Wallets

There are two basic categories of wallets: those that are cold, which typically means the private keys are totally offline, and those that are hot, which run on Internet-connected devices. Cold storage options include paper wallets and hardware wallets; hot wallet options include mobile wallets, desktop wallets, and online (web) wallets.

One of the fundamental reasons for the creation of cryptocurrencies is that the owner is able to safeguard their own money and doesn’t need to be dependent on another trusted third party to do so. The choices between Hot or Cold wallet options essentially contrast speed and efficiency with security concerns.

Cold storage, in which keys are totally offline, is the best protection you can have according to the majority of security analysts. Using an offline wallet may help you keep your own money — but if you lose your private keys, you automatically lose your money with no way to restore it. There is no option to reset your password. Paper wallets remain the cheapest form of cold wallets available in the industry. Once you transfer coins or tokens to a public address, the funds are safe. Paper wallets work as banknotes; they can be stolen, and are subject to being physically destroyed in the instance of fire or flood. Paper wallets are risk-free from malware and hackers if created on safe devices, but they might be confusing for beginners.

Hardware wallets are more expensive. They are physical devices that you purchase, such as a Trezor or Ledger Nano S. Such devices store private keys offline so they can’t be hacked, which means they are relatively safe, even if they are connected to a malware-infected computer. In a hacker’s attempt to compromise a transaction, funds will be not available since the hacker will not be able to access the private keys used.

While cold storage is kept disconnected from the Internet, hot wallets are the connected options, and often considered the easiest way to store small amounts of cryptocurrencies, making spending and receiving payments as convenient as possible. In general, it’s not recommended to store large amounts of cryptocurrencies in a hot wallet. Web wallets offer the lowest level of security; their strongest advantage is the fact that they are accessible from any Internet-connected device. You also can’t lose online wallets like a mobile wallet. Web wallets, however, are the easiest targets for fraudsters and hackers. Further, there are providers who may not allow you to keep complete control of the wallet,effectively transforming a wallet into centralized account. These are not advised. Desktop wallets remain the most common type of hot wallet out there — easy to use, relatively secure, a variety of options to choose from, and free to download. Most of the desktop wallets are only accessible from the machine on which they are installed.