You already know what wallets are. They are a place for you to store cryptocurrencies. There are two types of wallets, namely, hot wallets and cold wallets. The easiest and simplest way to describe the difference between hot wallets and cold wallets is that the hot wallets are connected to the internet while cold wallets aren’t.
The fact of the matter is that both these wallets have different purposes. While hot wallets are usually used for regular transactions, cold wallets are more like savings accounts.
Now, if you are someone who has frequent transactions then hot wallets will suit you better. Even in hot wallets, there are mainly two types from which you can choose, a web or a mobile version. Although this may sound simple, each of these wallets has different purposes, different levels of security and different functions.
You are probably aware that your wallet doesn’t actually store your coins, but is just a simple way to store your private and public keys. They can also show you how many coins are associated with those keys and previous transactions that have occurred with those keys.
Your browser wallet or your web-based wallets are easy and convenient as you can access them from almost any computer. However, it is not as secure as the other options since your keys are stored in someone else’s server. Of course, no wallet service provider wants to be hacked, but that is not something that is under your control or theirs. In fact, using this wallet is ironic as you entire purpose of creation of cryptocurrency was to keep your funds is under only your control.
So, the entire purpose of using cryptocurrency is defeated here. But it cannot be denied that this option is very convenient especially since your wallet provider usually allows you to purchase coins through their exchange. If you do still feel that you require to use this option, choose a provider that encrypts the keys before putting them on the web, thus, making this option relatively safe and secure. Coinbase provides this option.
It is important to remember that desktop wallets are not the same as online wallets. Even though you probably access your online wallet through your desktop, it isn’t the same thing. For the desktop wallet, you are required to download the software directly onto a desktop. You have to ensure that your security is thorough. If your hardware is hacked your coins can get copied and your bitcoin will be transferred without your knowledge.
In other words, your bitcoin will be stolen and there is nothing you can do about it. However, if your hardware is secure this is actually one of the safer options. The remaining wallets are actually lightweight as you don’t download the entire blockchain. They usually store only the block headers rather than the entire blocks, thus, allowing them to use the bare minimum space.
Ways to keep your Coins safe
One of the biggest qualities of cryptocurrency, undoubtedly, is that it is virtual. It doesn’t have a physical form you would be required to store like you would store your regular currency. You can’t hide it under your bed or lock it safely in a vault even though that gives you a sense of security.
That does not mean it doesn’t need protection. It is valuable and hence, requires protection. Since all transactions require the internet, hence, in spite of all the security your coins are still vulnerable. There are still a couple of things you can do and measures you can take to prevent any breach of security.
Be extremely careful when it comes to any online service. Any device connected to the internet is vulnerable.
Ensure that your wallet is encrypted with an extremely strong password. Share this password only with the closest and most trusted ones, if required.
Make regular backups and store them in multiple locations without forgetting to check for any kind of malware.
Use the multi-signature so that even if one of your devices is compromised, you can still maintain control over your coins.
Exchanges are websites or services that let you convert your ‘Fiat currency’ like US Dollars, etc. to a cryptocurrency of your choice and convert the coins back into ‘fiat currency as either your original currency or any other currency of your choice. If exchanges didn’t exist, you would have to buy your coins from somebody who already owns them, only after agreeing on a rate. The same goes for selling your coins. You would have to find someone who wanted to buy them and then agree on a price. Exchanges simplify the process by providing a place to buy and sell your coins.
Exchanges like Coinbase, Kraken, Bittrex, and Binance are the biggest in the field and among the most reliable. The concern is that the exchanges hold your private keys, implying that it is like storing your coins in their wallet. It requires you to place a lot of trust in the exchange. That is why it is recommended to use the services of big names in the market like Coinbase as they have a decent track record in comparison with other smaller exchanges that may not be nearly as trustworthy.
Is it better for you to use a desktop wallet or a web-based wallet? There is no correct answer to that. You need to keep in mind what your requirements are and make a choice. Relying on an exchange will give you a more convenient experience but that brings with it a lot of risks and asks you to place a lot of trust in the exchange. You have to take a call and ensure that you are in a position to face the consequences.