There are different types of cryptocurrency wallets that allow users to store and access their digital currencies in different ways. Relevant in this context is the question of how secure these wallets are. Before considering the security aspect, it is helpful to understand the different types and varieties of cryptocurrency wallets that exist today.
Cryptocurrency wallet: types and varieties
These wallets can generally be classified into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Cryptocurrency software wallets can again be divided into desktop, internet and mobile wallets.
- Desktop wallets: These wallets are designed to be downloaded and installed on desktops and laptops. This version offers the highest level of security, although their availability is limited only by the computer on which they are installed. Moreover, in case the computer is hacked or infected with a virus, there is a chance that the person may lose all their money.
- Online wallets: This range of cryptocurrency wallets works on the Cloud. This way, they can be easily accessed from any computing device and from any geographical location. Aside from 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 burglary and theft.
- Mobile wallet software: Unlike the other two varieties, mobile wallets work on smartphones through the app. They can be easily used everywhere, including in retail stores and malls. This range of wallets is usually much simpler and smaller compared to conventional desktops to accommodate it with very limited space on mobile phones.
The difference between hardware and software wallets
Hardware digital wallets differ from software in terms of storing user private keys. Hardware wallets store user keys in a hardware device (such as a USB). Therefore, because the keys are stored offline, these wallets provide additional security. What’s more, hardware wallets are easily compatible with many online interfaces and can also work with a variety of currencies. With this variety of cryptocurrency wallets it is also easy to make transactions. As a user you just need to connect your device to any computer that is connected to the internet, before entering your PIN, transfer the currency and just confirm the transaction. Your digital currency is stored offline using hardware wallets, and thus the risk factor or security issue is much smaller.
Paper digital wallets: This range of digital wallets is also convenient and provides a high level of security. The term “paper wallet” simply refers to the printing of a user’s public and private keys in print. However, given instances, it can also refer to a software application designed to securely generate keys before printing.
Sweeping paper wallets
Using paper wallets is relatively somewhat easier. To transfer any cryptocurrency to a paper wallet, simply transfer funds from the wallet software to a public address that displays your paper wallet. Similarly, if you want to spend or withdraw money, just transfer the funds from the paper wallet to the wallet software. This procedure is popularly called “sweeping”.
Replacement can be done either manually by entering private keys or by scanning the QR code on a paper wallet.
How secure are cryptocurrency wallets
Different varieties of digital wallets offer different levels of security. The security aspect mainly depends on two factors:
- The type of wallet you use is hardware, paper, internet, desktop or mobile
- Selected service provider
Needless to say, it is much safer to store currencies offline, compared to the internet. It is simply impossible to ignore security measures, regardless of the wallet chosen. If you lose your private keys, all the money stored in your wallet will disappear from your hands. On the other hand, if the wallet is hacked or you transfer funds to the scammer, cancel the transaction and return the money will fail.
Investing in a cryptocurrency is a smart business idea, and so using a suitable wallet is inevitable. You just need to be careful to ensure the security and safety aspect of your funds transfers and transactions.