There are different types of cryptocurrency wallets that allow users to store and access their digital currencies in different ways. The question that is relevant in this context is how secure these wallets are. Before moving on to the security aspect, it is helpful to understand the different types or variants of cryptocurrency wallets that exist today.
Cryptocurrency Wallet: Types and Variants
These wallets can generally be classified into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Cryptocurrency software wallets can be re-divided into desktop, online and mobile wallets.
- Desktop software wallets: These wallets are intended for download and installation on desktop and laptop computers. This special variety offers the highest level of security even though their availability is limited to the computer in which they are installed. Moreover, in case the computer is hacked or infected with a virus, there is a possibility that someone will lose all their money.
- Online software wallets: This range of cryptocurrency wallets works in the cloud. Therefore, they can be easily accessed from any computer device and from any geographical location. In addition to the convenience of accessibility, this type of digital wallet keeps private keys online. The keys are even controlled by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile software wallets: Unlike the other two variants, mobile software wallets work on smartphones via the app. They can be easily used everywhere, including retail stores and shopping malls. This range of wallets is usually much simpler and smaller compared to normal desktop wallets to accommodate the very limited space on mobile devices.
The difference between hardware and software wallets
Hardware digital wallets differ from software wallets in terms of storing users’ private keys. Hardware wallets store user keys in a hardware device (for example, USB). Therefore, as the keys are stored offline, these wallets offer additional security. Moreover, hardware wallets are easily compatible with many network interfaces and can handle different currencies. This type of cryptocurrency wallet is also easy to perform transactions. As a user, all you need to do is connect the device to any computer connected to the web before entering the PIN, switch the currency and just confirm the transaction. Your digital currency is kept offline by hardware wallets and therefore the risk factor or security problem is also much smaller.
Paper digital wallets: This range of digital wallets is also easy to use and provides a high level of security. The term “paper wallet” only refers to a printed copy of a user’s public and private keys. However, with respect to instances, it can also refer to a software application that is designed to securely generate keys before printing.
Cleaning with paper wallets
Using paper wallets is relatively easier. To transfer any cryptocurrency to your paper wallet, simply transfer funds from the software wallet to the public address displayed by your paper wallet. Similarly, when you want to spend or withdraw your money, just transfer funds from your paper wallet to your software wallet. This procedure is popularly called ‘sweeping’.
Cleaning can be done manually, by entering private keys or by scanning a QR code on a paper wallet.
How secure are cryptocurrency wallets
Different types of digital wallets offer different levels of security. The security aspect mainly depends on two factors:
- The type of wallet you use – hardware, paper, online, desktop or mobile
- Selected service provider
Needless to say, it is much safer to keep currencies in an offline environment compared to online. There is simply no way to ignore security measures, no matter what wallet you choose. If you lose your private keys, all the money in your wallet will disappear from your hands. On the other hand, if your wallet is hacked or you transfer funds to a fraudster, it will not be possible to cancel the transaction or return that money.
Investing in cryptocurrencies is a smart business idea and for that, using the right wallet is inevitable. You just need to be a little careful to ensure the security and safety aspect of your asset transfers and transactions.