What are Crypto Wallets: A Detailed Guide on Securing Your Crypto Funds
Key Takeaways
Crypto wallets are storage mechanisms, designed to store your private crypto keys in a secure ecosystem
Crypto wallets can be categorized into two major categories: hot wallets and cold wallets
Hardware wallets are the pinnacles of crypto security while software wallets are much easier to use
Following basic cyber hygiene practices can make a significant difference in the overall security of your portfolio
As blockchain is emerging to become a core component of future finance, cryptocurrencies are taking the lead in delivering this technological revolution to the masses. Moving forward with decentralized methods of value transfer, cryptocurrencies have the potential to replace major traditional finance solutions. However, the lack of trust in the market due to ambiguity on its technology is throttling the speed of mass crypto adoption. Securing our crypto while we build our funds is the foundation of long-term profitable investing and crypto wallets have a crucial role to play in the process.
In this article, we elaborate on what crypto wallets are, how they function, and their basic categorization while also touching on the basics of good cyber hygiene habits.
What are Crypto Wallets
If you are new to the blockchain, a crypto wallet might sound like an alternative to traditional fiat wallets, where all your cryptocurrencies are stored. Contrary to that, crypto wallets do not store any of your cryptocurrencies.
Crypto wallets are storage mechanisms, designed to store your private crypto keys in a secure ecosystem. Crypto wallets are those crypto key storage that are owned by the user. Private keys are cryptographic variables, used to decrypt the information and act as proof of ownership for your crypto. All the cryptocurrencies are stored in blockchain ledgers and can only be accessed only by using your private keys, making it the sole gateway to your crypto assets.
Cryptocurrency is not regulated by any central authority and this disables its users from undoing any crypto transaction. Thus, keeping your private keys private is critical to keeping your crypto funds safe. This is precisely where crypto wallets come into the picture, acting as a storage solution to secure your private keys.
In the article ahead, we will explore different types of crypto wallets present in the market while elaborating on their contracting characteristics.
Types of Crypto Wallets
Crypto wallets differ based on the technology used in their operation. However, the most vital element of any crypto wallet is the security that it can provide to its users. On the grounds of their mode of operation, crypto wallets can be categorized into two major categories: hot wallets and cold wallets. In this segment of the article, we have discussed both of them in detail.
Hot Wallets
Hot wallets are those crypto wallets connected to the blockchain network constantly via the internet. Hot wallets are live crypto wallets acting as a convenient gateway for direct cryptocurrency exchanges. In hot wallets, your public key, as well as private keys, are stored to mediate an effortless crypto transaction, however, these wallets are notorious for their weak security layers.
Being online storage for your private keys, hot wallets are more susceptible to cyber-attacks and security breaches. Due to this, hot wallets are not considered to be the safest option among crypto wallets. Roughly, crypto wallets can be categorized into the following categories.
Desktop Wallets
Desktop wallets store your cryptocurrency keys within your desktop in an encrypted format making it easier for you to access your crypto funds. Like any other crypto wallet, desktop wallets enable their users to store and share their cryptocurrency private keys but additionally, they can also run a complete node to validate the transaction without the need to leave your wallet. Desktop wallets can leverage the computational strength of your system to ensure that you have a seamless experience.
Pros of Desktop Wallet
All your private keys are stored in the local storage
Faster computational power for faster performance
Better than cloud-based hot wallets
Cons of Desktop Wallet
Not as safe as a cold wallet if your desktop is connected to the internet
Creating a backup is a must to avoid any mishappening
Mobile Wallets
As the name suggests, mobile wallets are made for crypto users willing to transact their cryptos using their smartphones. Mobile wallets are portable and much easier to access when compared to desktop-based wallets. These wallets are foundational for increasing over-the-counter crypto transactions as they are easier to access at any point in time. Most desktop wallets have their mobile versions for a better user experience, however, some of the mobile wallets are exclusively available on mobile such as Trust wallet.
Pros of Mobile Wallet
Easier to carry with better accessibility
Comes with multiple DApp integrations
Non-custodial mobile wallets are better than an online hot wallet
Cons of Mobile Wallet
Easier to gain access to social engineering
Losing your mobile can cause you to lose all your digital assets
Web Browser Wallet
If you are someone whose work revolves around a browser then you might prefer having your crypto wallet integrated into your browser. Web browser wallets are those crypto wallets that get integrated with your browser as an extension, making the crypto transactions faster, and easier to access. However, being connected to the internet while browsing through multiple unknown websites make it not the safest option for storing your private keys.
