Decoding Cryptocurrency Wallet Conundrums for Beginners
If you are planning to build a cryptocurrency wallet and seeking cryptocurrency wallet development services for the same, it is more likely that you have heard of hot wallets, cold wallets, and hardware wallets.
These terms can often be confusing, especially for crypto noobs. Considering this, we have tried to make this blog post as simple as possible — to help crypto beginners understand the types of wallets and how each differs from another.
Let’s get started.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a software wallet used to send, receive and store crypto assets, just like a usual leather wallet is used to store fiat currency.
A crypto wallet uses a public address and a private key for transactions, to transfer cryptocurrencies from one wallet to another. Public address is the address of the receiver who receives crypto assets while the private key is sender’s private key used to sign a transaction.
What makes a wallet hot or cold?
A wallet that is connected to the internet and stores private keys online is known as a hot wallet. On the contrary, a cold wallet is the one with no internet connectivity at all. Although a cold wallet can be installed on a phone or a desktop, like a hot wallet, it is not connected to internet.
Does a hot wallet become a cold wallet when the device is disconnected from internet?
A hot wallet continues to behave like a hot wallet until it stores users’ private keys online, even if the device on which the wallet is installed is disconnected from the internet.
Paper wallets and hardware wallets can be considered as cold wallets as they are not connected to the internet.
So, what is a paper wallet?
It looks like:
It has a private key and a public key printed on it. These keys are shown as two-dimensional bar codes. A sender needs receiver’s public key and his own private key to sign a transaction and transfer crypto assets.
What if someone loses his public key?
Public key can be generated from the private key. However, if a private key is lost then a crypto wallet becomes inaccessible and you lose all of your crypto assets. This is why it is recommended to never store a private key on a mobile phone or desktop as someone may put malware onto a system.
Hardware wallets are thus deemed more secure.
What is a hardware wallet?
A hardware wallet is a cold wallet and the safest place to store cryptocurrency. It can be any secure hardware device like a thumb drive. Plug it into your PC or Mac and it connects directly to the Blockchain. Even if a PC is infected with virus or malware, it would not affect the thumb drive, keeping the cryptocurrency safe and secure.
What kind of wallet does an exchange provide?
A hot wallet.
Exchanges provide hot wallets which are connected to the internet. Since hot wallets are vulnerable to hack, cryptocurrency wallet development services providers need to focus on fortifying the security of hot wallets to safeguard them against hack.
Is it good to store cryptocurrency in a hot wallet provided by an exchange?
The risk of cryptocurrency theft increases when the crypto assets are stored in an exchange’s hot wallet. Only the amount of currency that is to be traded should be stored in a hot wallet. Rest all assets should be stored in a cold wallet or a hardware wallet.
Cryptocurrency wallets are a secure way to send, receive and store crypto assets. Whether you are an individual or a business owner looking to get a crypto wallet developed, zero in on the right wallet type for your needs. Regardless of whether you choose a hot wallet or a cold wallet, reinforce your wallet with advanced security features to enhance its security and enjoy the real benefits of a crypto wallet.
We hope we were able to answer most, if not all, of your questions. If you still have any questions related to crypto wallets, please let us know and we will write another blog answering all of your questions.
And remember:
“The only stupid question is the question that is never asked”. –Ramon Bautista
