Gotta do the disclaimer again: This isn’t advice but is just my overview of Crypto wallets. Doing personal research / due diligence on the topic spoken in this post is heavily recommended before taking action. I am not a financial advisor and am merely sharing my knowledge on the subject
Wallets in Crypto refers to a storage place for held Cryptocurrency. Unlike a physical wallet, which can hold Credit cards, currency, and other methods of payment such as gift cards and coupons a Cryptocurrency wallet has a few different phases:
Cold Storage Wallet: This type of wallet is more akin to a vault for Cryptocurrency. The wallet assets are held in a device or storage holder that is defaulted to an ‘offline’ mode and can only be accessed by having the device and the access keys. Once the wallet is opened and connected to a device such as a phone app or computer program then the assets can be accessed and moved. Some devices hold the power to access the internet wirelessly while others require a direct connection to a phone or computer. This is considered the most secure version of holding Cryptocurrencies as it requires so many steps and access keys to begin moving the held assets but that can be a hinderance when looking to access certain prospects on a Blockchain
Hot Wallets: These wallets are ‘hot’ because they allow faster access and near instant transactions to anyone once accessed. They are natively on a phone or computer as an application or browser plugin, which I assume will be instantly connected to the internet, and are more susceptible to being cracked by malicious links, phishing attempts, and being broken into/hacked if bad actors get a hold if any piece of data.
Wallets are often tied to devices they are authorized to recognize and both are / can be protected by different layers of security:
Seed phrases, a organized list of words that have to be input in the order they are received when creating the wallet account / access
Generated Password, a long list of numbers and upper/lower case letters
User Created Password, The password the wallet holder makes to access on a phone / computer / device.
There are some other methods but those are the more popular ones. The first two options are randomly generated by the wallet / device and are apparently scrubbed from the origin generation source but that isn’t always the case with some wallet companies.
The true saving grace is the fact that the wallet itself often has a unique distribution name that coordinates with the assigned generated seed phrase / password. So even if the phrase or generated password gets leaked or stolen there still needs to be access and knowledge of the device / name.
Transactions are a whole other stress level. To transact assets it requires a wallets unique send / receive key, which is separate from the access key, and it has to be input exactly as seen or else the assets transferred will sent to nowhere and be forever lost in the void.
Though nowadays Wallet asset transferring has gotten easier!
There are services such as Unstoppable Domains which allows purchase of a ‘unstoppable domain’ that is a cryptocurrency wallet and all the sender has to do is input the unstoppable domain name to send the assets.
Tangem Wallet creates a scannable QR code and many wallets allow the ability to directly copy+paste the transaction key to send to the other person so it’s a lot easier now than it was in the previous years.
This is just my information on Cryptocurrency wallets. I greatly suggest the reader do their own research and figure out the concept for themselves as the Blockchain/Cryptocurrency space is a confusing honeycomb of variances, options, access points, and levels of nuances that can go well over the head of anybody wanting to get started.
One other thing:
– Exchanges.
A Cryptocurrency Exchange is NOT a wallet. To store assets on there and expecting it to be safe is incredibly foolish. They are centralized locations that can be hacked, phished, and the accounts tied to the assets have a general online security level. Yes, there are 2-faction authentication, email, phone/text codes, and constantly changing passwords can be apart of the process but that doesn’t mean the exchange itself can’t be infiltrated and the accounts drained.
The mantra of Cryptocurrency is often “Not your keys, Not your crypto.” This is used as reminder that if the holder doesn’t have a security key / generated access code holding the assets then they are not correctly claiming ownership of what they hold.
Lots of stories and experiences to read that explain all the incidents in greater detail.
Get informed. Stay Informed.
Stay Knowledgeable!
Helpful Links:
https://www.investopedia.com/hot-wallet-vs-cold-wallet-7098461 – Straight to the point explanation of what I’ve spoken about here but probably in greater and more official detail
https://www.blockchain-council.org/blockchain/types-of-crypto-wallets-explained/ – More nuanced description with details on the many Wallet types in regards to phones, browsers, computers, personal devices, and more.