There are different types of cryptocurrency wallets that allow users to store and access their digital currencies in different ways. The question that is relevant in this context is how secure these wallets are. Before looking at the security aspect, it is helpful to understand the different types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency Wallet: Types and Varieties
These wallets can be broadly classified into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Software cryptocurrency wallets can again be subdivided into desktop, online and mobile wallets.
- Desktop Software Wallets: These wallets are designed to be downloaded and installed on desktops and laptops. This particular variety offers the highest level of security, although their availability is limited only to the computer on which they are installed. Also, in case the computer is hacked or infected with a virus, there is a possibility that one will lose all their money.
- Online Software Wallets: This range of cryptocurrency wallets runs on the cloud. Thus, they can be easily accessed from any computing device and from any geographical location. Apart from the convenience of accessibility, this type of digital wallet stores the 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 operate on smartphones via an app. They can be easily used anywhere, including shops and malls. This range of wallets are usually much simpler and smaller compared to normal desktops to accommodate the very limited space of mobile phones.
Difference between hardware and software wallets
Hardware digital wallets differ from software in terms of storing the user’s private keys. Hardware wallets store user keys on a hardware device (e.g. USB). Thus, since the keys are stored offline, these wallets offer additional security. Additionally, hardware wallets are easily compatible with many online interfaces and can also handle different currencies. This variety of cryptocurrency wallets is also easy to transact. As a user, you simply need to plug the device into any computer that is connected to the network before entering the PIN, transferring the currency and simply confirming the transaction. Your digital currency is maintained offline by the hardware wallets and thus the risk factor or security concern is also much less.
Paper Digital Wallets: This range of digital wallets is also user-friendly and ensures a high level of security. The term “paper wallet” refers only to the paper printout of the user’s public and private keys. However, given the cases, this can also apply to a software application designed to securely generate the keys before printing.
Sweeping with paper wallets
Using paper wallets is relatively easier. To transfer any cryptocurrency to your paper wallet, simply transfer the funds from the software wallet to the public address displayed on your paper wallet. Similarly, when you want to spend or withdraw your money, simply transfer the funds from the paper wallet to your software wallet. This procedure is popularly called “sweeping”.
Clearing can be done manually by entering the private keys or 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 – hardware, paper, online, desktop or mobile
- Selected service provider
Needless to mention, it is much safer to store currencies in an offline environment compared to online. There is simply no way you can ignore security measures regardless of the wallet you choose. If you lose your private keys, all the money stored in the wallet will disappear from your hands. On the other hand, if the wallet is hacked or you transfer funds to a fraudster, it will not be possible to reverse the transaction, nor to get that money back.
Investing in cryptocurrency is a smart business idea and for that, using a suitable wallet is inevitable. You just need to be a little cautious to ensure the safety and security of your money transfers and transactions.