What is a Crypto Wallet?

•  Cryptocurrency wallets are split between hot wallets and cold wallets

•  Hot wallets are any wallets that are connected to the internet

•  Cold wallets are storage devices that have no access to the internet

•  The wallet is just an address on the blockchain to which you can receive cryptocurrencies or send cryptocurrencies from

As a newcomer into the crypto space, one of the key tools that you will be using is called a cryptocurrency wallet. The better understanding you have about their functionality, the better overall experience you will have when using them. Let’s dive into the world of cryptocurrency wallets and explore everything they can offer.

What Is a Cryptocurrency Wallet?

A cryptocurrency wallet, or a crypto-wallet as it is often referred to, is a wallet that allows you to store your public and private keys, through which you can access all of your data on the public ledger known as the blockchain.

The wallet itself doesn’t really store cryptocurrency. However, it stores the required information you need to access your address on the blockchain, where your cryptocurrency is actually stored. To be clear, your cryptocurrency remains on the blockchain; when you create a wallet, you are assigned a destination on that blockchain (a public address), and this is where your cryptocurrency tokens or coins are kept. 

You are required to have a cryptocurrency wallet address if you intend for people to send you cryptocurrencies or for you to be able to send cryptocurrencies to others.

This can be in the form of a web-based wallet, a mobile wallet, a desktop wallet, an offline, cold storage device wallet, or a paper wallet. 

Cryptocurrency wallets are typically split across two distinctive categories, the first and most common one being hot wallets and the ladder being cold wallets. Each of them has its own respectful benefits and drawbacks, so let’s dive into each one and see what you are actually getting when you decide to use either one of them.

Diving Deeper into Hot Wallets

Hot wallets might be difficult to wrap your head around, as they are split across web-based wallets, mobile wallets, or desktop wallets. However, there is one thing that connects all of them and the main reason as to why they are referred to as hot wallets, and this is the fact that each of them has a direct connection to the internet and is always online.

When you use an exchange wallet, for example, this is a web-based wallet, where you use your internet connection to connect to the cloud, which takes you to the server where the wallet is located; this is your wallet address. This means that the exchange manages your cryptocurrencies, and all you have to do is log in. With hot wallets, you can easily transfer cryptocurrencies from and to the wallet itself with ease and without needing to pay fees for putting your crypto on the exchange constantly and back out of it.

However, this type of cryptocurrency wallet has its drawbacks as well, as it is susceptible to hacking more when compared to cold wallets, as if the exchange gets attacked, your cryptocurrencies could be compromised. 

Diving Deeper into Cold Wallets

On the other end of the spectrum, you have what is known as a cold wallet. 

These are a lot easier to wrap your head around, as these are essentially all wallets that do not have an internet connection. Imagine a brick that has your passcode on it; it’s that simple. 

You have paper wallets, which you can print 2 QR codes on, one for checking your cryptocurrency balance and the other to transfer your cryptocurrencies from the paper wallet to an exchange. 

Then you have offline storage devices, where you can transfer your passcode from your computer to the device and remove it from the web completely. 

This means that the only way for your funds to get compromised would be for the hacker, or thief, in this case, to literally enter your home, steal your device, and know your password to the device in order to get your passcode to your public address on the blockchain itself. 

This is by far one of the most secure ways through which you can store cryptocurrencies and, as such, is recommended and is used by people who hold onto cryptocurrency assets for a prolonged period of time.

However, while this is, by all means, the best cryptocurrency wallet you can have, they can be pricey to purchase, and you will pay additional fees each time you move your cryptocurrencies from a cryptocurrency exchange and to it again when you decide to sell them, which makes the process tedious and expensive. This is their drawback.

How to Use a Cryptocurrency Wallet

If you want to transfer cryptocurrency to a hot wallet, the process itself is fairly straightforward. 

All you really have to do is sign up or create an account with a provider of the hot wallet. Many cryptocurrency exchanges will indeed offer their own cryptocurrency wallets that are attached to your account the moment you sign up to them, so unless you are jumping between exchanges, you should be fine with a single hot wallet on the exchange you are most commonly using.

The next step that you need to take is to buy and deposit your cryptocurrencies. When you visit a cryptocurrency exchange and click on a button that’s called Buy or Trade, you can allocate where you want the cryptocurrency to be sent to, and you need to enter your wallet address there. After it is selected, a pop-up window will show up on your screen, after which you can confirm the transaction itself. Many cryptocurrency exchanges will automatically place your cryptocurrency or FIAT currency into the hot wallet itself. Finally, you can start trading with the wallet.

