Crypto Wallets

A crypto wallet allows us to store, send and receive different cryptocurrencies and, since they allow us to manage our cryptocurrencies, it is essential to choose carefully among the various options.

In the crypto market there are several types of wallets: Hardware Wallets, Paper Wallets, Hot Wallets and Full Wallets.

Getting started in the crypto market can be one of the most daunting missions there is because of the amount of information you have to handle and take into consideration.

The storage of cryptocurrencies is often a broad topic and one that is curiously neglected by many investors. However, let us remember that this is a decision that will determine the security of our cryptocurrencies.

Therefore, it is advisable to know the various storage options offered by the crypto market and make an informed decision.  We at Bitcoin Mexico want to help you and that is why today we will tell you about the different ways in which you can store your cryptocurrencies as well as the advantages and disadvantages of each one of them.

What is a crypto wallet?

Let’s start by taking into account that all ‘Wallets’ are devices or programmes that interact with the blockchain of certain cryptocurrencies. To some extent they are similar to fiat currency wallets, but instead of storing a physical currency, they store cryptographic information.

These are designed exclusively to store and manage the public and private keys of our cryptocurrencies and, since cryptos are records of transactions contained in a blockchain, the public and, especially, the private keys are what give us ownership and rights to those cryptos that have been transferred to a particular address.

So, in a rather simplistic reduction, a crypto wallet allows us to store, send and receive different cryptocurrencies and, given that they allow us to manage our cryptocurrencies, it is essential to choose carefully between the various options.

Hardware Wallets, the safest option?

A Hardware Wallet is a rather unique option as it stores private keys in a secure physical device similar to a USB but specifically designed for the storage of cryptocurrencies. These devices operate without an internet connection and therefore keep the private keys securely stored inside them.

Importantly, these types of wallets fall into the category of ‘Cold Wallets’, which are all those that offer what is known as ‘cold storage’ by not remaining connected to the blockchain or the internet.

The Ledger brand is one of the most recognised hardware wallet devices on the market.

In this way, the functions of these devices are to generate private keys and sign with those keys, in fact, they usually have a screen to verify that you are authorising to sign.

Advantages

As they are not connected to the Internet, they are basically immune to virus and malware attacks.

Most hardwares wallets are open source, which means that the community can validate how they operate and verify whether security processes are being followed.

They allow you to add extra layers of security. In case you want to further protect your cryptos, these devices allow you to set up a PIN or 2-Factor Authentication (2FA).

The keys are generated randomly and without patterns and are generated and maintained within the device itself. So they never go out to the computer.

Disadvantages

The main disadvantage for some is that acquiring a hardware wallet requires a certain investment. In general, they are priced at around $100.

This type of crypto wallet provides a much appreciated security for the cryptocurrency community. However, as we have seen, it has some very particular characteristics, which is why this type of wallet is usually recommended for those investors who acquire large sums of money in cryptocurrencies.

A very important aspect if you consider buying a hardware wallet is to make sure you buy it directly from the official suppliers and not from marketplaces or third parties. Doing so exposes you to hacking, theft and scams. The most recognised hardwares wallets are those offered by Trezor and Ledger.

Paper wallets

Paper wallets fall into the category of Cold Wallets as they are not online and therefore also offer a significant degree of security.

These consist of a paper wallet that contains the private keys and addresses to manage your cryptocurrencies. To some extent they are fairly easy to create crypto wallets, however they are often used to store and safeguard cryptos that will not be used for a long time. Therefore, paper wallets are for those crypto-investors who plan to have a long-term relationship with the cryptocurrencies they deposit there.

A curious fact is that, although they are called paper, they do not necessarily have to be made of paper. Some investors choose to print the wallet on a long-lasting plate.

Advantages

1. They are secure against hackers and allow for cold storage.
2. Like hardwares wallets, they are recommended for storing large amounts of money.
3. Generating a paper wallet usually takes only a few minutes.

