What Is a Crypto Wallet?

What Is a Crypto Wallet?

• There are two variations of crypto wallets — hot wallets and cold wallets 

 

• Hot wallets are virtual cryptocurrency wallets that are accessible online

 

• Cold wallets are storage devices that have no access to the internet

 

• A cryptocurrency wallet is simply a program or device that stores your private key (wallet address) and public keys to keep your cryptocurrency safe and accessible. They also allow you to receive, send, and spend your cryptocurrency. 

 

As you enter the crypto space, one of the key tools that you will be using is a cryptocurrency wallet. The better understanding you have of their functionality, the better overall experience you will have when using them. Let’s dive into the world of cryptocurrency wallets and explore everything they can offer.

 

 

 

What Is a Cryptocurrency Wallet?

A cryptocurrency wallet, or a crypto wallet as it is often referred to, is a program or device that allows you to store your public and private key(s), granting you can access to all of your data on the public ledger known as the blockchain.

 

The wallet itself doesn’t necessarily store cryptocurrency. However, it stores the required information you need to access your address on the blockchain, where your cryptocurrency is stored. To be clear, your cryptocurrency remains on the blockchain; when you create a wallet, you are assigned a destination on that blockchain (a public address). This is where your cryptocurrency is kept.

 

You are required to have a cryptocurrency wallet address if you intend for people to send you cryptocurrencies or for you to be able to send cryptocurrencies to others.

 

This can be in the form of a web-based wallet, a mobile wallet, a desktop wallet, an offline, cold storage device wallet, or a paper wallet.

 

Cryptocurrency wallets are typically split across two distinctive categories, the first and most common one being hot wallets and the ladder being cold wallets. Each of them has its own respective benefits and drawbacks, so let’s dive into each and see what you are actually getting when you decide to use either one of them.

 

 

 

What Are Hot Wallets?

Hot wallets might be difficult to wrap your head around, as they are split across web-based wallets, mobile wallets, or desktop wallets. However, there is one thing that connects all of them, which is the fact that each of them has a direct connection to the internet and is always online.

 

When you use an exchange wallet, for example, this is a web-based wallet, where you use your internet connection to connect to the cloud, which takes you to the server where the wallet is located; this is your wallet address. This means that the exchange manages your cryptocurrencies, and all you have to do is log in. With hot wallets, you can easily transfer cryptocurrencies from one wallet to another with ease.

 

However, this type of cryptocurrency wallet has its drawbacks as well, as it is more vulnerable to cyber attacks when compared to cold wallets. For example, if the exchange gets attacked, your cryptocurrencies could be compromised.

 

 

 

What Are Cold Wallets?

On the other end of the spectrum, you have cold wallets.

 

These are a lot easier to wrap your head around, as they are essentially all wallets that are not connected to the internet or offline. Imagine a USB that has your passcode on it; it’s that simple.

 

You have paper wallets, in which you can print 2 QR codes on; one for checking your cryptocurrency balance and the other to transfer your cryptocurrencies from the paper wallet to an exchange.

 

Then you have offline storage devices, where you can transfer your passcode from your computer to the device and remove it from the web completely.

 

This means that the only way for your funds to get compromised would be for the hacker, or thief, in this case, to literally enter your home, steal your device, and know the password to your device in order to access to your public address on the blockchain itself.

 

This is by far one of the most secure ways through which you can store cryptocurrencies. This storage method is typically recommended and used by people who hold onto cryptocurrency assets for a prolonged period of time.

 

However, they can be pricey to purchase, and you will pay additional fees each time you move your cryptocurrencies from a cryptocurrency exchange and to it again when you decide to sell them, which makes the process tedious and somewhat expensive. 

 

 

 

How To Use a Cryptocurrency Wallet

If you want to transfer cryptocurrency to a hot wallet, the process itself is fairly straightforward.

 

All you have to do is sign up or create an account with a provider of the hot wallet. Many cryptocurrency exchanges will indeed offer their own cryptocurrency wallets that are attached to your account the moment you sign up for them.

 

The next step that you need to take is to buy and deposit your cryptocurrencies. When you visit a cryptocurrency exchange to make a transaction, you can determine where you want the cryptocurrency to be sent, and you will need to enter your wallet address there. After you make a selection, a pop-up window will show up on your screen, where you can confirm the transaction itself. Many cryptocurrency exchanges will automatically place your cryptocurrency or FIAT currency into the hot wallet itself. Finally, you can start trading with the wallet.

 

However, if you want to transfer cryptocurrencies to a cold wallet, things get a bit tricky but worry not as we’ll guide you through the process each step of the way.

 

First, you need to unbox the packaging that came with your cold wallet and see all of the contents within it.

