Different types of Wallets

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May 22, 2022
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5
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Different types of Wallets

We currently live in a world that is involved in cryptocurrency and is eager to learn more about the same. When one starts to trade in crypto or invests in crypto, it becomes important for them to have a good amount of knowledge about the same. 

One of the important components of crypto trading is the wallet. For everyday trading or even to just store your digital assets it is important that one knows all the different types of wallets. In this article, we will talk about the types of wallets in cryptocurrency and how they are different from each other. So, let’s begin. 

Types Of Wallets 

As we know, a wallet is something that is one of the basic requirements when trading in cryptocurrency. These wallets are classified into two categories, hot wallets and cold wallets. Hot wallets are something that are always connected to the internet while cold wallets are the opposite. Let us find out about each of them in detail. 

Hot wallet 

So, a hot wallet is a wallet that is available on the internet or we can say that it is always connected to the internet. It is used to trade cryptocurrency and access the tokens you have stored in your wallet. A hot wallet can be described as an application or website which is connected to the cryptocurrency framework for trading. 

As these wallets are connected to the internet, there comes a danger of security breaches and hacking. This is exactly why these wallets are preferred for short time storage of digital assets and are the best option for users who trade every day. 

Hosted 

Hosted wallet is the most widely used crypto wallet. If you ever open your account and buy some crypto, your crypto is stored directly in a Hosted wallet. As you must have guessed, third parties are involved in Hot wallets, they store your crypto currency just like a bank. The disadvantage of third party involvement is they are well aware of every transaction you do.

The good feature about a hosted wallet is that it has a password recovery system. If somehow you lose your private key, you don’t have any source to retrieve the wallet. This makes the Hosted wallet more vulnerable. 

But in terms of features, hosted wallets are not very convenient as they don’t offer a lot of access to everything available on the crypto space due to 3rd party involvement.

Self-Custody 

Self Custody, the word means you are the only one to keep complete control over your wallet. It is also called as Non-custodial Wallet, because it does not involve any custodian or third party between you and your wallet. You get plenty of benefits because of this freedom, you can get access to all crypto activities, you can show interest in various deals without any interference. 

With many benefits there is a major drawback of the Self Custody wallet. The private key provided to you is the only way to access your assets, this means if you lost your private key then your assets will be locked, because there is no way to retrieve any data in this wallet. With this you have to protect your private key too, if anyone knows the password, they can easily access your assets. So, you are solely responsible for the password. 

Cold Wallet 

You've probably heard of a "cold wallet" by now. A cold wallet is essentially a wallet that is not connected to the internet. Cold wallets are designed for people who wish to keep their cryptocurrencies for a long time but don't want to trade them.

If you wish to keep your cryptocurrency, there are two types of cold wallets currently available.

  • Hardware Wallet
  • Paper Wallet

Both of these cold wallets will protect your assets off the internet totally. If you want to keep your investments safe from hackers, this is a fantastic option. These wallets, on the other hand, are more vulnerable to physical damage.

Hardware Wallet

Hardware wallets are by far the most secured means of storing your crypto assets. These wallets come in the form of a USB stick and are completely off the internet. However, you do need to connect this kind of wallet to the internet to transfer your assets back and forth. 

As you are already familiar with the concept of public and private keys, the same technology is used for hardware wallets. You need private and public keys to make use of your wallet to its fullest. 

You can buy any hardware wallet you wish to. “Ledger” and “Trezor” are some well established companies making hardware wallets. You can buy one and connect them to your personal computer. Follow the instructions given on the screen to safely transfer your assets to the hardware wallet. 

Paper Wallet

Paper wallets are just a piece of paper that has the private and public keys printed over it. Some paper wallets also come with a barcode printed on them which can be scanned using an app. These wallets are another way to get access to your cryptocurrency offline. 

When you scan the QR code, it will transfer your wallet holdings to a software based wallet. When you print your keys on a piece of paper, you basically remove them from the crypto network but the tokens would still exist on it, they would just be inaccessible without the key printed on the paper. 

Paper wallets were commonly used before the crypto world became as popular it is today. The way a private key or your wallet contents are saved has changed over time drastically but paper wallets are still as efficient as they were before. 

Paper wallets are very safe as no one can 'hack' a piece of paper that is in your possession. Keep in mind that losing your paper wallet would mean you lose your crypto holdings. Paper wallets are generated by paper wallet generator applications. Although keep in mind that your computer should be completely safe from malware or viruses before you use such an app.

Conclusion

Before you choose what type of wallet you should be using, make sure you consider a number of things like the security the type of wallet offers or if it is efficient and convenient to use or not. As long as you choose a secure enough method to access your wallet, you would not have to worry about your cryptocurrency holdings.

Wallets are made to keep your assets safe. We hope that this article would have helped you in determining which type of wallet would best suit your needs. If you have any doubts regarding Crypto Wallets or things related to it, make sure you contact us.

From All the HyperGrowth Team
Your Crypto Startup Accelerator
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