Cryptocurrencies, unlike fiat currencies, are not physical. Consequently, whereas hard currencies such as USD, GBP, and EURO can be stored in a physical wallet, altcoins require a different kind of wallet. A virtual currency wallet is a software that keeps public and private keys thereby enabling the holder to store, send, or receive different coins and check the balance.
Most of the Cryptocurrencies have their official wallet. However, many wallets that support more than one coin have emerged recently. You’ll need to have a Cryptocurrency wallet in order to use virtual currencies. A Cryptocurrency wallet is either cold or hot. A hot wallet is one that is connected to the internet while a cold wallet is one that is not.
Hot Wallets
Hot wallets are those that are always connected to the internet such as mobile app wallets and website wallets. Most Cryptocurrency exchanges such as Kraken and Coinbase among others rely on their online wallets for liquidity purposes. Desktop wallets, when installed in a device that is connected to the internet are another form of hot wallet.
Advantages Of Hot Wallets
• They are easy to set up as you only need to download the app and install it on your device. • There are more accessible than cold wallets. You can use your funds as long as you have your device and internet access. • They are available for free as you only need to download them. • Hot wallets support more coins than most cold wallets. • Some exchanges such as Coinbase are already insuring their clients’ funds against theft.
Disadvantages Of Hot Wallets
• Given that they are connected to the internet, they are susceptible to hackers. • You may lose your funds when your computer or mobile phone is lost, broken, or stolen. • Hot wallets, such as those offered by exchanges do not give the users access their private keys. Using such wallets means you don’t have full control of your funds.
If you are just joining the Crypto sector, hot wallets could be ideal, as they are easy to use. The wallets are also beneficial to those who like to make payments using Cryptocurrencies. Regardless of your use for the wallet, you should only store a small number of coins in them.
Cold Wallets
Cold wallets are not internet connected and include hardware wallets and paper wallets. They are the safest Cryptocurrency wallets hence ideal for storage of a large amount of coins. The private and public keys are printed on a piece of paper in a paper wallet. A hardware wallet uses a secure hardware device to store coins. Some of the most popular hardware wallets include CoolWallet, Ledger Nano S, TREZOR One, and KeepKey among others.
Advantages Of Cold Wallets
• Cold wallets are not connected to the internet making it hard to lose funds to hackers. • They are immune to computer or phone viruses thereby reducing chances of losing funds. • Hardware wallets also come with pin thereby providing another security layer. • You are in control of your funds as you have access to your private keys.
Disadvantages Of Cold Wallets
• Cold wallets cost money. You need a good printer for your paper wallet while you have to buy a hardware wallet. • Wear and tear, fire, and water are some of the factors that may destroy your paper wallet leading to the loss of funds. • The security of your funds depends on how you keep your paper wallet. As a normal human being, you may forget where you kept your wallet thereby lose your funds.