Anyone that invests in cryptocurrencies or is involved in trading Decentralized Finance (DeFi) assets or Non-Fungible Tokens (NFTs) will need to have a crypto wallet to manage their assets. Unlike traditional wallets, crypto wallets allow users to execute smart contracts that exist on blockchain technology.
Crypto wallets are software or physical devices which store all the keys crypto owners need to access their particular blockchain network and manage their cryptocurrencies. Unlike wallets, which hold physical currency, these wallets—and the keys they contain—are crucial to being able to store and transfer crypto coins. Because cryptocurrencies are digital assets that exist only on blockchain technology, owners are given public and private keys when they register a wallet. These function as proof of ownership of the crypto coins and act as identifiers whenever owners want to access their assets. It is therefore essential that the keys are stored safely and that the crypto wallets are protected by security measures and managed carefully. The Winklevoss twins—the first Bitcoin billionaires and alleged co-founders of Facebook—famously protect their private keys by printing them out and storing snippets of these in various safety deposit boxes across the United States.
As there are different types of crypto wallets, understanding the differences between them and how each one works is essential for choosing the best wallet for each user. The easiest way to have crypto wallets explained is to understand that there are two categories: hot wallets and cold (or hard) wallets. The first exists only digitally and, because they are always online, are significantly more vulnerable to hacking and phishing attacks. But, hardware wallets—of which cold wallets are a subcategory—are physical and, because they exist offline and in the real world, it is much harder for malicious actors to attack these. Of course, each type of wallet has a much more detailed list of attributes, and crypto owners should do their due diligence to decide which wallet will suit their needs best.
For example, some users prefer the convenience of hot wallets—because these are digital, they can be quickly accessed from any device. However, more advanced users looking for additional security for their digital assets might opt for crypto wallet hardware—or even cold wallets. Owners also need to consider the compatibility of the different crypto wallets because not all work across the different blockchains and cryptocurrencies.
A popular choice for crypto owners, hot wallets are digital storage solutions for private keys—the proof of ownership all owners get when they purchase cryptocurrency. Because they are a type of software hosted online, hot wallets are always connected to the internet. Designed for convenience, users can access hot wallets to quickly access, manage, and transfer their assets. But, because the wallets are always online, they are also easy to attack. As such, it is especially critical for users of hot wallets to take additional security measures to protect their wallets, keys, and crypto, such as using strong passwords.
So, what is a hard wallet, and how does it differ from a hot wallet? The main thing to understand is that hard wallets—or hardware wallets—are physical, not digital. These might be, for example, USB drive-like devices. They also store a user’s private keys—and thus, act as proof of ownership of crypto assets. Hard wallets allow users to authenticate crypto transactions, executing smart contracts across blockchains.
In addition to this, hardware wallets allow users to use numerous blockchain addresses. This is crucial because it allows users to keep their different crypto assets separate yet accessible through one portal and authorize transactions only with specific blockchains containing the assets the user wishes to transact. However, even though crypto wallet hardware stores keys separately from exchanges, because they still interact with Web3, these devices may have some vulnerabilities. As such, hard wallets may still be exposed to hackers. For example, these wallets may inadvertently be used to sign malicious smart contracts that send assets to a hacker.
Cold storage wallets—or simply cold wallets—are a specific type of crypto wallet hardware. Perhaps the most important difference between a cold wallet vs hardware wallet is that cold wallets offer an additional layer of security to protect a user’s assets. When considering what a cold storage wallet is, users should understand that these are completely disconnected from the internet and do not involve any interaction with Web3—and, therefore, do not execute smart contracts on blockchains. Instead, these wallets work in tandem with active wallets to execute transactions. In many cases, it is possible to create a cold wallet on existing crypto wallet hardware and use this to sign transactions through the active wallet. Because they operate completely offline and do not have Web3 interaction, cold wallets are considered the most secure type of crypto wallet.
It is crucial that crypto owners and traders implement security measures that protect their crypto wallets from cybercriminals. Using crypto wallet hardware while understanding what a cold storage wallet is and how it can secure your assets are two useful actions. However, many users still prefer to use hot wallets because of the convenience they offer. In these cases, it is especially essential that users understand how to secure their crypto wallets properly. These measures might include:
As one of the biggest crypto exchanges, Coinbase offers three crypto wallets. Coinbase Wallet is the most versatile of these. For example, it works across numerous exchanges, including Uniswap and 1inch, cryptocurrencies like Bitcoin, and BNB, and even Decentralized Finance (DeFi) assets and NFTs. Perhaps most usefully, it partners with Ledger—a popular crypto wallet hardware provider—to offer offline hosting that is compatible with Coinbase Wallet’s digital features. In addition to these features, Coinbase Wallet allows users to connect bank accounts from most major institutions, features an intuitive user interface, and offers biometric authentication. It is even possible to create a Coinbase Wallet without using the exchange itself. This decentralization is useful because it ensures that a user’s keys would not be exposed if the exchange was hacked.
Part of Crypto.com, this particular hot wallet is specifically designed for DeFi and NFTs. Users can manage over 800 cryptocurrencies through this wallet, including Bitcoin, Ethereum, Cosmos, and USD Coin. The Crypto.com DeFi Wallet also offers multiple layers of security through the inclusion of features such as two-factor authentication and password encryption.
Popular with those who own and trade the Ethereum currency, MetaMask is a hot wallet offering full access to an unprecedented collection of tokens and decentralized apps on the Ethereum blockchain. However, the popularity of the MetaMask crypto wallet is also explained by its compatibility with various other blockchains, such as Polygon, Binance Smart Chain, and Avalanche, and NTF marketplaces, including OpenSea and Rarible. MetaMask is built on open-source code, which means it is constantly being tested for vulnerabilities and issued with security patches, which helps keep it secure. Along with a well-designed and easy-to-use interface, users can access their wallet through any Android or iOS device, or as an extension on browsers such as Google Chrome and Mozilla Firefox.
Trust Wallet, part of the Binance company, is one of the most popular crypto wallets for users who need support for dApps and NFTS, thanks to a native Web3 browser. However, it also supports 65 different blockchains, making it compatible with over 4,500 digital assets. All of this comes with a very user-friendly interface that makes the app suitable even for beginners but offers charts for price tracking for advanced users.
As well as being a renowned name in crypto, Ledger offers crypto wallet hardware. There are three devices available, but the Ledger Nano X strikes a useful balance between being easy to use and offering full functionality. A prime example of how hardware wallets work, the device features an OLED screen and Bluetooth connectivity and is compatible with the Ledger Live app for seamless asset management. In addition, the Ledger Nano X supports NFTS and more than 1,000 crypto coins and offers several security measures, including a 24-word “Secret Recovery Phrase,” PIN protection, and a CC EAL5+ secure element chip.
The Trezor Model T is another example of crypto wallet hardware which elevates the meaning of what a hardware wallet is. From the device’s 1.54-inch color LCD touchscreen, users can manage 1,456 coins and tokens, including Bitcoin, Ethereum, and Litecoin, and trade without fees. The Trezor also offers high-level security, including the Shamir Backup for creating multi-word recovery seed keys, user-defined PINs up to 50 digits long—or user-generated passphrases—and independent, physical verification required on the device for every transaction.
Crypto wallets are an essential tool for anyone involved in cryptocurrencies and other digital assets. However, understanding how to distinguish between the different options on crypto wallets is essential to deciding which will work best for a particular user’s needs. As well as knowing the advantages and disadvantages of hot wallets and cold wallets vs hardware wallets, users should do their due diligence with the multitude of crypto wallet hardware available and decide which will be most useful for them—and most importantly, will keep their assets secure.
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