The Different Types of Crypto Wallets

As user demand continues to grow for new ways to spend, swap, and store their crypto, a multitude of exchanges and wallet providers have entered the market. This has given crypto users a bevy of options when it comes to managing their holdings.

But with so many crypto wallets out there, it can be difficult to decide which combination of attributes makes the most sense for your crypto usage style. Ahead we will break down the different types of wallets available today, which should help you make a more informed decision.

What Is a Cryptocurrency Wallet?

A cryptocurrency wallet is a software program that stores your public and private keys. It consists of a private key and a public key.

What crypto wallet should I use?

There is no definite answer as to which crypto wallet you should use. If you are a frequent trader, using a web wallet allows you to access your funds and trade conveniently and quickly. Assuming you have taken extra steps to secure your account with two-factor authentication (2FA) methods, your crypto is generally safe.

However, if you HODL a large quantity of crypto that you are not looking to sell in the meantime, cold wallets are better alternatives as they are not connected to the Internet, thus more secure and are resistant to online phishing attacks or scams.

Hot vs. Cold Wallets

Cryptocurrency wallets may also be defined as “hot” or “cold,” according to the way they operate.

A hot wallet is any wallet that is connected somehow to the Internet. For example, when you create an account on Bybit and send funds to your wallets, you are depositing into Bybit’s hot wallet. These wallets are quite easy to set up, and the funds are quickly accessible, making them convenient for traders and frequent users.

On the other hand, cold wallets have no connection to the Internet. Instead, they use a physical medium to store the keys offline, making them resistant to online hacking attempts. As such, cold wallets tend to be a much safer alternative to “storing” your coins. This method is also known as cold storage and is particularly suitable for long-term investors or “HODLers.”

Types of Cryptocurrency Wallets

There are six types of digital storage that you can use.

1. Online Crypto Wallets

This is a service owned by a third party. Depending on the wallet, the keys are stored on a remote server or downloaded as an encrypted file to the user’s computer. They allow not only to open several wallets for different cryptocurrencies but also to carry out currency conversions, trade on cryptocurrency exchanges, calculate commissions with the help of built-in calculators, etc.

2. Mobile Cryptocurrency Wallet

This is a program to install on mobile gadgets. Interesting for those for whom cryptocurrency is a means of everyday payment for goods and services. The current version of the blockchain is usually stored on the application server, providing access to updated data and not requiring the user to download large amounts of data.

Advantages:

• It may be safer than online crypto wallets;
• Conveniently used on the go.
• Offer additional features such as QR code scanning.

Disadvantages:

• Unfortunately, a mobile crypto wallet is not the most secure option. Therefore, they are hardly suitable for storing large amounts of funds.

3. Hardware Wallet

This is a separate removable device that looks like a flash drive. This method of storing keys is not very popular because it is suitable only for long-term storage (it is inconvenient to trade with it). But it does not overload the computer.

Advantages:

• Private keys are never exposed to your computer. A hardware wallet is immune to computer viruses.
• Your hardware requires you to confirm a transaction on your device (not the app on your computer) before any coins can be spent.

Disadvantages:

• The only downside to a hardware wallet is that it costs money. However, it might be worthwhile to consider investing in a hardware wallet because they are more secure, especially if you hold a significant amount of coins.

4. Desktop Wallet

These are the programs that you install on your computer.

Advantages of desktop crypto wallet:

• Desktop wallets store keys on your hard drive, considered one of the most reliable options among offline crypto wallets. It is a program installed on your computer with which you can access data about your cryptocurrency account.

Disadvantages of desktop crypto wallet:

• One of the desktop wallet’s disadvantages is the need for constant updating, which takes plenty of memory. That’s why desktop programs are divided into “thick” and “thin”. “Thick” (“heavy”) wallets are those that download the whole blockchain on your computer and keep it updated. “Thin” (“light”) wallets download the necessary information from third-party services.

5. Smart Contract Wallet:

A smart wallet is an Ethereum wallet managed by a smart contract instead of a private key. This enables users to enjoy advanced features such as multi-sig transactions, daily transfer limits, emergency account freezing, and more secure account recovery.

6. MPC Wallet:

MPC wallets or multiparty computation wallets represent the generation of wallets for tokens and cryptocurrencies oriented to offer the highest security standards both for users interested in greater security, as well as for certain companies, banks, and governments plan to establish cryptocurrencies as assets of great relevance in their investments.

An MPC wallet can be viewed as a common wallet simply by taking into account the difference that the passwords and control of these devices are stored between different devices.

Conclusion

Crypto wallets are an integral part of using Bitcoin and other cryptocurrencies. They are one of the basic infrastructures that make it possible to send and receive funds through blockchain networks. Each wallet type has its advantages and disadvantages, so it’s crucial to understand how they work before moving your funds.