Cryptocurrency wallets are used to interact with a blockchain network.
The data consists of a pair of private and public keys. An alphanumeric identification called address is generated using these keys. In essence, this address identifies the location of the blockchain to which coins can be transmitted. While the address may be revealed in order to receive payments, the private keys must never be disclosed. The private key can be used to access the cryptocurrency from any wallet. Funds are available on any device as long as the private key is known. Additionally, coins are only moved between addresses, never leaving the blockchain network.
Wallets can be classified on the basis of how frequently they are connected to the internet as well as on the basis of their technology.
- 1 On the basis of Internet connectivity, they are classified as
- 2 1.Hot Wallets
- 3 2. Cold Wallets
- 4 Based on the underlying Technology, wallets an be classified as
- 5 1. Hardware Wallets
- 6 2. Software Wallets
- 7 Hardware wallets are further classified as
- 8 i. USB wallets
- 9 ii. Bluetooth
- 10 iii. Paper Wallets
- 11 Software Wallets can be further classified as
- 12 (a) Desktop Wallets
- 13 (b) Mobile Applications
- 14 (c) Web-based wallets
On the basis of Internet connectivity, they are classified as
Hot Wallets are connected to the internet frequently. Since hot wallets are connected to the Internet, they are less secure and offer additional hazards, but they are more user friendly. Hot wallets are more frequently utilised for everyday transactions, whereas cold wallets are more frequently used for long-term holdings. Hot wallets are simple to set up and provide instant access to the funds. They are convenient for traders.
2. Cold Wallets
Cold wallets are not connected to the internet very frequently. As a result, security is enhanced. Cold wallets are ideal for HODLers.
Based on the underlying Technology, wallets an be classified as
1. Hardware Wallets
2. Software Wallets
Hardware wallets are further classified as
i. USB wallets
These devices connect to your computer or laptop via USB ports. These are often used as Cold Wallets for Long Term Storage.
These devices connect to your computer or laptop or mobile phone via Bluetooth. These are also frequently used as Cold Wallets for Long Term Storage.
iii. Paper Wallets
Paper wallets have the QR codes of the receiver printed on a paper. These are obsolete in present times. Their biggest drawback is that they do not allow partial fund transfer.
Software Wallets can be further classified as
(a) Desktop Wallets
These are installable software packages for various operating systems that are becoming increasingly serious over time. Anti-virus protection is necessary since any computer connected to the Internet poses fundamental security risks. Rather than storing cryptos on an exchange, desktop bitcoin wallets are preferred.
(b) Mobile Applications
Mobile Apps are similar to desktop wallets. They are optimised to be used on cell phones. This makes them quite convenient, as they make transactions via QR codes. They are suitable for routine tasks. But they are prone to malware attack. Mobile wallets must be encrypted. They are convenient and portable, but are susceptible to viruses. Coinomi and Mycelium are two mobile wallets.
(c) Web-based wallets
As implied by the name, these wallets are accessed using web browsers. Private keys are stored in a few web wallets, which are vulnerable to DDOS attacks. They can be self-hosted or hosted by a third party. It is preferable to be self-hosted, as money are always in control. sMetaMask and Coinbase are two examples.
To know more about other fascinating concepts of Web3, check out the Crypto101 series by Coin Crunch India.