For more than twelve years of the existence of cryptocurrencies, the market offers a huge selection among different types of wallets for storing virtual assets. Cryptocurrencies can be stored on mobile, hardware, and other wallets.
Talking more globally, in terms of storage format (online or offline), they can be divided into the following categories:
- cold wallets;
- hot wallets.
Another important factor is who keeps the private key from the wallet – the owner or a trusted service. Wallets are divided into the following types:
- custodian wallets;
- non-custodial wallets.
Now let’s take a closer look at the differences, advantages, and disadvantages of all types of wallets.
This type of wallet is one of the most common among cryptocurrency holders. It can be installed on computers of any kind (desktops, all-in-ones, laptops, tablets, etc.) with all popular operating systems. In the “thick client” format, it includes an installation package or file and requires installation, like any software. This type of wallet implies full control over assets by storing private keys and a secret phrase (also called a seed phrase) to restore access to the wallet – on the owner’s side.
There is also a simpler subtype of wallets that do not require installation – light wallets. These are browser solutions of the “thin client” type. They can also be supplied as plugins for popular web browsers such as Google Chrome. Access to such wallets is naturally only possible through a web browser. The owner of the wallet carries out a standard entrance to the personal account using a username and password on any website that offers a service for opening wallets and storing cryptocurrencies. Most cryptocurrency exchanges offer work with just such wallets, although some of them have already begun to be served through licensed custodians.
This type of wallet is used on smartphones or tablets with a mobile OS. The installation going with Google Play (Android) or AppStore (iOS) stores. Many cryptocurrency exchanges provide this type of wallet in addition to the browser one, thus trying to cover 100% of all types of gadgets and computer devices of their clients and thereby further tie them to their trading platform.
Mobile wallets can be both light and almost indistinguishable from desktop ones – it all depends on the solution provider.
Mobile wallets are convenient primarily for transactions and transfers, including purchases of goods/services using a QR code. Most often, large amounts of crypto-assets are not stored on standalone OTC mobile wallets. These wallets are ideal for promptly conducting daily transactions or buying and selling cryptocurrencies in the so-called “on the go” mode. Considering that a smartphone can be stolen, it can be lost or damaged due to a fall, it is recommended to keep the seed phrase for all mobile wallets on another backup device or computer.
Hardware wallets are a completely autonomous and secure form factor for storing cryptocurrencies on hardware devices similar to USB-sticks. After disconnecting from the computer, the hardware wallet automatically turns into “cold” storage, inaccessible to fraudsters and any online hacks. The most popular hardware wallets on the market are Trezor and Ledger. Such devices are recommended for storing large volumes of crypto-assets that are not traded on exchanges, although if desired, they can be easily connected and used to conduct transactions on decentralized exchanges (DEX).
It would seem that virtual assets can in no way be associated with non-digital, paper wallets. But no, this is also one of the ways to “cold” store crypto-assets. The printed QR code private key should be kept in a safe place such as a fireproof safe. It provides access to the wallet with crypto-assets for transferring/withdrawing funds. And we said about fireproof safe for a reason – if you do not protect the sheet with the private key from the water, fire, or falling into the “wrong” hands, then you can permanently lose access to cryptowallets.
Differences between cold and hot wallets
You can understand from its name that hot wallets are constantly connected to the global network, while cold wallets are not. Hot wallets are used all the time by traders. They, like all software wallets, are more vulnerable to hacker attacks, but when you storing assets on a top and reliable trading platform, the risks of losses will be minimal. At the same time, cold wallets are good for storing and accumulating virtual assets in the buy & hold format, when the investor’s priority is not active operations, but safe storage. Cold wallets are offline all the time and are considered the most secure solution. These include all hardware and paper wallets.
Custodial and non-custodial solutions
The main difference in these solutions is who keeps the private key from the wallet. In custody solutions, this function is taken over by the wallet provider, some trusted intermediary. In non-custodial solutions, only the owner of the wallet personally has full access to assets.
What are the most convenient wallets?
The answer to this question depends on the purpose for which the investor buys and stores cryptocurrency. If virtual assets are necessary for active speculation in the market, when tens or hundreds of transactions need to be carried out during the day or month, then it is most convenient to use online or browser wallets on top exchanges. If the cryptocurrency is planned to “hold” more and accumulate with a long-term investment strategy, then hardware and cold wallets would be an ideal option. For small daily operations and operational settlements, mobile wallets will be a good solution.
Whichever option you choose, it is important to always remember about security – when using any wallet, be sure to connect 2FA (two-factor authentication), store private keys, and seed phrases in safe places.