Do you own cryptocurrency? One of the crucial things to consider is the way you store it. Since cryptocurrency does not have a similar type of protection as your money kept in a bank account, you have to store it very responsibly.
In case you lose your cryptocurrency access which is something called a “private key” or “a 12 word mnemonic”, your money is simply gone. You must know that there are various types of crypto wallets to help you store your crypto safely. And, also choose the right crypto wallet for storage.
What is a crypto wallet?
A cryptocurrency wallet (or crypto wallet) is a hardware or software wallet for storing cryptocurrencies. Since cryptocurrency is present on the blockchain, there is no tangible or physical currency/manifestation to place in a physical purse or wallet. However, the ownership in this case is manifested by the presence of crypto in the digital wallet that you have. This is similar to holding a bank balance in your bank account.
Types of Crypto Wallets
Here are different types of crypto wallets that you may use for your cryptocurrency:
It is a physical device with a private key. It could be a simple device like a metal or a piece of paper with a key. Hence, these are called metal wallets and paper wallets. These are also hard wallets for storing cryptocurrency while connecting to various devices through Bluetooth, USB, or an app. For example, some famous hardware wallets that are considered the most secure and are most commonly used include Ledger Nano and Trezor particularly.
It is a browser extension for mobile, desktop, or web apps. It may have various designs and functions. Plus, you need to use certain types of software wallets as per the cryptocurrency you desire to trade. Also, you will be given a private key or a 12 word mnemonic phrase which you will have to remember or keep somewhere safe in order to keep access to your software wallet. These wallets are less secure than hardware ones because of their ability to be online which makes them prone to internet based security risks if you connect your extension or app to some shady website. Some famous software wallets that are used widely are metamask, trust wallet, klever etc. These are widely used because of their exposure and integration with multiple chains.
Typically, crypto exchanges help in controlling this wallet. This wallet also enables users to easily store crypto while creating a login for an account to use specific cryptocurrency. However, you may not necessarily have any access to using the private keys.
This means that the exchanges create a wallet for you and have relevant security measures at their end so that the crypto is not lost. However, the con is that in case that exchange gets hacked or a situation similar to ftx fiasco happens with any exchange, your crypto and money will be gone because the wallet was owned by the exchange and not you. People still use them because these exchanges are easy to trade on as compared to many decentralised exchanges.
Hot and cold wallets:
The hot wallets term is used for crypto wallets when they are connected to an internet connection. And, crypto wallets are called cold wallets when they are not connected to the internet.
Most crypto wallets make use of recovery, mnemonic, or secret phrases for generating private keys. It is because this phrase is convenient to save and write down. The keys and phrases are not linked to a certain device or program. You may use the same phrase for accessing the wallet from various types of software and hardware wallets. In the end, anyone who is aware of the phrase may access the wallet and related crypto funds. Hence, it’s vital to keep the keys and phrases a secret for safely storing your crypto.
Storing cryptocurrency in a custodial wallet
A custodial wallet is the default storage option for cryptocurrency. A third party keeps the cryptocurrency safe for you – either via hot (online) storage or cold (offline) storage, or a combination of both modes.
Whenever you purchase coins from cryptocurrency apps, exchanges, or stock brokers, they keep them in their controlled custodial wallet. If an individual wants to store it himself/herself, they can transfer it to their own cold or hot wallet.
Here are certain advantages of using custodial wallets:
- It needs a minimal amount of work from the user’s end.
- You don’t have to stress over losing a crypto wallet as long as you have access to your account.
- Since it stores your crypto in an account, it is easier to access the cryptocurrency for trading.
- Plus, a third party takes care of your crypto. So, you don’t have to depend on certain security measures and also trust them that they won’t hide the secret account key from you.
While custodial wallets are not very secure, these make it much easier to invest in your cryptocurrency. If you want to go with this wallet, make sure to choose the one with the highest security standards.
Storing cryptocurrency in a cold (offline) wallet
There are various ways to store crypto in a cold wallet. However, the most common type is using hardware wallets. Hardware wallets are tiny devices to connect to a computer for storing crypto. The hardware wallets need to be connected to the internet while receiving or sending cryptocurrency. Besides that, they store all the funds offline.
Storing cryptocurrency in a hot (online) wallet
A hot wallet is a form of application for online cryptocurrency storage. These wallets are often available as mobile and desktop apps. Plus, there are some web-based hot wallets too. The best thing about them is that they provide you with control over the crypto and are very easy to use. However, the one major issue with them is that they store the currency online. So, there are higher chances of them being hacked.
These are some safe crypto wallets to consider for storing your cryptocurrency. But to keep your cryptocurrency safe, you need to choose one or more of these crypto wallets. We suggest choosing the hardware wallet for your crypto storage and further downloading a hot wallet to conveniently access the cryptocurrency. With that, you simply have to send the cryptocurrency to the wallets, note down the recovery phrases, and then keep those phrases safely for further access.