In this article we shall be diving deep into the two types of wallet we have in the crypto and blockchain world which are, Software Wallets (hot wallets) and Hardware wallets (cold wallets).
In the digital assets/cryptocurrency world, a wallet is a digital tool that allows users to securely store, manage, and interact with their digital currency and assets. It is essential for anyone looking to use or invest in cryptocurrency to own one of these.
- Software Wallets (Hot Wallets).
What is a software wallet: A Software wallet otherwise called, Hot wallet is an application that allows users to store, manage, swap and interact with their digital assets. Simply called digital wallets or cryptocurrency wallets, they serve as safe haven for your assets as they come with keys and other embedded features which allows you to gain access.
➔Why is it called a Hot Wallet? A software wallet is called a hot wallet because the wallet is connected directly to a cloud infrastructure which enables it to display a plethora of features which allows the user to do so much more with their assets.
Types of Software Wallets:
★Browser Extension Wallets: Browser based wallets allow the integration of a cryptocurrency wallet with a web browser extension to aid interaction with decentralized applications (DApps) on the blockchain. Examples are Metamask, Phantom and Tronlink.
★Desktop Wallets: These are applications that can be installed on a user’s
computer which they can use to interact with digital assets. Electrum (for Bitcoin) and Exodus are some examples
★Mobile Wallets: Mobile wallets are applications designed to be used on
smartphones and tablets. It gives users the much needed security and
convenience of being able to manage their cryptocurrencies on the go. Trust Wallet, Edge Wallet, Roqqu Wallet etc are a few examples.
Are software wallets secured? Can users, whether old or new, use and trust them for the safety of their assets? The danger to software wallets ownership and usage is usually when a user loses their private keys or seed phrases. To enable security of this wallet, cryptographic techniques which are essential for authorizing transactions are used to secure your private keys. Also, there are instances where these wallets are known to implement backup features like seed phrases or recovery phrases.
Users should, as a matter of keeping their assets secured, store their backup phrases offline so that they can recover their assets safely in the event of a device compromise, loss or failure.
Important to note:
When selecting a software wallet, users are advised to consider factors such as security features, company reputation, ease of use, multi-currency support, and check to see if the wallet provisions aligns with their specific needs and preferences. When downloading these wallets, do be cautious of phishing scams and ensure that software wallets are downloaded from official sources to avoid potential security risks.
2. Hardware Wallet (Cold Wallets).
What is a Hardware Wallet? A Hardware wallet is a physical device designed to provide a secure means of storing and managing cryptocurrency and digital assets private keys.
➔Why is it called a cold wallet? It is regarded as a “cold wallet” because the
wallet keeps the user’s private keys offline, minimizing the risk of exposure to online threats such as hacking and malware.
Features of Hardware Wallets:
★Offline Storage: This is why it is called a cold storage wallet. It stores the user’s private keys offline and disconnects from the internet when not in use. Its offline nature reduces the risk of unauthorized access to hacking.
★Security Features: Additional security features such as PIN codes, passphrase protection, and encryption are included in this storage device to add extra layers of protection against unauthorized access.
★Backup and Recovery: With a hardware wallet, the user is provided with a recovery seed or passphrase (a series of words that can be used to recover the wallet) if the device is lost, damaged, or stolen.
★Physical Form: Unlike the Software kind of wallets, this is a physical device that often resembles a USB drive or small electronic devices with screens and buttons and are equipped with a secure chip to protect cryptographic operations.
★Ease of Use: This type of wallets are designed to be user-friendly, with
straightforward and easy to understand setup processes and it also comes with intuitive interfaces that have display screens for transaction verification and physical buttons for confirmation.
★Private Key Security: Your private keys are generated and stored within the secure hardware environment of the device. These keys never leave the device which enables the provision of a high level of protection against external attacks.
★Multi-Currency Support: This wallet model supports a variety of
cryptocurrencies, thereby allowing users manage multiple assets in a single device.
★Compatibility: A hardware device is built to be compatible with various computer operating systems (Windows, macOS, Linux) and some mobile devices. They can be connected to chosen devices through bluetooth or USB ports.
Important to note: Though hardware wallets are widely regarded as one of the most secure options for storing cryptocurrencies, users are advised to be cautious and stay guided. Hardware wallets should be purchased from official and reputable sources to ensure its authenticity.
Best practices are advised for securing backup phrases, keeping user devices up to date with the latest firmware, and verifying transaction details on the hardware device’s screen before confirming.
The ownership and usage of a cryptocurrency wallet differs across board and users have the right to choose what type they are willing to use and how best they can protect their assets with what is provided.
Cryptocurrency assets are money (magical money in your computer) and this makes it come under serious attacks of hacking, phishing and online theft. Users and investors in cryptocurrency are advised to manage their risk accordingly and make sure to do their own research into these available services before taking a walk in the crypto world
