A Crypto wallet is a space designed to keep your digital assets in one place. The name wallet comes from physical wallets where we keep our money. However crypto wallets operate on a different technology. Crypto wallets are software that interacts with blockchain technology. Crypto wallets don’t directly hold your digital assets, they hold the private keys that give you access to your cryptocurrencies.
We can consider crypto wallets as a computer program or app just like you have on your smartphones or your laptop. These wallets are protected and secure and allow you to make transactions with crypto currencies such as Bitcoin, Ethereum, NFTs or any other digital assets.
If you are a beginner in the crypto scene, it is essential to understand the basics. Before opening a Crypto Wallet, it is important to understand the nature of these wallets such as how they work and what are the available types on the market. Once you feel confident enough, you can start to associate with the crypto world with ease.
How does a crypto wallet work?
When you buy a crypto asset on a dedicated platform, you automatically get an online crypto wallet. This wallet is generally a hot wallet and you can use it like your bank account. In order to understand crypto wallet, you need to understand what cryptocurrency, blockchain and private keys are. Crypto wallets operate both through web browsers and apps.
Cryptocurrencies are digital assets that are recorded on blockchain technology. You can access your crypto currencies with private keys. A private key is the proof of ownership of your crypto holdings. Crypto wallets are spaces where your private keys are held. Your wallet uses these keys to interact with the Blockchain. Also each wallet has an address. Anyone who knows the private key can control the coins associated with that address.
For example, let’s say you want to send cryptocurrency to someone. To do that you can follow these easy steps: enter the recipient’s address, specify the amount, sign the transaction with your private key, add a transaction fee, and confirm the send. Receiving works the same way – the sender uses your address, and you accept the payment.
Crypto Wallet Types
Hot and Cold Wallets:
Hot wallets operate online and are considered as less secure but they are more user friendly. These wallets are more convenient for daily transactions. The key is stored in the app or a similar software and is protected by two-step encryption. They are low cost and fast. If you are trading daily or use your crypto for your daily expenses then hot wallets are good choices to meet your needs.
However if you are a long term oriented investor then we recommend Cold Wallets. Cold wallets are stored offline and are more secure than hot wallets. Hardwallets are more protected against hackers.
Paper wallets:
Paper wallets are slightly different from other kinds of crypto wallets. Keys are written on a physical paper as QR codes and stored in a safe place. Even though it sounds safer, paper wallets are more difficult to manage as you use your digital money online.
Hardware wallets:
Keys of hardware wallets are stored in a drive device. This can ensure more safety, you can keep your device in a safe place and only connect to a computer when you need to use your crypto. This method is convenient but might be more costly compared to other types. One device can cost you more than 100€.
Desktop Wallets:
Desktop wallets are designed for your desktop computer. It requires an antivirus system to keep your crypto currencies safe. They are quite secure and there is no need for third party intervention. This is also considered as cold storage. As long as you back up your computer regularly, desktop wallets work great.
Mobile Wallets:
Mobile Wallets are pretty similar to desktop wallets. They are apps that are designed for your smartphones. They are very convenient for daily transactions however they are more vulnerable to malware infection.
Web Wallets:
Web Wallets are services provided by payment providers. They can be accessed through web browsers. They are the least secure wallets on the crypto scene. Although they have similar features like Hot Wallets they are not the same. If you have small investments and need quick transactions, you can use these types of wallets.
Security Tips for your Crypto Wallet
We know that some crypto wallets are more vulnerable compared to other wallets. If you still would like to continue with a less secure option, we recommend you to take some security precautions by yourself. Here are some simple measures you can take to protect your crypto wallet:
Use a secure password or a password manager to generate multiple stronger passwords as much as you need. This will keep your passwords safe and protect your account from cyber attacks and hackers.
Try to use a VPN to access your crypto wallet. VPN provides encryption for your online activities. You can hide your location and your IP address.
Minimize your risks by using multiple wallets and diversifying your assets is also a good idea. If something happens to one of your wallets you can still keep the rest of your assets secure.
Prefer trusted providers. Whether you want to use a hardware wallet or hot wallet, always prefer trusted service providers. Please avoid third party vendors.
Consider enabling Two-Factor Authentication (2FA). This method provides additional protection to your crypto wallet. Just like in your bank account, It requires you to provide not only your password but also a unique code from your mobile device for login. With 2FA you can deter unauthorized access easily. Also check the other recovery options offered by your service provider.
There are various crypto wallets available on the market. If you want to find the best option for you, we recommend you to determine your financial goals first. From there do your research, read the reviews of other users online. And don’t forget to keep your keys safe.
