets are computer software owned and operated by a centralized entity.
They usually offer a range of features, such as the ability to exchange crypto coins within the wallet’s platform.
Web wallets are the most user-friendly of the wallets. All you need to access your wallet is a browser and internet connection. They enable you to access your crypto from anywhere.
Because they not only store your cryptocurrency but will facilitate how you make your daily transactions, web wallets appeal to inexperienced investors.
Web wallets are centralized, meaning that, to use the wallet's features, you will most likely, have to pay an extra fee.
Your private key is kept in possession of the institution managing your wallet. Using such wallets means you are entrusting your crypto funds to a third party. It is only advisable that you leave small quantities of cryptocurrency stored in these wallets. Ideally, only the amount you need to perform your daily transactions.
When you use a web wallet, you not only depend on the team's honesty in managing the wallet but your wallet could also be exposed to potential hacking due to malware and phishing sites.
Suffice it to say, it is best to do thorough research on your wallet provider before entrusting your funds to them.
Desktop Wallets
Desktop wallets are software programs that you download into your computer desktop.
They are somewhat user-friendly. You can access your desktops wallets from any computer.
Because desktop wallets are decentralized, you will never be faced with unexpected fees. The only fees you will ever pay are the transaction fees from the blockchain itself.
You have control over your private key, and you need to make sure you store it safely together with your login credentials. Your wallet also faces a security threat if your computer contains malware.
Losing your login credentials and private key means losing access to your wallet account. You will not be able to recover your funds.
Mobile Wallets
A mobile wallet is the counterpart version of a web or desktop wallet.
These wallets have been designed for mobile devices to facilitate the wallet’s use. These wallets often enable features such as performing transactions with QR-codes.
Web counterpart
Your wallet is centralized, and your wallet’s platform controls your private keys.
You can recover your login credentials if you lose your cellphone.
Desktop counterpart
Your wallet is decentralized.
The private key and login credentials are under your responsibility.
You are provided with step-by-step instructions to backup your wallet in case you lose your cellphone.
Losing your cellphone and wallet backup file means losing your funds.
Like any software wallet, you should only keep the funds you need for your daily transactions.
Hardware Wallets
Are external hardware programmed to create and store the private key inside the device itself.
Hardware wallets need to be purchased, and prices vary depending on the brand.
These wallets are, by far, the most popular cold wallets to store large quantities of crypto funds.
Not as user-friendly as other wallets, hardware wallets are probably the most secure cold storage wallet to keep your funds safe.
To use a hardware wallet, you will need a computer interface to access your device. As usual, you should keep caution when connecting your wallet online.
With hardware wallets, you will be prompt to create a password to access your device, together with a mnemonic phrase that will be used to back up your wallet in case you lose the device.
Because hardware wallets are decentralized, you must make sure you keep your login credentials and the wallet itself safely stored. Losing your backup and wallet means losing your funds.
Paper Wallet
As the name suggests, it is a piece of paper containing your public and private keys. You can write it by hand, or you can print your wallet by using software designed specifically for it (you must use an offline printer if the latter).
Paper wallets are free cold storage to save your crypto funds.
Paper wallets are decentralized.
You must make more than one copy of your wallet and store it in a safe place.
It is not advisable to deposit a significant number of coins inside paper wallets due to the risk involved, such as being lost, stolen, or damaged by fire, water.
To create a paper wallet, you will need access to a computer free from any malware.
You can choose from specific software that will create a visually appealing wallet. This kind of software provides you with your public and private keys displayed as long strings of codes and as QR-codes.
On the other hand, you can write your public and private keys on a piece of paper. To open your wallet, you can use any decentralized software.
Paper wallets are an excellent choice for presents or to store your cryptocurrency offline.
Some software might enable you to create a password for extra protection, but it goes without saying, that you must keep your wallet safe. Losing it means losing your funds.
With all that said, essentially, the most critical difference between wallets is who controls your private key. Who has the private key has complete control over the crypto funds stored in the wallet.
Today some software and hardware wallets enable multisig (multi-signature) to authenticate transactions. That means the wallet holding the fund needs more than one private key to be accessed.
On a side note:
Every time you perform a crypto transaction, send crypto to another wallet, you will have to pay the blockchain fees. These are standard fees paid to the blockchain miners to process your transaction.
Some centralized wallets will charge different fees. Those fees are for the additional services that such platforms offer and have no relation to the blockchain fee.
Some centralized wallets may also charge a premium fee for funds withdrawn, besides the standard blockchain fees.
It would be best if you made yourself familiar with such fees to avoid unpleasant surprises.
We hope that this was a helpful article.
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Till next blog,