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 safe these wallets are. Before addressing the security aspect, it is helpful to understand the different types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency wallet: types and varieties
These wallets can be divided into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Software wallets for cryptocurrencies can again be divided into desktop, online and mobile wallets.
- Software wallets for desktop: These wallets are designed to be downloaded and installed on desktops and laptops. This particular version offers the highest level of security, although their availability is limited to the computer on which they are installed. What’s more, in the event of a computer hack or a virus infection there is a chance of losing all your money.
- Online wallet software: This range of cryptocurrency wallets runs in the cloud. This way, they can be easily accessed from any computing device and from any geographical location. Aside from the convenience of accessibility, this type of digital wallet stores private keys online. The keys are even managed by third parties; this makes them easily vulnerable to burglary and theft.
- Mobile software wallets: Unlike the other two varieties, mobile software wallets run on smartphones through the app. They can be easily used everywhere, including retail stores and malls. This range of wallets is usually much easier and smaller compared to conventional desktops to accommodate with very limited space on mobile phones.
The difference between hardware and software wallets
Hardware digital wallets differ from software in terms of storing user private keys. Hardware wallets store user keys in a hardware device (such as a USB). Therefore, because the keys are stored offline, these wallets provide additional security. What’s more, hardware wallets are easily compatible with many online interfaces and can also handle a variety of currencies. With this variety of cryptocurrency wallets it is also easy to make transactions. As a user, you just need to connect your device to any computer that is connected to the Internet before entering a PIN, transferring currency and simply confirming the transaction. Your digital currency is stored offline by hardware wallets, and therefore the risk factor or security concerns are also much less.
Paper digital wallets: This range of digital wallets is also user-friendly and provides a high level of security. The term “paper wallet” simply refers to a hard copy of a user’s public and private keys. However, given the cases, this may also apply to a software application designed to securely generate keys before printing.
Sweeping paper wallets
Paper wallets are relatively easier to use. To transfer any cryptocurrency to your paper wallet, simply transfer funds from the software wallet to a public address that displays your paper wallet. Similarly, if you want to spend or withdraw your money, just transfer the funds from the paper wallet to your software wallet. This procedure is popularly called “cleaning”.
Cleaning can be done manually by entering private keys or scanning a QR code on a paper wallet.
How secure are cryptocurrency wallets
Different varieties 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 store currencies offline than online. You can’t ignore security measures no matter which wallet you choose. If you lose your private keys, all the money stored in your wallet will disappear from your hands. On the other hand, if the wallet is hacked or you transfer funds to a fraudster, it is impossible to cancel the transaction or return the money.
Investing in cryptocurrency is a smart business idea, and using a suitable wallet is inevitable. You just need to be a little careful to ensure the security and safety of your funds transfers and transactions.