There are various 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 secure these wallets are. Before addressing the security aspect, it is helpful to understand the various types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency wallet: types and varieties
These wallets can be broadly classified into 3 categories:
- software wallets
- hardware wallets and
- paper wallets
Cryptocurrency software wallets can again be subdivided into desktop, online, and mobile wallets.
- Desktop Software Wallets: These wallets are meant to be downloaded and installed on desktop PCs and laptops. This particular variety offers the highest level of security, although their accessibility is limited only to the computer they are installed on. Also, in case the computer gets hacked or infected with a virus, there is a chance that one will lose all their money.
- Online Software Wallets: This range of cryptocurrency wallets run in the cloud. Therefore, it can be easily accessed from any computing device and from any geographical location. In addition to the convenience of accessibility, these types of digital wallets store private keys online. The keys are even controlled by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile Software Wallets: Unlike the other two varieties, mobile software wallets run on smartphones through an app. These can be easily used everywhere including retail stores and shopping malls. This range of wallets are usually much simpler and smaller compared to regular desktop wallets to fit the very limited space of mobile phones.
Difference between hardware and software wallets
Hardware digital wallets differ from software wallets in that they store a user’s private keys. Hardware wallets store user keys on a hardware device (for example, the USB). Thus, as the keys are stored offline, these wallets offer a security plus. Furthermore, hardware wallets are easily compatible with many online interfaces and can also handle different currencies. This variety of cryptocurrency wallets is also easy to transact with. As a user, you only need to connect the device to any computer that is connected to the web before entering a PIN, transferring the currency, and simply confirming the transaction. Hardware wallets keep your digital currency offline and therefore the risk factor or security concern is also much lower.
Digital Paper Wallets: This range of digital wallets is also easy to use and ensures a high level of security. The term “paper wallet” only refers to the hard copy of a user’s public and private keys. However, considering the instances, it can also refer to a software application intended to securely generate the keys before printing them.
Sweep up with paper bags
Using paper wallets is relatively somewhat easier. To transfer any cryptocurrency to your paper wallet, simply transfer the funds from the software wallet to the public address displayed by your paper wallet. Similarly, when you want to spend or withdraw your money, simply transfer the funds from the paper wallet to your software wallet. This procedure is popularly known as ‘sweeping’.
Sweeping can be done manually, by entering private keys, or by scanning the QR code on a paper wallet.
How safe are cryptocurrency wallets?
Different varieties of digital wallets offer different levels of security. The security aspect depends mainly on two factors:
- The type of wallet you use: hardware, paper, online, desktop, or mobile
- A chosen service provider
Needless to mention, it is much safer to hold coins in an offline environment, compared to online. There is simply no way to bypass the security measures, regardless of the wallet that has been chosen. If you lose your private keys, all the money stored in the wallet will be gone from your hands. On the other hand, if the wallet is hacked or you transfer funds to a scammer, it will not be possible to reverse the transaction or get that money back.
Investing in cryptocurrencies is a smart business idea and for this, using a suitable wallet is unavoidable. You just need to be a little cautious to ensure the safety and security aspect of your fund transfers and transactions.