A crypto wallet is just like any traditional wallet, but instead of cash and cards, it holds your cryptocurrencies like bitcoin. A crypto wallet authorizes your crypto transactions via digital signatures. It stores private and public keys. A public key is an address used to send cryptocurrencies to crypto wallets, while the private key is similar to a safe deposit box that helps you control your crypto wallet. Private keys allow users to become their bank, i.e., only control their crypto wallet and the cryptocurrency inside it. There are several kinds of wallets that you can choose from depending on what suits you the best. The two major categories are hot and cold wallets. Now, a cold wallet is a portable device like a USB that is encrypted. Multiple passwords protect it, and you can carry it with you like your traditional wallet. They are often more secure since they exist offline and no one can hack them. But of course, you can lose them in an old-fashioned way. However, people who do not trust online wallets prefer these cold wallets as they provide more excellent safety. Then, there are hot wallets that exist online and are connected to the internet. They are not immune to hackers and thieves, and therefore, they have a greater security risk than cold storage wallets. There are several kinds of hot storage wallets:
Desktop Wallets: These wallets run on your computer desktop and store all your cryptocurrencies there. If you have a desktop wallet, you are entirely responsible for its security. You are in complete control of your funds, and no third party can access them. But you need to ensure that your computer is updated and free from any kind of malware.
Mobile Wallets: Like desktop wallets, these wallets exist on your mobile phone – iOS or Android. Similarly, you are entirely in control of your crypto funds on your mobile wallets. You have to back up and update your device and keep it from theft/malware.
Web Wallets: These wallets are provided by crypto exchanges like Coinbase. Unlike desktop and mobile wallets, web wallets do not give complete control to the user. However, these wallets are becoming increasingly secure these days and providing several advantages to their users.
Depending on your need and comfort, you can invest in cold storage or a hot storage wallet. It is recommended to use a combination of the two wallets to get both out of both worlds. Especially if you own a lot of cryptocurrencies, you must try this combination which will give both efficient trading and that added security.
How To Choose The Right Wallet?
There are several factors to consider before you invest in a crypto wallet. It depends on whether you are a regular or occasional user of cryptocurrency. You must ask yourself practical questions about what you need in your crypto wallet. Some of the things we recommend you should think about are:
Costs: Many online crypto wallets are usually free, but some require a small monetary investment. Depending on your long-term plan, you should think about how much you can spend on a crypto wallet. If you plan to hold cryptocurrencies for the long term, you should probably invest in a cold storage wallet to keep your funds safe.
Security: If you hold large amounts of cryptocurrency, security should be your priority. You should research the wallet’s security features and explore which wallet is the best for your needs. Generally, cold storage wallets offer greater security, but if you want to make crypto transactions every day, you might be more interested in hot storage wallets. They provide more ease and feasibility in crypto transactions.
Mobility: Online or web-based wallets provide greater mobility and ease of use because they can be accessed from any device, unlike cold storage wallets.
User-friendliness: A crypto wallet is a critical requirement, especially if you are a new user. You should be able to access your cryptocurrency easily and not be confused while using your crypto wallet. Usually, mobile and desktop-based crypto wallets are the most user-friendly. They are pretty easy to use and not too tricky to set up.
Convenience: If you are a long-term crypto investor, you probably own more than one kind of cryptocurrency. Therefore, you should look for a wallet that supports several currencies. There are also dedicated cryptocurrency wallets that offer unique wallets for one type of coin. Cold storage wallets generally support mostly mainstream cryptocurrencies like Bitcoin and Ethereum. So, if you are looking to be more experimental with your investment portfolio, you might want to look at crypto exchanges that allow you to hold different kinds of cryptocurrencies.
The Case of Facebook
On October 19, Facebook tried to launch its cryptocurrency wallet called Novi. US Senators immediately smashed down this effort who said that Facebook could not be trusted with managing a payment system and digital currencies given its infamous history of handling customer data and privacy. The US Senate worried that the Facebook-supported wallet would become a breeding ground for crime and money laundering. According to the legislators, a Facebook-controlled crypto wallet poses a threat to the financial safety and security of the country. The Facebook crypto wallet failed to satisfy legislators that it can manage its security and privacy issues, so it could not be approved. The bottom line is crypto wallet providers must try to provide as many security features as possible. Since people are trusting their cryptocurrency with them, they must be trustworthy. On the other hand, crypto users should only trust wallets that are renowned for their safety and immutability. At Unbanked, we believe that cryptocurrencies are the future of money. To know more about how you can invest your cryptocurrency and which wallets you can trust, read our blog.