If you are reading this, and you want to know about crypto wallets for beginners in 2022, then this guide is right for you. This article will tell you everything that you need to know about the importance and the different types of crypto wallets out there, how they work, and how to choose one.
A Crypto wallet is crucial for the security of your crypto. With constant online threats from hackers, leaving your coins on exchanges can be a very risky choice, especially if you are a serious investor!
What is a Crypto Wallet?
A Crypto wallet is software or hardware that is designed and made to help you store your crypto securely. Instead of leaving your crypto on exchanges that are run on the exchange’s server, keeping crypto in wallets allows you to have full custody of your coins.
When you use a crypto wallet for the first time, it is necessary to set up a new account. Depending on your account name and password, the wallet will randomly generate your very own private key and public key.
The private key is the most important thing in the wallet. This set of numbers and letters is what allows you to access your wallet. It is unique only to the account you just created and if you lose it, you will also lose access to your wallet. To make it easy to remember, the wallet will help you transform your private keys from a set of random letters and numbers to a set of words. This set of words is called the recovery seed (or mnemonics), like the name suggests, you can use the recovery seed to be the back-up of your wallet. The private key must be kept private at all costs. If someone stole your private key, they can use it to access your wallet.
The public key is less important. This is another set of letters and numbers that are supposed to be made public. Anyone who wants to transfer your crypto will input your public key into their wallet and the crypto will be directed to you. The public key can also be referred to as the wallet’s address. It helps other wallets identify your account and transfer your crypto correctly.
Different Types of Wallets
Crypto wallets come in many forms – as computer software, as an APP, or as specially made hardware. Software and APP wallets are known as HOT wallets. They are easy to use and are usually free. However, because they are installed on computers and smartphones that are online most of the time, they are prone to be hacked. To prevent any hacks, hardware wallets are made to give crypto the most secure protection. These hardware wallets are devices that are always offline and work with another online device as a proxy to help transfer crypto. While the hardware wallet is offline, there is no way for hackers to attack.
HOT WALLETS
Pro:
- Easy and free to use.
- Easy to set up and always accessible on your smartphone or computer.
Cons:
- Always online. If you are targeted by a hacker, they can easily hack you remotely.
- Smartphones might be stolen and hacked.
COLD WALLETS
Pros:
- Devices are designed specially to store crypto, filled with many security features.
- Always offline so hackers cannot steal your crypto remotely.
- Comes with multiple authentication methods to increase security.
- Some brands like ELLIPAL come with anti-tamper protection to protect against offline attacks as well.
Cons:
- Sometimes difficult to use and get used to
- Not free. Will need to be purchased.
- Transactions can only be made when used with the wallet’s pairing APP or software.
How easy it is to use Hot and Cold Wallets?
People usually have the misconception that wallets are hard to use and making them lose the best time to trade, so they leave most of their crypto on exchanges. However, one must first understand that wallets are made for different reasons than exchanges.
Wallets are made to keep cryptocurrency safe because it is not safe to store on exchanges. People who understand this and want to store crypto for long-term gains will choose to store their crypto in wallets. They will not focus on trading.
On the other hand, people who trade daily will not use a wallet because it slows them down. Trading directly on exchanges is quick and gives them a good price. The best traders always have spread their risks by keeping the majority of their crypto in wallets while having another fund on exchange today trade.
If you are someone who is looking to store cryptocurrency long term, and not day trade, wallets are essential tools for you. Hot wallets are very simple and easy to learn. They are mostly simply designed mobile APPs or computer software that you can learn and master in a few minutes.
Cold wallets on the other hand might need some time to get used to. Nonetheless, they are all designed to be as easy to use as possible so most of the time, people will not have trouble mastering the cold wallets.
Conclusion
Crypto wallets are essential tools that crypto traders and investors worldwide use to store their cryptocurrency securely and without risks. Two types of crypto wallets include hot wallets and cold wallets.
Hot wallets are most of the time mobile Apps or computer software that you can freely download, without cost, to help store your crypto securely on your smartphone or computer. Cold wallets are hardware devices designed specially to store and secure crypto. As cold wallets are 100% offline at all times, they are much more secure than hot wallets.
Crypto wallets are suitable for traders that wish to hold on to their investments in the long term. It is not suitable for people who just want to day trade. Nonetheless, both hot and cold wallets are designed to be easy to use and most people will be able to master them within a day.