Web browser crypto wallets are easier to set up and could be ideal for crypto beginners. Coin Gabbar recommends strict cyber hygiene while using a browser-based crypto wallet.
Pros of Browser Wallets
Very easy to download, setup, and use
Easier integrations with hardware wallets
Ideal for transacting cryptos on dubious websites, use, and dump
Cons of Browser Wallets
Prone to multiple cyber threats
No process to retrieve accounts
Cold Wallets
Cold wallets are the kind of crypto wallets that store their users’ private keys in an offline storage device. Cold wallets are considered the safest option to store your crypto as they make your funds immune to any online threat. The offline cold wallets do not restrict you to transact your crypto directly, however, instead of your crypto keys leaving your hardware wallet, the initiated transaction is transferred to the hardware wallet, signed by your private keys, and then sent back to the internet.
Your private keys never leave your cold wallet, making it almost impossible to be exposed during a transaction. Cold wallets act as a perfect crypto storage solution for those crypto investors who have a significant amount of investments in blockchain assets.
Hardware Wallets
Private keys that define the absolute ownership of your digital assets, face a severe threat of compromise when exposed to the internet. To deal with this challenge, a viable solution was to store your crypto keys in a shielded offline ecosystem. Hardware wallets are those crypto storage solutions that are completely alienated from any online exposure. With a complete termination of internet connection with the device, the hardware wallet ensures that there is no way to connect to your wallet apart from local wired or wireless connections.
Hardware wallets enable you to control your private keys completely while ensuring multiple backup options. Once you move your private keys to your hardware wallets, they are never required to move out of the secure environment of your wallet even while transacting on any platform.
Pros of hardware wallets
Complete control and custody of your private keys
Multiple back-ups and recovery options
Most secure way of securing your crypto funds
Cons of hardware wallets
Costlier than any other crypto wallet solution
Hardware wallets are not as convenient to use as online software wallets
Paper Wallet
Paper wallets are the simplest form of crypto wallets that are used extensively in the crypto domain. A paper wallet is a printed piece of paper containing your private keys and QR codes for conducting your crypto transactions. Paper wallets are the cheapest way to secure your private keys offline. With the increased popularity and better features of hardware wallets, paper wallets are losing their charm.
Pros of Paper Wallet
Cheapest cold wallet to get your hands on
Easy to use and simple to understand the functioning
Paper wallets cannot be hacked in any cyber attack
Cons of Paper Wallet
Paper wallets are mere fragile pieces of paper that are flammable and can get damaged easily
More secure options are available in the market
How to Keep Your Crypto Funds Secure?
Having a secure crypto wallet to ensure the safety of your funds should be your utmost priority, however, there is a lot more that you can do to fortify your blockchain investments. In this segment of the article, we will list some of the basic measures that can make a significant difference in the overall security of your portfolio.
Use 2FA
2FA, Two-Factor Authentication, or Two-Factor Verification is a process in which admin access is provided to the user only after they verify their identity using two different methods. Using two-factor authentication in your crypto wallets can keep your account secure even if your password is compromised in a security breach.
Beware of Phishing
Phishing is a form of cyber fraud in which the target is provided with a link that can lead him/her to the replica of a trusted website. If the user is not able to identify the scam and enter their confidential details on the website, it goes directly to the scammer. Even today, phishing is one of the most common and popular methods of cyber attacks. To avoid phishing, make sure that you are clicking the links only from your trusted sources and do not enter your confidential information on any shady website.
Know About Social Engineering
Social engineering is a psychological method of extracting confidential information from the target by manipulating him through different means. No one can remember their private keys, however, people tend to share confidential details such as wallet passcodes under the influence of social engineering. Social engineering is not common but knowing about it can make you take your privacy more seriously.
Use Strong Passwords
Yes, we still have to say it. Most people never pay adequate attention while selecting their passwords and tend to choose the passwords that simple brute attacks can break. Using a password that cannot be guessed and long enough to get broken easily, is foundational to securing your crypto assets. Experts suggest using long phrases as your passwords that are not connected with your personal lives.
Which Crypto Wallet is Best For You?
Choosing a crypto wallet that satisfies all your needs as a crypto investor could be tiring. However, after adequate research, finding a trustable wallet gives you the confidence that you can hold your cryptocurrencies safely as long as you want. On one hand, there are hot wallets that are easier, cheaper, and more convenient to use. On the other hand, there are cold wallets that have a higher upfront cost but provide ultimate security for your assets.
Finding the right balance between the two and utilizing both for their advantage could be a perfect strategy for storing your crypto funds. Creating multiple backups and maintaining good cyber hygiene can become the difference between rags and riches.
