There are different 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 looking at the security aspect, it is helpful to understand the different types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency wallet: types and varieties
These wallets can be broadly divided into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Cryptocurrency software wallets can again be divided into desktop wallets, online wallets, and mobile wallets.
- Desktop Wallets: These wallets are designed to be downloaded and installed on desktops and laptops. This particular option provides the highest level of security, although their access is limited to the computer on which they are installed. Moreover, if your computer is hacked or infected with a virus, there is a possibility that you can lose all your money.
- Online wallet software: This range of cryptocurrency wallets is cloud-based. Therefore, they can be easily accessed from any computing device and from any geographical location. Besides the convenience of accessibility, this type of digital wallet stores private keys online. The keys are even controlled by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile wallets: Unlike the other two types, mobile software wallets work on smartphones through an app. They can be easily used anywhere, including retail stores and shopping malls. This range of wallets are usually much simpler and smaller compared to the usual desktop wallets to fit the very limited space on mobile phones.
The difference between hardware and software wallets
Hardware digital wallets differ from software wallets in terms of storing the user’s private keys. Hardware wallets store user keys in a hardware device (such as a USB). Therefore, since the keys are stored offline, these wallets provide additional security. In addition, 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. As a user, you simply need to connect your device to any computer that is connected to the Internet before entering your PIN, transferring currency and simply confirming the transaction. Your digital currency is stored offline by hardware wallets and hence the risk factor or security issue is also much less.
Paper Digital Wallets: This range of digital wallets is also convenient and offers a high level of security. The term “paper wallet” refers only to a printout of a user’s public and private keys. However, given the examples, it can also refer to a software application designed to securely generate keys before printing.
Sweeping with paper purses
Using paper wallets is relatively easier. To transfer any cryptocurrency to your paper wallet, simply transfer funds from your soft wallet to the public address displayed on your paper wallet. Likewise, when you want to spend or withdraw your money, simply transfer funds from your paper wallet to your software wallet. This procedure is popularly called “sweeping”.
Sweeping can be done manually by entering private keys or scanning a QR code on a paper wallet.
How secure are cryptocurrency wallets
Different types of digital wallets offer different levels of security. The security aspect mainly depends on two factors:
- The type of wallet you are using is hardware, paper, online, desktop or mobile
- Selected service provider
It goes without saying, it is much safer to store currencies in an offline environment than online. Security measures simply cannot be ignored, no matter which wallet you choose. If you lose your private keys, all the money stored in the wallet will disappear from your hands. On the other hand, if the wallet is hacked or you transfer funds to a fraudster, it will be impossible to either reverse the transaction or get the money back.
Investing in cryptocurrency is a smart business idea, and for that, using a suitable wallet is inevitable. You just need to be a little careful to ensure the safety and security of your money transfers and transactions.