There are different types of cryptocurrency wallets to allow users to store and access their digital currencies in different ways. The relevant question in this context is how secure are these wallets. Before getting into the security aspect, it is useful to understand the different types or varieties of cryptocurrency wallets that exist today.
cryptocurrency Wallet: Types and Varieties
These portfolios 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 portfolios: These wallets are intended to be downloaded and installed on desktop and laptop computers. This particular variety offers the highest level of security although their accessibility is limited only to the computer on which they are installed. Moreover, if the computer is hacked or infected with a virus, it is possible that one loses all his money.
- Online software wallets: This range of cryptocurrency wallets runs on the Cloud. Thus, they are easily accessible from any computing device and from any geographical location. Apart from accessibility convenience, this type 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 work on smartphones via an app. These can easily be used anywhere including retail stores and malls. This range of wallets are generally much simpler and smaller than normal desktop wallets to fit the very limited space on mobile phones.
Difference Between Hardware and Software Wallets
Hardware digital wallets differ from software wallets when it comes to storing a user’s private keys. Hardware wallets store user keys in a hardware device (e.g. USB stick). So, because the keys are stored offline, these wallets provide additional security. In addition, hardware wallets are easily compatible with many online interfaces and can also manage different currencies. This variety of cryptocurrency wallets is also easy to use for making transactions. As a user, you simply plug the device into any web-connected computer before entering a PIN, transferring currency and confirming the transaction. Your digital currency is kept 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 user-friendly and provides a high level of security. The term “paper wallet” simply refers to the printing of a user’s public and private keys on paper. However, given the instances, it can also be a software application to generate the keys securely before printing.
Sweep with paper wallets
Using paper wallets is relatively easier. In order to transfer any cryptocurrency to your paper wallet, simply transfer the funds from the software wallet to the public address, which your paper wallet displays. Similarly, when you want to spend or withdraw your money, you just need to transfer the funds from the paper wallet to your software wallet. This procedure is commonly referred to as “scanning”.
Scanning can be done manually, by entering the 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 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 currencies in an offline environment, compared to online. There is simply no way to bypass security measures, no matter which wallet you choose. If you lose your private keys, all the money kept in the wallet will disappear 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 recover that money.
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 aspect of your funds transfers and transactions.