There are several types of cryptocurrency wallets for users to store and access their digital currencies in different ways. An important question in this context is how secure these wallets are. Before taking on the security aspect, it is helpful to understand the various types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency Wallet: Types and Varieties
These wallets can generally be classified into 3 categories:
- Software portfolios
- Hardware cases and
- Paper wallets
Cryptocurrency software wallets can again be divided into desktop, online and mobile wallets.
- Desktop software portfolios: These wallets need to be downloaded and installed on desktop computers and laptops. This particular variety offers the highest level of security, although accessibility is limited only to the computer they are installed on. Also, in case, if the computer is hacked or infected with viruses, there is a chance that someone will lose all their money.
- Online Software Wallets: This range of cryptocurrency wallets runs on the Cloud. Thus, they can be easily accessed from any computer device and from any geographical location. In addition to the convenience of accessibility, this type of digital wallet stores private keys online. Keys are also controlled by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile Software Wallets: Unlike the other two varieties, mobile software wallets run through an app on smartphones. These can be used anywhere, including retail stores and shopping malls. This range of wallets is usually much simpler and smaller compared to the usual desktop ones to fit the very limited space on mobile phones.
The difference between hardware and software wallets
Hardware digital wallets differ from software in the aspect of storing the user’s private keys. Hardware wallets store user keys on a hardware device (such as a USB). Thus, since the keys are stored offline, these wallets offer additional security. Also, hardware wallets are easily compatible with many online interfaces and can even handle different currencies. This type of cryptocurrency wallet is also easy to transact. As a user, you simply need to connect the device to any computer connected to the network before entering a PIN, transfer the currency and confirm the transaction. Hardware wallets keep your digital currency offline and hence the risk factor or security concern is also much less.
Digital paper wallets: This range of digital wallets is also easy to use and ensures a high level of security. The term “paper wallet” refers only to the paper printout of the user’s public and private keys. However, depending on the case, it can also refer to a software application that serves to securely generate keys before printing.
Sweeping with paper bags
Using paper wallets is relatively easier. To transfer any cryptocurrency to your paper wallet, transfer funds from your software wallet to the public address displayed by your paper wallet. Also, when you want to spend or withdraw your money, transfer the funds from your paper wallet to your software wallet. This procedure is called “scanning”.
Scanning can be done manually by entering private keys or by scanning the QR code on a paper wallet.
How secure are cryptocurrency wallets?
Different varieties of digital wallets offer different levels of security. The security aspect mainly depends on two factors:
- The type of wallet you use: hardware, paper, online, desktop or mobile
- Your chosen service provider
Needless to say, it is much safer to keep your currencies in an offline environment compared to an online one. There is no way to ignore security measures, regardless of the wallet you choose. If you lose your private keys, all the money stored in the wallet will be removed from your hands. On the other hand, if your wallet is hacked or you transfer funds to a fraudster, it will not be possible to reverse the transaction or recover that money.
Investing in cryptocurrencies is a smart business idea and for that, using a proper wallet is inevitable. You must exercise due care to ensure the safety and security of your fund transfers and transactions.