A Quick Guide to the Various Types of Cryptocurrency Wallets
If you want to enter the world of digital currencies your first job will be to find a safe home for your crypto so that you can store it with peace of mind. However, while security has to be your number one priority, there are a number of other important factors to consider when choosing between different types of cryptocurrency wallets, such as ease of access to your funds and the potential to earn interest on your crypto capital.
Before we go any further though, lets go over the cryptocurrency wallet basics?
What is a cryptocurrency wallet and why do you need a wallet for cryptocurrency storage?
Put simply, an electronic wallet is similar to the physical wallet in your back pocket, but with greater functionality, as you can store multiple types of cryptocurrency, encrypt, send and receive payments, track your transaction history and view your current balance.
Crypto is a decentralized, virtual currency that has no physical representation. For this reason, it needs to be stored using software that can hold the user’s public key as well as the private key used to sign digital transactions. Wallets also interact with different blockchain to transfer cryptocurrencies and track the user’s account activity.
How does a cryptocurrency wallet work?
Cryptocurrency wallets have private keys, which the user utilizes to access their public wallet address and sign transactions, verifying that the command has come from the owner of the wallet, and preventing any subsequent alterations to the transaction once it has been executed. The private key must be securely stored, as it will unlock access to all the funds in the account. A combination of the user’s public key and private key is what enables a cryptocurrency transaction to be performed.
How do you create a wallet for cryptocurrency?
If you were concerned about how to create a wallet for cryptocurrency, don’t be. The process is neither complicated nor technical. There are a wide range of different cryptocurrency types of wallets. A wallet can be selected through your web browser, or you can download one from your phone’s app store, and there is a wealth of choice so you can find the best cryptocurrency wallet app to suit your needs. Alternatively, you can just buy a hardware wallet from an online shop.
When you create most web wallets, the process is something like this:
Firstly, then provide a strong password. Next, you download your Keystore/json file, which will hold your private key, which should be saved and stored securely. You can download a “paper wallet” of your private key and public address as this can serve as a backup that cannot be hacked, or lost if your computer is mislaid, or breaks down. However, you need to ensure this is stored safely as it essentially provides full access to your funds.
What are the types of crypto wallets?
There are two primary types of cryptocurrency wallets to choose between, hot and cold. Let’s first of all take a look at cold wallets.
Cold wallets are more secure than their “hot”, web-based counterparts because they are not connected to the internet, so they cannot be infected with malware. Instead, your bitcoin is encrypted in a physical piece of hardware that can held be securely in a safety deposit box and only be accessed by means of explicit authorization by the wallet owner.
Cryptocurrency hardware wallets can be portable, in the form of a USB or other external device. As we have established, no internet connection is required, so they can’t be hacked, but keep in mind that if they aren’t kept under lock and key, they could fall into the wrong hands. The thief would still need to learn your password or pin, though, before they could steal your all your crypto savings.
While safer than a hot wallet, a cold wallet can cost you a significant amount to purchase. In addition, if the hardware is stored somewhere highly secure like a bank vault, access is not exactly immediate, so, while a cold wallet is great for HODLing, holding on to your Bitcoin for the long-term, it may not be the best choice if you are making daily trades or online purchases.
Hot wallets are web-based, so they have the inherent vulnerability of being hackable. However, they offer much greater accessibility to your funds. If you are searching for the best cryptocurrency web wallet 2021, your best bet is to go for a mobile wallet. These are frequently completely free or just cost a few dollars. The primary advantage is the fact that they are generally easy to use and are perfect for direct, immediate payments. So, if you are using your Bitcoin for activities like transferring funds, online purchases, paying bills and day trading a hot wallet is your best option as your money will be at your fingertips, the second you want access.
Which is the best multi cryptocurrency wallet type?
As we have mentioned, when it comes to choosing between the different cryptocurrency types of wallets, one major factor you need to consider is what you intend to do with your crypto. Cold wallets are clearly better if your priority is security and you wish to put your Bitcoin aside to appreciate over the long term, whereas a hot wallet is advisable if you need quick access to your crypto cash, for day-to-day transactions.
However, while security and accessibility are key, another equally important consideration is profitability. Regular wallets offer secure storage for your crypto, but essentially this involves leaving your Bitcoin to sit idle. This is where interest bearing wallets come in.
By nature, interest-bearing wallets are web-based, as they involve allowing the wallet provider to use your funds to generate capital, which cannot be achieved when your crypto is in a wall safe. Here at ArbiSmart, in addition to our crypto arbitrage investment platform we will be introducing our own FIU licensed, EU regulated, interest-bearing wallet in early 2021. Crypto and fiat holders will be able to earn interest reaching up to 45% a month, depending on the kind of savings account chosen, as well as the currency type and amount invested. The wallet will allow total flexibility, with accounts that allow for immediate access to funds as well as savings accounts that are locked for pre-set periods, which will earn more interest, the longer the closure on the funds.
So, if you are looking for the best cryptocurrency web wallet 2021, you should look for a reliable, regulated provider that implements tough digital security protocols. In addition, the wallet should offer the choice of instant access to your funds or alternatively, a high interest rate on your capital, so that your savings are working on your behalf and growing every second of the day.