Where to store cryptocurrency: what kind of wallet should you choose?
What kind of crypto wallets are the safest. What is the difference between hardware, paper, and software wallets, and what are the principles of operation of each of the listed types.
Surely, almost everyone who has just bought or is thinking about buying a cryptocurrency asks a logical question: “Where will it be safe to store your assets?”. It should be noted right away that digital funds are not stored in the wallet in the literal sense of the word. Assets are stored in the blockchain — a continuous sequential chain of blocks containing information built according to certain rules. In turn, wallets store important information that allows the user to access their funds directly inside the blockchain. That is, a crypto wallet is just a way to store a secret key. In this article, you will learn about how crypto wallets work, what their types are, and which one is better to choose in order to ensure the safe storage of your funds.
What is a crypto wallet? How does it work?
A crypto wallet is an analog of a regular electronic or bank wallet where you store fiat money. The difference is that such wallets operate on the blockchain and support the storage of cryptocurrencies. A crypto wallet allows the user to work within the blockchain and make transactions with their assets.
Regardless of its type, each wallet consists of two parts: a public and a private key.
The public key consists of a set of letters and symbols and can be seen by every member of the system when sending funds to the wallet.
The private key is already used to confirm transactions, that is, it is the password that you enter to conduct a transaction. In fact, it is a sixteen-digit number that is generated cryptographically and is almost impossible to crack.
In case you somehow forgot your private key, there is a so-called seed phase — this is a sequence of random 12–24 words that will help restore the private key if it is lost.
It is important to remember that losing your private key and seed phase will FOREVER deprive you of access to your cryptocurrencies. There is no technical support in cryptocurrencies that can recover the password.
Types of wallets
There are several types of crypto wallets, each of which is designed to solve certain problems.
1. Software: for desktop devices, for mobile devices, online wallets.
For desktop devices, this is a program that can be downloaded to a desktop computer or laptop. The wallet can only be accessed from the device where it is installed.
Desktop wallets are “thin” (which involves downloading only the program for the wallet, and information about transactions is stored on another server) and “thick” (you need to download both the program and the blockchain).
For mobile devices. The principle of operation is almost identical to the desktop one, but it is important to note that both types of wallets are considered quite unsafe, as they are often hacked.
Online wallets — this type of wallet works in the cloud or on certain web resources (for example, cryptocurrency exchanges). You can work with them from any device connected to the Internet.
2. Hardware wallets are cryptocurrency wallets where transactions are made online, but private keys are stored on a physical medium (for example, on a USB flash drive). The principle of use is simple: you need to connect the storage medium to a computer with Internet access, enter the PIN code and make the necessary transactions.
They are considered a fairly secure form of storage since hackers need to get physical access to the storage to break into it.
3. Paper (the most secure) — these wallets are generated using a special program. Private and public keys are printed on paper — in the form of a QR code or a set of numbers and letters. In order to make any transactions, you need to scan the code or enter the keys yourself.
The main plus of paper wallets is their absence in the virtual universe, at the same time their minus is existence in the physical world (paper can be easily damaged).
It should be added that all wallets (except for paper) can be both mono-currency and multi-currency, allowing you to store and perform transactions with different cryptocurrencies.
How to choose the right type of crypto wallet?
The correct choice of the type of crypto wallet is directly related to the purpose that you are pursuing. If you prioritize safe storage of funds, then hardware wallets are the best options for you, since they are less susceptible to the risk of hacking. These types of wallets allow you to securely store funds but do not provide an opportunity to quickly dispose of them. If you are one of those for whom the most important thing is to be able to make mobile transactions with your cryptocurrency, then online wallets (which work on exchanges) are most likely suitable for you. But in any case, before putting your funds into storage in any of the wallets, you need to study its principles of operation, compare the pros and cons, because, according to the rules of the crypto world, only you are responsible for your money.