Understand “crypto wallets” in just 3 minutes

Historically, the first ever crypto wallet to exist was that of the developer and founder of Bitcoin itself, Satoshi Nakamoto. The second portfolio created was held by Hal Finney. Matching together, Satoshi Nakamoto would send him 10 bitcoins to carry out a test. This was the first cryptocurrency exchange performed between two wallets!

What exactly are crypto wallets?

A “crypto wallet” for “cryptocurrency wallet” allows you to receive, transmit and above all keep your cryptocurrencies. Therefore, just as dollars or euros can be placed in a physical wallet or on an online account, it is the same with bitcoin, ethereum and other altcoins in a secure wallet.

In fact, instead of containing these physical elements, the wallet stores the access keys you use to sign your cryptocurrency transactions and provides the interface that allows you to access your encryption.

How to distinguish the different types of crypto wallets?

In cryptocurrency terminology it is necessary to make a distinction between two main families of wallets:

  • the “Warm wallet” includes hot storage solutions for private keys. Here we mainly target software portfolios (extensions, browsers, etc.). Necessarily connected to the Internet, it offers a certain vulnerability to hackers.
  • the “Cold wallet” it corresponds to the cold storage of private keys through hardware wallets and paper wallets. There is no internet connection, which makes it the ideal solution to protect your crypto assets. This is why it is entirely possible to leave large sums of money there safely.

Within these categories, there are various forms of storage wallets that meet very different needs, in terms of security and accessibility.

  • the “Web portfolio” it is directly accessible via a web browser. One of the references in this area remains the site “www.blockchain.com”. This type of wallet offers greater accessibility, but a very high risk of hacking and misappropriation of funds.
  • the “Mobile wallet” is accessible via mobile phone. This is an application to manage your crypto wallet.
  • the “Desk wallet” it is the equivalent of the “Mobile Wallet”, but on a computer. You need to download an application to access your wallet. It can also be a web extension, the best known being Metamask.
  • the “Hardware wallet” it is an object, often in the form of a USB key (Ledger type), which allows you to always keep the contents of your portfolio “offline”. Great way to avoid piracy … as long as you don’t lose it.
  • the “Paper wallet” it is a kind of paper certificate (QR code). This can limit the essential functionality of a crypto wallet such as executing transactions, but in exchange for near-unbreakable security.

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The pros and cons of these wallets

These can vary depending on the shape of the wallet. But we can generalize on the following points:

  • Allows safe storage of a multitude of cryptocurrencies.
  • Avoid being hacked, data stolen, or misappropriated found in emails or links in social media posts.

On the negative side, we can point out:

  • The initial cost of these digital wallet solutions. Either by purchasing a key or by invoicing via web provider or exchanges.
  • The risk of loss, theft or destruction of materials.
  • Solution not optimal for traders who intervene regularly and trade on a daily basis on cryptocurrencies.

Bottom Line: Are Crypto Wallets Essential?

Without being essential, each type of crypto wallet has its own characteristics and usefulness. By better understanding all of these categories, investors can determine which one best suits their needs.

As always, to avoid putting all your eggs in one basket, it is highly recommended that you diversify your crypto wallets to protect yourself from damage which could be very costly.

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