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What types of Wallet to use to store bitcoin or other cryptocurrencies?
The wallet (or digital wallets) that can store cryptocurrency can be classified into:
- Hot wallet: they are online wallets since they are connected to a peer to peer network permanently;
- Cold wallet: they are wallets that can work without an internet connection and so they are safer.
Currently there are 5 types of digital wallets where we can store our cryptocurrencies:
- Desktop Wallet
- Mobile Wallet
- Web Wallet
- Paper Wallet
- Hardware Wallet
Next we will see the characteristics of each one.
The Desktop Wallet is downloaded and installed on a PC or laptop. It can only be accessed from the same computer on which it was installed.
A Desktop wallet allows you to create and store your private key and public address to send and receive your cryptocurrencies and, therefore, offers one of the highest levels of security.
- The Mobile Wallet is, as its name suggests, a wallet based on an app for iOS, Android, Window devices.
A mobile wallet is very useful because it can be used anywhere and can function as a payment service to receive and send money (even in stores that accept payments in cryptocurrencies) through mobile devices.
- The Web Wallet is stored in the cloud, based on web applications within a domain and, therefore, is accessible from any device and any location. Since data (public and private keys) are stored on a server in the cloud controlled by third parties, this type of portfolio is more vulnerable to attacks and theft.
- The Paper Wallet is the classic example of Cold Wallet since it does not work online and therefore it turns out to be very safe.
Creating a paper wallet is very simple and can be done in two ways: through software or through an online platform. In both cases, a private key and a public key of the wallet will be generated, which you will have to write down on your paper wallet and which you will carefully keep in a safe place.
- The Hardware Wallet is a device, usually in the form of a usb, that stores your keys to access your crypto in a very safe way, since it is not managed online. One of the examples of Hardware Wallet is the Trezor.
As you have seen, there are several solutions to access and manage your cryptocurrencies more or less securely. But there is also another option (we are not talking about a wallet), usually adopted by novice users or those who aren’t fully aware o the risks…
We refer to the management of crypto funds by an exchange.
If you do not know, a cryptocurrency exchange is an online platform that acts as a true financial market, where all types of cryptocurrencies can be bought and sold at the free market price.
While with a wallet we can take the control of our crypto funds, with an exchange this is not possible. What an exchange does is create automatic addresses for each supported cryptocurrency, belonging to the wallet of the same exchange.
This means that, when storing your funds in the direction/wallet of an exchange, you will not be the custodian of your crypto since, if the exchange closes, you will lose all the funds placed in it. In other words, the exchange acts like a bank and, as such, is the custodian/owner of the funds of its users.
So, be careful when choosing the method to store and safeguard your cryptocurrencies.