What is Crypto Wallet?

What is Crypto Wallet?

Definition

Much like cryptocurrencies itself, wallets designed for storing them are not physical items either. Commonly referred as a digital wallet, a crypto wallet is a virtual storage of cryptocurrency through which the coins are accessible for the owner. They are utilized for sending, receiving, and storing funds in cryptocurrency. Each wallet has a corresponding private key which is disclosed only to the owner of it. The key serves security purposes and represents the address of the wallet. There are various types of digital wallets that differ from each other with the mechanism of storing the coins and with the way it can be used by the owner of the private key.

Hot Wallets

There are two main categories of crypto wallets – hot wallets and cold wallets. The difference between them is that hot wallets use an internet connection while cold wallets are storing coins offline. Hot wallets are prominently used for facilitating transactions. Though internet connection makes hot wallets somewhat more vulnerable to hacking attacks, the chance of it happening is low and they are only riskier than cold wallets because the fact of being connected to the internet creates a theoretical chance of being accessed by unwanted parties. Hot wallets are particularly convenient for those who use cryptocurrency for daily transactions and who prioritize easy access on their coins. Many of the cryptocurrency owners opt to have both, cold and hot storages with different purposes. Hot wallets can be either desktop software, mobile or web wallets that can be accessed instantly through the internet.

Cold Wallets

Unlike hot storages, cold wallets are the ones that do not require an internet connection and are mostly used for storing crypto coins for some period of time. The main purpose of using cold wallets is security. Saving funds offline rules out an even theoretical chance of hacking attack through an internet connection. There are several forms of cold storages all of which serve the purpose of securing one’s funds offline. The most basic of them is a paper wallet that contains public and private keys and the QR code which enables transactions when scanned. The drawback of such wallet is that in case of losing or destroying the papers, access to the funds is also lost. Other choices of cold wallets include hardware devices that generate private key offline or offline software with a similar mechanism as hardware wallets. As you can see, both kinds of digital wallets have their benefits and drawbacks. At the end of the day, it’s totally up to your needs and priorities which one is better for you. It largely depends on your needs and cryptocurrency managing strategies. If you are going to frequently use your cryptocurrency for daily transactions and purchases, you will probably need to have an access on a hot wallet. Alternatively, if you plan to hold your crypto funds and don’t plan on spending them on a regular basis, cold wallet might be more appropriate. Frequently, crypto owners have both, cold and hot storages and diversify their crypto assets with different purposes.