A crypto wallet is one thing you can never do away with while dealing with digital assets. This is an important component akin to a physical wallet in terms of usage. A crypto wallet is an all-encompassing tool for crypto storage, sending, and receiving. Despite this wide range of uses, there are multitudes of crypto wallets, such as hot and cold, each with different features and security measures. Understanding these varieties of crypto wallets is non-negotiable in safeguarding your crypto assets from fraud or any other irreversible loss. Let’s get to it.
At its core, the crypto wallet is a no-code interactive tool that enables the smooth running and management of every crypto transaction on the blockchain network. Contrary to most people, a crypto wallet doesn’t store your crypto assets. Instead, its core function stores private and public keys, proving digital asset ownership.
Apart from the features mentioned above, a crypto wallet provides a single interface overview of how many crypto assets (Bitcoin, Ethereum, Solana, etc.) you have in your domain. Think of this in such a way that you open your bank app on the phone to check your account balance and see how much money you have.
Another essential function of a crypto wallet is the seamless connection of users with decentralized apps (DApps)[2]. This ensures you can access decentralized exchange for transactions, participate in community activities, use NFT storage, and engage in play-to-earn games.
There is no one-size-fits-all when selecting the right crypto wallet for your digital asset management. For instance, the best Ethereum wallet might not be helpful when dealing with Solana-based digital assets. This is never a bad thing; instead, it’s a testament to the crypto space’s uniqueness and all-inclusive nature. Crypto wallets are broadly classified into hot and cold wallets.
Hot Wallet
Hot wallets store, send, and receive crypto tokens like any other cryptocurrency wallet. They are temporary public and private key[3] storage applications mostly connected to the internet or another connected device before you can utilize them, hence the name “hot wallet.” For instance, when you mine or purchase a crypto asset, you must set up a wallet that will hold your phrase keys, QR codes, and other information to access your crypto assets.
Hot Wallet is the storage app that safeguards and ensures these keys are available anytime, especially when you plan to spend your assets or send them to someone else. Various hot wallet applications are free, with differing designs, accessibility, and usage. For example, some hot wallets are only available on mobile applications, while some can only be accessed via the web.
Desktop Wallet
Desktop wallets are installable programming software that stores and manages private and public keys and provides access to crypto assets via its dedicated interface. They are one of the easiest and most secure ways to manage crypto assets because they require a simple combination of two-factor authentication and a login password to access their wallet. Also, a dedicated seed phrase[4] is allocated to each user that can be used for recovery in case you forget or lose your login information.
However, despite their simplicity, desktop wallets have some underlying issues, especially mobility, and susceptibility to virus and hack attacks due to their reliance on an internet connection for execution.
Mobile Wallet
A mobile wallet is just like the portable version of the desktop wallet that only runs on phones, tablets, and smartwatches. This is a more convenient solution to the complexity and mobility issue of the desktop wallet in the sense that mobile wallets have the same working mechanisms as the desktop wallet. At the same time, you can still carry it around and use it on the go.
Aside from their portability, mobile wallets have a simple user interface with intuitive controls and a QR code scanning feature that allows easy transactions. Like other hot wallets, mobile wallets are very secure, relying on your mobile phone’s security features like facial recognition or fingerprinting.
However, using a mobile wallet comes with some inherent risks. The major one is the risk of phone theft, which can compromise your wallet and cause total loss if you fail to remember your seed phrase.
Web Wallet
As the name implies, a web wallet offers a more comprehensive and intuitive interface for storing and managing cryptocurrencies via an internet browser or web application. The most apparent edge a web wallet has over any other type of wallet is its flexibility and quickness in crypto transactions.
However, this simplicity comes with a critical limitation because most available web wallets are non-custodial, meaning the web host or service provider might have some access and control over your keys. Additionally, it’s important to note that you can lose access if you forget your login password. The gale of security issues surrounding web wallets reinforces that they are only suitable for small-scale transactions.
Cold Wallet
Cold wallets are crypto wallets that do not need an internet connection before use. This implies that cold wallets are the holy grail of crypto transactions that crypto whales and investors use to protect their high-value assets for a long time.
This possibility is because cold wallets don’t rely on internet connectivity. Also, they are isolated from smart contracts[5], so there’s zero chance of any occurrence of security issues such as hacking, spyware, malware, or any form of malicious approvals. There are also various types of cold wallets, and it’s also important to note that not all of them are equal, and their accessibility, features, and security are different. Let’s see how.
Hardware Wallet
A hardware wallet is one of the most straightforward and efficient crypto wallets for securing your digital assets. As the name implies, a hardware wallet is just a device that looks like a USB drive with a small screen for display and side buttons for operating purposes.
The user-friendliness of the Hardware Wallet[1] has made it a go-to device for most crypto enthusiasts because all they need to do is connect the device to a computer. Another advantage of a hardware wallet over any other type of cold wallet is that you can use it simultaneously on multiple blockchain networks. Some popular examples of hardware wallets are Ledgers, Trezors, and Keep Keys.
Paper Wallet
Paper wallets existed long before the widespread adoption of cryptocurrencies. They are printed pieces of paper with your phrase keys or access-granting codes that facilitate access to your digital assets.
Paper wallets also have a simple-to-use methodology that involves a paper wallet application creating a printable barcode that will be scanned by your wallet app anytime you want to access your assets. Although this type of wallet is not prone to hacking, it has various flaws, such as the risk of losing, misreading, or damaging the wallet.
Understanding the distinctions between hot and cold wallets in cryptocurrency is crucial to making clear choices. Which wallet is more secure and most convenient, and what is the cost? Let’s take a look.
| Wallet Types | User Friendliness | Security | Cost |
| Paper Wallet | Low | High | Low |
| Hardware Wallet | Low | High | Moderate |
| Desktop Wallet | Medium | Medium | Low |
| Web Wallet | High | Very Low | Low or Free |
| Mobile Wallet | High | Medium | Free |
User-friendliness: As you can see, the most user-friendly wallet types are the least secure among the bunch. For instance, web-based and mobile wallets are very high in user-friendliness, which points to the fact that they require no installation requirement and are fully launched on the internet, making them a very easy target for hack attacks and any form of security threat.
Security: You can see that the cold wallet duo of paper wallet and hardware wallet is not that convenient, hence the low user-friendliness. This indicates that they require well-programmed installations and are often physically retrieved, making them secure and useful in large-scale transactions. Also, cold wallets use cold storage that works without internet connections, which is a show of strength against any form of security threat compared to hot wallets like web, desktop, and mobile wallets that require an internet connection.
Cost: The cost incurred while transacting on any of the wallets will shape your decisions when choosing the best wallet. You must note that you can have a crypto wallet without going over and beyond. Most hot wallets are free, especially desktop and mobile wallets, which you can set up without charges.
Almost everyone has been in the category of crypto enthusiasts who don’t know which wallet to choose. It’s very typical to find yourself quite indecisive. You can go out there and try multiple crypto wallets to see which is right for you. Hot wallets are usually best for everyday crypto traders, while cold wallets are best for holding long-term crypto assets. In essence, the right crypto wallet is the one that matches your need for security, user-friendliness, and cost.
References
- Hardware Wallets, Written by Eugene Abungana, Published by Bitedge
- Decentralized Applications (dApps): Definition, Uses, Pros and Cons, Written by The Investopedia Team, Published by Investopedia
- Public Key Cryptography, Written By IBM, Published By IBM
- What is a Seed Phrase (Secret Recovery Phrase)?, Written By Ledger Academy, Published by Ledger
- How smart contracts work with blockchain: A step-by-step guide, Written By Allie Grace Garnett, Published by Britannica