However, if you want to transfer cryptocurrencies to a cold wallet, things get a bit trickier, however, worry not as we’ll guide you through the process each step of the way. 

First, you need to unbox the packaging that came with your cold wallet and see all of the contents within it. 

You will find the device itself in the box, as well as a USB cable, a keychain, and three paper cards such as a blank recovery sheet and instructions on how you can use the wallet itself.

Many cold wallets will have a small LCD screen with multiple buttons on them, assuming they are from the pricier, more luxurious options out there. These buttons will allow you to navigate the menu in the wallet itself and select specific options, and confirm or sign transactions.

The next thing you will need to do is connect the wallet to your computer through the USB cable which was included in the box. Once it is connected, you will see a welcome message and some instructions. You need to navigate the menu now, and to do this, find the left and the right buttons, and press both of them at the same time to make your selection.

Keep in mind that many cold wallets will have their own software suites that you might need to install in order to use them efficiently. 

To do this, you need to navigate to the wallet’s website, download the official software and click on any button that says Get Started or Download Now. Install it, and set up your PIN code. 

You will also receive a recovery phrase, and you need to ensure that you place it in a secure location. Write it down on a sheet of paper, as it is a 24-word recovery phrase that you do not want to lose somewhere throughout the file system on your computer.

Now comes the fun part; in order to get your cryptocurrency onto the wallet itself, you will need to go to your wallet and sign in with your passcode.

 Go to the wallets tab, click on the wallet you want to receive the cryptocurrency too, and copy that wallet address.

Go to the exchange where you purchased your cryptocurrency next, log into your account, and go to the balances page.

Click on the cryptocurrency that you want to send to your offline wallet, insert your wallet address, and click on ‘send’ to confirm the transaction. Approve it, and you should find your cryptocurrencies on your hardware wallet.

The Best Hot Cryptocurrency Wallets

There are specific cryptocurrency wallets with various features that make them stand out compared to others. Here are some of the best choices you have.

MyCelium

MyCelium is a mobile hot wallet that is extremely easy to install and intended for daily use. It allows you to connect to the Bitcoin network and store BTC with ease and allows for a higher level of privacy. It is fully open-source and can be integrated with other wallets if that proves to be a requirement over time. It has also been praised as one of the best mobile wallets on the market.

Electrum

Electrum wallet is an online wallet that works on both computers as well as on mobile devices. It specializes in the storage of Bitcoin cryptocurrencies and keeps all of your keys encrypted and secure. It has no downtimes as well, which is exceptional.

Exodus

Exodus is a cryptocurrency wallet that allows you to store multiple cryptocurrencies. Its main point of appeal is that it supports a lot of altcoins alongside the main cryptocurrencies that you will initially be trading. It can also be used without the requirement of registering an account.

MetaMask

If you want to connect to the Ethereum blockchain and transfer ERC-20 tokens, MetaMask is your best bet. It is a hot wallet, and you can either use it as a browser extension or download a separate application that is available on both iOS and Android.

The Best Cold Cryptocurrency Wallets

The same can be said for cold cryptocurrency wallets, and as such, here is what is recommended to you as a user.

Trezor

Trezor wallets are widely used due to the fact that they offer a high level of speed, and your wallet will always be accessible through your personal 12 to 24-word long recovery seed. Furthermore, their wallets are cross-compatible and, as such, can connect with any other crypto wallet application out there, making them convenient to use.

Ledger

Ledger is a popular cryptocurrency wallet that has different options available in terms of wallet variety and functionality. They are all priced differently due to the fact that they offer different levels of functionality. They are known as a premium brand. Their wallets keep our cryptocurrency safe through a custom-built operating system known as BOLOS and a CE AEL5+ certified Secure Element (SE) chip, making them one of the safest brands for offline cryptocurrency cold storage devices.

SafePal

SafePal is a cryptocurrency wallet that provides a high level of security for the tokens of many cryptocurrency investors and traders. Its stand-out functionality is that it has a self-destruct mechanism that can prevent any malware attacks and come in handy in the event it is stolen. It has a high recovery speed as well and even comes with two-factor authentication and a key-deletion tool that allows you to add and delete tokens with ease. 

Conclusion

Both hot cryptocurrency wallets and cold cryptocurrency wallets have their own benefits and drawbacks, and the one you will end up using will be dependent on your specific use-cases. If you want to buy a single cryptocurrency such as Bitcoin and hold onto it for years, then cold wallets are the way to go; however, if you regularly want to engage in trading or selling cryptocurrencies, then you are better of using a hot wallet due to the speed and convenience it brings you.