 

You will find the device itself in the box, as well as a USB cable, a keychain, and three paper cards such as a blank recovery sheet and instructions on how you can use the wallet itself.

 

Many cold wallets will have a small LCD screen with multiple buttons on them, assuming they are from the pricier options out there. These buttons will allow you to navigate the menu in the wallet itself and select specific options, and confirm or sign transactions.

 

The next thing you will need to do is connect the wallet to your computer through the USB cable which was included in the box. Once it is connected, you will see a welcome message and some instructions. You need to navigate the menu now, and to do this, find the left and the right buttons, and press both of them at the same time to make your selection.

 

Keep in mind that many cold wallets will have their own software suites that you might need to install in order to use them efficiently.

 

To do this, you need to navigate to the wallet’s website and download the official software. Install it, and set up your PIN code.

 

You will also receive a recovery phrase, and you need to ensure that you place it in a secure location. Write it down on a sheet of paper, as it is a 24-word recovery phrase that you do not want to lose somewhere throughout the file system on your computer.

 

Now comes the fun part; in order to get your cryptocurrency onto the wallet itself, you will need to go to your wallet and sign in with your passcode.

 

Go to the wallets tab, click on the wallet where you want to receive the cryptocurrency, and copy that wallet address.

 

Go to the exchange where you purchased your cryptocurrency next, log into your account, and go to the balances page.

 

Click on the cryptocurrency that you want to send to your offline wallet, insert your wallet address, and click on ‘send’ to confirm the transaction. Approve it, and you should find your cryptocurrencies in your hardware wallet.

 

When sending cryptocurrency, keep in mind that it is always best to send a small amount initially to ensure that the funds are being transferred properly. 

 

 

 

What Are the Best Hot Cryptocurrency Wallets?

There are specific cryptocurrency wallets with various features that make them stand out compared to others. Here are some of the best options in our opinion:

 

MyCelium

 

MyCelium is a mobile hot wallet that is extremely easy to install and intended for daily use. It allows you to connect to the Bitcoin network and store BTC with ease and allows for a higher level of privacy. It is fully open-source and can be integrated with other wallets if that proves to be a requirement over time. It has also been praised as one of the best mobile wallets on the market.

 

Electrum

 

Electrum wallet is an online wallet that works on both computers as well as on mobile devices. It specializes in the storage of Bitcoin cryptocurrencies and keeps all of your keys encrypted and secure. It has no downtimes as well, which is exceptional.

 

Exodus 

 

Exodus is a cryptocurrency wallet that allows you to store multiple cryptocurrencies. Its main point of appeal is that it supports a lot of altcoins alongside the main cryptocurrencies that you will initially be trading. It can also be used without the requirement of registering an account.

 

MetaMask

 

If you want to connect to the Ethereum blockchain and transfer ERC tokens, MetaMask is your best bet. It is a hot wallet, and you can either use it as a browser extension or download a separate application that is available on both iOS and Android.

 

 

 

What Are the Best Cold Cryptocurrency Wallets?

The same can be said for cold cryptocurrency wallets, in terms of the different features offered per wallet. Here are some of our recommended cold wallets:  

 

Trezor

 

Trezor wallets are widely used due to the fact that they offer a high level of speed, and your wallet will always be accessible through your personal 12 to 24-word-long recovery seed. Furthermore, their wallets are cross-compatible and can connect with almost any other crypto wallet application out there, making them convenient to use.

 

Ledger

 

Ledger is a popular cryptocurrency wallet that has different options available in terms of wallet variety and functionality. They are all priced differently due to the fact that they offer different levels of functionality. They are known as a premium brand. Their wallets keep cryptocurrency/tokens safe through a custom-built operating system known as BOLOS and a CE AEL5+ certified Secure Element (SE) chip, making them one of the safest brands for offline cryptocurrency cold storage devices.

 

SafePal

 

SafePal is a cryptocurrency wallet that provides a high level of security for the tokens of many cryptocurrency investors and traders. Its stand-out functionality is that it has a self-destruct mechanism that can prevent any malware attacks and come in handy in the event it is stolen. It has a high recovery speed as well and even comes with two-factor authentication and a key-deletion tool that allows you to add and delete tokens with ease.

 

 

 

The Bottom Line

Both hot cryptocurrency wallets and cold cryptocurrency wallets have their own benefits and drawbacks, and the one you will end up using will be dependent on your specific needs. If you want to buy a single cryptocurrency/token such as Bitcoin or NFTs and hold onto it for years, then cold wallets are the way to go; however, if you regularly want to engage in trading or selling cryptocurrencies, then you are better of using a hot wallet due to the speed and convenience it brings you.