There are different types of cryptocurrency wallets to allow users to store and access their digital currency in a variety of ways. The question that is relevant in this context is how safe are these wallets. Before taking the security aspect, it is helpful to understand the different types or varieties of currently existing cryptocurrency wallets.
Cryptocurrency wallets: Types and variations
These wallets can be broadly divided into categories:
- Software wallet
- Hardware wallet and
- Paper wallet
Cryptocurrency software wallets can be further divided into desktop, online and mobile wallets.
- Desktop software wallet: These wallets are meant to be downloaded and installed on desktop PCs and laptops. This particular variation provides the highest level of security although their accessibility is limited to the computer where they are installed. Moreover, if the computer is hacked or infected by a virus, one can lose all his money.
- Online software wallet: This range of cryptocurrency wallets runs in the cloud. Thus, they 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 key is even controlled by a third party; This makes them vulnerable to easy hacking and theft.
- Mobile Software Wallet: Unlike the other two variants, the mobile software wallet runs on a smartphone through an app. They can be easily used everywhere including retail stores and malls. This range of wallets is usually much easier and smaller than ordinary desktops to accommodate with very limited space on mobile handsets.
The difference between hardware and software wallet
Hardware differs from digital wallet software in terms of storing the user’s private key. Hardware Wallet stores user keys on a hardware device (for example, USB). Thus, the keys are stored offline, these wallets provide an extra security. Moreover, hardware wallets are easily compatible with many online interfaces and can also handle different currencies. It is also easy to transact with such cryptocurrency wallets. As a user, you simply need to plug in the device to any computer that is connected to the web before the PIN can be entered, transfers currency, and only confirms the transaction. Your digital currency is kept offline by the hardware wallet and thus, the risk factor or security concerns are also much less.
Paper Digital Wallet: This range of digital wallets also ensures user-friendliness and a high level of security. The term “paper wallet” simply refers to the hardcopy printout of the user’s public and private keys. However, considering the examples, it may also refer to a software application to create keys securely before printing.
Sweeping with a paper wallet
Paper wallets are relatively easy to use. To transfer any cryptocurrency to your paper wallet, simply transfer funds from the software wallet to the public address, which displays your paper wallet. Similarly, when you want to spend or withdraw your money, simply transfer the money from the paper wallet to your software wallet. This method is popularly known as ‘sweeping’.
It can be swiped manually by entering a private key or scanning a QR code in a paper wallet.
How secure is the cryptocurrency wallet?
Different types of digital wallets provide different levels of security. The security aspect depends on two things:
- The type of wallet you use – hardware, paper, online, desktop or mobile
- A selected service provider
Needless to say, keeping money in an offline environment is much safer than online. There is no way to ignore the security measures, regardless of who has chosen the wallet. If you lose your personal key, all the money in your wallet will be gone. 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 recover that money.
Investing in cryptocurrency is a smart business concept and for that, using a suitable wallet is inevitable. You just have to be more discriminating with the help you render toward other people.