Historically, the very first crypto wallet in existence was that of the developer and founder of Bitcoin himself, Satoshi Nakamoto. The second wallet made was owned by Hal Finney. Corresponding together, Satoshi Nakamoto is said to have sent him 10 bitcoins to run a test. This was the first cryptocurrency exchange to run between two wallets!
What exactly are crypto wallets?
A “crypto wallet” for “cryptocurrency wallet” allows you to receive, send and most importantly keep your cryptocurrencies. So just as dollars or euros can be put in a physical wallet or in an online account, it is the same with bitcoins, ethereums and other altcoins in a secure wallet.
In fact, instead of holding onto these physical elements, the wallet stores the access keys you use to sign your cryptocurrency transactions and provides the interface through which you can access your crypto.
How do you distinguish the different types of crypto wallets?
In crypto terminology, a distinction must be made between two main families of wallets:
- the “Hot Wallet” includes private key hot storage solutions. We mainly focus here on software portfolios (extensions, browsers, etc.). Necessarily connected to the Internet, it presents a certain vulnerability to hackers.
- the “Cold Wallet” corresponds to cold storage of private keys through hardware wallets and paper wallets. There is no internet connection, making it the ideal solution for securing your crypto assets. Therefore, it is quite possible to safely leave large sums of money there.
Within these categories, there are different types of storage wallets that meet very different security and accessibility needs.
- the “Web Wallet” is directly accessible via a web browser. One of the references in this area remains the site “www.blockchain.com“. This type of wallet offers increased accessibility, but a very high risk of hacking and misappropriation of funds.
- the “Mobile Wallet” can be reached by mobile phone. This is an application to manage your crypto wallet.
- the “Desktop Wallet” is the equivalent of the “Mobile Wallet”, but on a computer. An application must be downloaded to access the wallet. It can also be a web extension, of which Metamask is the best known.
- the “Hardware Wallet” is an object, often in the form of a USB stick (such as Ledger), that allows you to keep the contents of your portfolio “offline” at all times. Very good way to prevent piracy… as long as you don’t lose it.
- the “paper wallet” is a kind of paper certificate (QR code). This can limit the essential functionality of a crypto wallet such as transacting, but in exchange for almost inviolable security.
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The pros and cons of these wallets
These may vary depending on the shape of the wallet. But we can generalize on the following points:
- Secure storage possible of a large number of cryptocurrencies.
- Prevent exchange hacking, data theft or embezzlement found in emails or links in social network posts.
On the other hand, we can point out:
- The initial cost of these digital wallet solutions. Either by buying a key or by billing through web providers or exchanges.
- The risk of loss, theft or destruction of materials.
- Solution not optimal for traders who intervene regularly and trade daily on cryptocurrencies.
Conclusion: are crypto wallets essential?
Without being essential, each type of crypto wallet has its own characteristics and usability† By better understanding all of these categories, investors can determine which one best suits their needs.
As always, to avoid putting all your eggs in one basket, it is highly recommended to diversify crypto wallets to protect against damages that can be very expensive.