Disadvantages

The following features can be considered disadvantages to some extent. However, depending on your particular needs they may even be advantages.

1. You can only load or send funds to the paper wallet. In case you want to use the funds deposited there you have to import the private key into a software to access them.
2. If you want to know the balance in your paper wallet, you have to check it in the block explorer. In order to do so, you will have to scan your QR code in the scanner.
3. At the end of the day it is similar to a credit card or cash and can therefore be easily lost, so you should take precautions.

Recommendations

1. When generating a paper wallet, be sure to do so without an internet connection. This will eliminate the possibility of a third party intercepting your keys and stealing your cryptos.
2. Your computer should be free of viruses and malware.
3. Do not generate such wallets in front of third parties or cameras.
4. Do not make a digital backup of your keys. You should make a backup copy and store it in a safe place.
5. Very important! Print your paper wallet on a trusted printer. Never on a shared or wireless connection.
6. Store your wallet in a safe place that only you have access to.

Although this is a fairly secure option, it is not necessarily the most convenient if you want to have constant access to your cryptocurrencies. It also requires you to comply with certain security protocols to ensure that you do not lose your cryptocurrencies.

Hot Wallets

Online Wallets or Hot Wallets are devices that operate directly from a website and that, in most cases, the custody of the private keys are in the hands of third parties.

Basically, they are a service provided by a third party that allows crypto users to store and control their private keys. In this case, all crypto transactions are carried out using any web browser such as Google Chrome. This is precisely why they are known as Hot Wallets since, unlike Cold Wallets, they are connected to the Internet.

The main usefulness of this type of wallet is that they offer quick and convenient access to funds. They can be of two types: a web server that facilitates access to cryptos, as in the case of exchange wallets, or a free downloadable software.

In the case of selecting a web wallet and being a third party provider offering the storage service, you should always make sure to use the correct website URL. For example, Binance.com or Coinbase.com.

On the other hand, a software wallet is one that consists of a desktop application installed on your computer or mobile device. In this case there are several well-known providers such as Electrum or Blockchain.

Blockcain.com

Advantages

1. They are generally quite easy to use.
2. They offer constant access to your cryptocurrencies so you can easily send and receive.
3. There are no additional costs.
4. No need to carry an additional device in case you travel or are away from home.
5. You can even check your finances from your phone.

Disadvantages

All the disadvantages mentioned above are counterbalanced by the fact that, as they are always connected to the Internet, these wallets are more prone to cyber-attacks.

It is undoubtedly a very beneficial option for those who wish to constantly trade their cryptocurrencies. However, it is advisable to deposit small amounts of cryptos in them in order to reduce exposure to risk.

We should also bear in mind that there are several actions we can take in order to make our crypto wallet much more secure. To do so, we should add as many layers of security as possible. For example, you can use options such as Google Authenticator, SMS messages, PINs, fingerprints, among others.

Full Wallets, high level of security from another world

Full Wallets, also known as Full Clients, are wallets known as full nodes basically because they download the entire blockchain of a given crypto.

Consequently, this type of wallet means that the device on which it is executed ends up becoming a node in the network of that cryptocurrency. However, a very important aspect is that the fact that they become nodes does not imply that they will be miners; in fact, in reality, this type of wallet, by becoming nodes, contributes to the decentralisation of the network.

Important aspects about this type of wallet

As they require downloading the entire Blockchain of a cryptocurrency, this type of wallet requires a device with considerable disk storage space. For example, if you wish to have a Bitcoin Full Wallet, you will need approximately 300 GB of available space.

However, this type of wallet does not require specialised hardware. Therefore, a simple computer with enough space will suffice.

Although they undoubtedly offer a considerable level of security, they are one of the most complex wallets in the crypto world. Therefore, it is not usually recommended for crypto-investors who are just taking their first steps in this world.

In fact, a major disadvantage of this type of wallet is that it can make your IP address public to the world and, therefore, when using it, it is suggested to protect your home network.