There are different types of cryptocurrency wallets to allow users to store and access their digital currency in different ways. The question that is relevant in this context is how secure these wallets are. Before taking on the security aspect, it is helpful to understand the different types or variations of cryptocurrency wallets that exist today.
Cryptocurrency Wallets: Types and Varieties
These wallets can be broadly classified into 3 categories:
- Software Wallet
- Hardware wallets and
- Paper wallet
Cryptocurrency software wallets can again be sub-divided into desktop, online and mobile wallets.
- Desktop Software Wallet: These wallets are meant to be downloaded and installed on desktop PCs and laptops. This particular variant provides the highest level of security although their accessibility is limited to the computer where they are installed. Moreover, if the computer gets hacked or infected with a virus, there is a possibility of losing all the money.
- Online Software Wallet: This range of cryptocurrency wallets runs on the cloud. Hence, they can be easily accessed from any computing device and from any geographical location. In addition to accessibility benefits, this type of digital wallet stores private keys online. Keys are even controlled by third parties; This makes them easily vulnerable to hacking and theft.
- Mobile Software Wallet: Unlike the other two types, mobile software wallets run on smartphones through an app. These can easily be used everywhere including retail shops and malls. This range of wallets are generally much simpler and smaller than typical desktops to accommodate the very limited space on mobile handsets.
Difference between hardware and software wallets
Hardware digital wallets differ from software ones in terms of storing the user’s private keys. Hardware wallets store user keys on a hardware device (for example, USB). Thus, the keys are stored offline, giving these wallets an added security. Moreover, hardware wallets are easily compatible with many online interfaces and can handle different currencies. Transactions with this type of cryptocurrency wallet are also easy. As a user, all you have to do is plug the device into any web-connected computer before entering a PIN, transfer currency and confirm the transaction. Your digital currency is held offline by the hardware wallet and thus, there are very few risk factors or security concerns.
Paper Digital Wallets: This range of digital wallets are user-friendly and ensure high-level security. The term “paper wallet” refers only to a hardcopy printout of both a user’s public and private keys. However, depending on the context, it can also refer to a software application meant to securely generate keys before printing.
Sweeping with a paper wallet
Paper wallets are relatively easy to use. To transfer any cryptocurrency to your paper wallet, simply transfer funds from the software wallet to the public address, which your paper wallet displays. Similarly, when you want to spend or withdraw your money, just transfer the funds from the paper wallet to your software wallet. This method is popularly called ‘sweeping’.
Swiping can be done manually by entering the private key or by scanning the QR code on the paper wallet.
How secure are cryptocurrency wallets?
Different types 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
- A selected service provider
Needless to mention, holding coins in an offline environment is much safer than online. There is no way to ignore security measures, regardless of the wallet one chooses. If you lose your private key, all the money in the wallet will be gone. On the other hand, if the wallet gets hacked or you transfer funds to a scammer, it will not be possible to reverse the transaction or recover the money.
Investing in cryptocurrency is a smart business idea and using a suitable wallet is inevitable. You need to be a little careful to ensure the safety and security aspect of your fund transfers and transactions.