The Pros and Cons of the Different Types of Crypto Wallets

In 2022, around 1 billion people in the world will use cryptocurrencies. Investing in one (or a few) is a fantastic way to diversify your portfolio, and if you have some extra money lying around, why not put it to good use?

Because they use blockchain technology, cryptos are secure. But that doesn’t mean you should be complacent; storing your digital currency in crypto wallets is a must. Otherwise, your investments can be gone in a flash.

There are different types of crypto wallets out there though. And not every single type will be right for your situation.

Keep reading to find out about the various types of crypto wallets available and what their pros and cons are.

Hot Wallets

Hot wallets are crypto wallets that are connected to the internet. The main benefit of hot wallets is you can access your cryptocurrencies wherever you are, so long as you have an internet connection. This makes them very user-friendly.

However, this leaves you vulnerable to cybercriminals. They can also log on and potentially crack your wallet, then empty it completely. So hot wallets offer less security.

Now that you know the general pros and cons of hot wallets, let’s dive into the types you can get here.

Desktop Wallets

Desktop wallets exist on your desktop computer or laptop. You’ll need to download the software before you can store your cryptocurrencies.

This type of wallet has adequate security, as you’ll need to create a password and/or keys to access your account. So the main advantage here is you’re in control of your keys, not a third party.

What’s interesting to note about desktop wallets is some allow you to take it offline. So you’ll have the flexibility of switching between hot and cold storage.

There are some drawbacks to using desktop wallets though. Whenever you’re online, the wallet is as well (unless you’ve switched to cold storage). This makes it vulnerable to viruses and other malware.

Also, anyone who has physical access to your computer/laptop can gain access to your crypto wallet.

To mitigate the above 2 risks, you should install robust antivirus software (and keep it up to date), and put passwords on your devices. Know where they are at all times to lower the chances of someone logging on without permission.

Web Wallets

Web wallets are a type of third-party wallet. They’re most often offered by crypto exchanges, which means you can immediately store your cryptos safely after buying them. You can also sell and swap them through these exchanges, like with this service.

As you can see, web wallets are super convenient, plus the interfaces are easy to use. This makes web wallets ideal for crypto newbies.

However, you’re putting all of the responsibility on the third party. While that may seem ideal at first, this convenience comes at a cost.

For one, if the company goes under, it can close up shop and vanish, which means all your investments are inaccessible and lost. Also, you’ll need to put complete trust in them to secure your private keys.

This sensitive information may be compromised, whether deliberately or not. Depending on how secure the website is, hackers might be able to access all the data stored, which means your keys can be leaked. DDOS attacks are very common with web wallets.

Lastly, whatever device you use to access your web wallet may be compromised through not only viruses and malware, but also keyloggers. Again, you should run up-to-date antivirus software and never log onto your web wallet on public devices or internet connections.

Mobile Wallets

Take desktop wallets and convert them into smartphone versions, and you’ve got mobile wallets. Their selling point is convenience, as you’ll be able to buy and sell right on your phone. To do so, just scan QR codes and the transactions will go through.

Mobile wallets are the best crypto wallet for those who are always on the go. The interface is simple to use and transactions are quick.

The downside to using mobile wallets is if you lose your phone or someone steals it, then you’ll lose your account. Even if you get your phone back, your account may be compromised.

And long gone are the days when smartphones were safe from hackers. Today, cybercriminals target mobile devices just as much, if not more. This means your phone can fall victim to viruses and malware, and your wallet details can fall into the wrong hands.

To keep your data safe, ensure that your mobile wallet is encrypted. That way, if anything happens, there’s a layer of security between your sensitive data and criminals.

Cold Wallets

Because hot wallets are connected to the internet, then your guess that cold wallets aren’t would be correct. This gives you the best security possible since the only way a criminal can access your cryptocurrencies is by being there physically. This means that those investing in large quantities may be better off using cold wallets.

However, as might’ve already inferred, it’s more difficult to access and shift cryptos. If you plan on making frequent transactions, then a cold wallet can be a huge hassle.

Below, we’ll discuss the 2 types of cold wallets you can choose from: paper and hardware wallets.

Paper Wallets

Paper wallets are where you write down or print your private keys and QR codes on pieces of paper. This makes it one of the most secure crypto wallets since it’s completely offline.

So long as the paper’s with you, there’s 0 chance of hackers getting your investments. You also don’t have to rely on a third party to control your private keys.

But paper can easily be lost, stolen, and destroyed. Once your paper wallet’s gone, you won’t be able to access your cryptos.

You can’t make partial transfers either. It’s an “all or nothing” deal, and once you’ve made a transaction, the paper wallet can’t be reused. Not to mention, it’s a whole ordeal to move your cryptocurrencies between wallets.

Paper wallets can do in a pinch, especially if you don’t want to use hot wallets. However, there’s a much better choice nowadays: hardware wallets.

Hardware Wallets

Hardware wallets are completely opposite of paper wallets; the former is high-tech while the latter is rudimentary. Wallet software is installed in a device, and they most often resemble USB drives. This means it’s very convenient to bring your hardware wallet around, as you can slip it into your bag without issue.

When you want to access your wallet, then you plug it into your computer or any other device with a USB outlet.

Hardware wallets are just as secure as paper wallets, if not more so. You can sign crypto transactions offline by using your private keys. Then, the only time your wallet’s online is to upload the transaction to the blockchain.

Another plus of using hardware wallets is you can find them at most electronics retailers. Therefore, you’ll have plenty of options.

All this might sound too good to be true, and yes, this type of crypto wallet does come with a catch: it’s not free. The cheapest hardware wallet will be around $30, while higher-end models will cost you $200 or more.

In addition, crypto newbies might find these wallets tough to use. But once you get the hang of things, it’s a fantastic long-term investment to keep your cryptocurrencies safe!

Use a Combination of Hot and Cold Wallets

If possible, you should use a combination of hot and cold wallets. This allows you to enjoy the benefits of both, while mitigating the risks as well.

For example, think of your bank accounts; most people have a checking account, as well as a savings one. You can treat a hot wallet like a checking account and a cold wallet like a savings account.

You can move cryptos around in your hot wallet, but store the majority of your investments in the cold one. This offers the best security possible without making things too complicated for you to deposit or withdraw cryptos.

Choose From These Different Types of Crypto Wallets

There are different types of crypto wallets, and each has its own strengths and weaknesses. It’s up to you to decide which suits your needs and budget best.

Of course, the best solution is to spread out your assets and use different wallets, as this will boost your security. But if you can only afford to get one crypto wallet, then hopefully, this article’s helped you determine the optimal one.

If you need more financial advice, then keep reading our blog page.

 

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