If you’re using cryptocurrency, you’ll need a cryptocurrency wallet. A Cryptocurrency wallet stores a user’s public and private keys, allows them to monitor their balance, and it also lets users send and receive digital currency with others.
Cryptocurrency is not physically stored in your crypto-wallet or anywhere for that matter as it does not exist in a tangible form. Instead, the use of digital currency is shown as a number and is seen through transactional history on the blockchain.
Not every crypto-wallet is the same, in fact, there are many different kinds depending on the different currencies being used. As well, there are 3 different ways your crypto-wallet is stored.
Here are 3 types of crypto-wallets:
A software crypto-wallet is used on a web server downloaded online and can be accessed through a PC, laptop, or mobile device. Typically, high levels of security are in place, however, it is usually provided by a third party and if anything malicious were to occur to the third party or if a cybercriminal is able to hack into your online wallet, your crypto-wallet could get compromised. Overall, this option is the riskier of the three.
A hardware crypto-wallet holds the same information as a software wallet, however, the information is stored on a physical piece of hardware such as a USB. To access your crypto-wallet you’d have to plug it into a device to then use your online wallet. This option is a lot safer than a software method because the information is stored offline and cybercriminals can’t hack into it. The one downside though is if you lose the hardware or if it gets stolen, you could lose access to your crypto-wallet and the information on it could be breached depending on who it ends up with.
The third type of crypto-wallet is paper. This is a physical piece of paper that holds your private and public keys. You input these keys online when making trades and don’t keep any sensitive data online where a cybercriminal could potentially access it. This method does not involve any insertion of hardware into a device and does not store your data online therefore making it more secure. Again, cybercriminals can’t hack into a piece of paper you store offline, however, similar to the hardware method, if you lose the paper or it ends up in the wrong hands, you could face a compromised crypto-wallet.
Having a physical offline crypto-wallet is best as it reduces your risk of a cyberattack or breach, you’ll just have to make sure you stay organized and keep your physical wallet safe at all times.
Another good way to stay secure is to hold small amounts of currency on software wallets, and then the majority of funds on hardware or paper wallets for more security. A mix of the three might be useful to some as it segregates funds. If the information gets into the wrong hands, only part of your wallet will get compromised.
A couple of other things to keep in mind: