It’s a new year and you’ve been thinking about investing in cryptocurrency. This new digital currency has produced shockwaves across governments. Fiat monies are still valuable and will not be going away any time soon; however, cryptocurrency is being mainstreamed into many economies. Cryptocurrency is an alternative to fiat money. As the world becomes more digitized, it makes sense to use cryptocurrency. It makes transactions much safer because they are encrypted — and faster. Aside from choosing the cryptocurrency to invest in, you will need to choose a cryptocurrency wallet.
Just as a traditional wallet holds your fiat money, a crypto wallet holds your cryptocurrency. You also make transactions from it. This type of wallet stores your public and private keys. These keys enable you to make and receive transactions. There are five types of crypto wallets, each one has unique characteristics:
- Hardware – This is a device that connects to a PC or mobile device (via USB). They now allow you to store up to 22 cryptocurrencies.
- Mobile — Just as the name implies, you can store your cryptocurrency on your mobile phone (Android and iOS). They are the most used wallet because of the convenience factor.
- Desktop — An old-school way of storing your cryptocurrency, these wallets are software programs that are downloaded onto your computer (MAC, Linux and Windows). There is a high-security risk because they are prone to viruses and malware.
- Web — For ease and convenience, many use this type of wallet because it is connected to the internet via a browser. The biggest drawback of this wallet is that it is vulnerable to DDOS attacks.
- Paper — This wallet is actually a piece of paper where you print your public and private keys as well as QR codes on it. Unlike the other wallets, the risks of using this wallet include misreading the keys or codes, losing the piece of paper and damaging the wallet. To provide an extra measure of security, disconnect from the internet when your keys are being generated. Also, after you have printed your keys and codes, clear the history on your computer.
These wallets utilize two methods of storing cryptocurrency: hot and cold. Hot wallets are those that are always connected to the internet (e.g. web). They have the most risk because they can be hacked. Cold storage (e.g. hardware) is when your wallet is not connected to the internet. It is stored on a device that disconnects from your computer (or cellphone) or a platform that is not connected to the internet. Thus, cold storage is the most secure way to store tokens. Before you choose a wallet, it is best to research them. Also, be aware of how many cryptocurrencies you can store on each type of crypto wallet.