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How Are the Different Types of Crypto Wallets Used?

You need cryptocurrency wallets to organize, maintain and secure digital assets. Technically, those are a set of digital tools that enable individuals to store and manage their cryptocurrencies securely. 

As cryptocurrencies become more popular, many types of wallets have appeared that are suitable for various use cases with different security levels and features. 

This guide is going to break down the hows, whats, and whys of crypto wallets, from the different types of wallets to how they are used, the pros and cons of each, and all the juicy bits in between.

Mobile Wallets

Wallets designed to store and manage cryptocurrencies on a mobile device are known as mobile wallets

Providing easy convenience, accessibility and portability as a user can have his or her funds in a personal mobile device for wherever and whenever access. 

veryday transactions are best done through a mobile wallet and this is a good place to store anywhere from a small to medium cryptocurrency holding as well.

How They Work:

  • Installation: The users download and install a mobile wallet application from an app store.
  • Setup: When the wallet is first installed, users create a wallet and receive a mnemonic phrase or private key to back up the wallet.
  • Usage: Send and receive cryptocurrencies by scanning QR codes or entering the wallet address. Mobile wallets, depending on the service, also can contain reporting tools to track transaction history, as well as offer multi-currency support and third-party service integration.

Advantages:

  • Convenience: Mobile wallets provide the convenience of paying for day-to-day purchases from wherever the user is.
  • Accessibility: Funds can be accessed by the consumers anytime, anywhere through their smartphones.
  • Integration: Many mobile wallets support integration with exchanges, decentralized applications (DApps), and other services.

Disadvantages:

  • Security Risks: Mobile wallets are easy targets for malware and prey to phishing fraud if the device itself gets compromised.
  • Limited Control: Users have no control over their private keys as they are stored on the device.

Desktop Wallets

Desktop wallets are software programs that are installed on desktop or laptop computers and the user has full control over their cryptocurrency balances. 

They provide increased security and privacy as compared to mobile wallets, and are capable of handling larger quantities of cryptocurrency.

How They Work:

  • Installation: Users download desktop wallet application into your computer
  • Setup: During installation, the user creates a fresh wallet and is given a mnemonic phrase or private key for backup.
  • Usage: Desktop wallets help send, receive and store your cryptocurrencies, check your transaction history and manage multiple wallet addresses. It might provide additional advanced feature like coin staking, coin control etc.

Advantages:

  • Security: They are less prone to and manipulate by malware and hacking attacks, ensuring security better than in case of mobile wallets.
  • Control: Users control their private keys and wallet data, to increase security and privacy.
  • Offline Storage: You may be able to activate cold storage, which means your keys are stored offline (can still be hacked but more secure).

Disadvantages:

  • Accessibility: Desktop wallets in spite of the advantages it offers, desktop wallets need a computer to operate, which may not be as convenient as mobile wallets are.
  • Risk of Data Loss: Users can lose their money if their computer is damaged, lost or compromised.

Hardware Wallets

On the other hand, hardware wallets are physical devices created to securely store cryptocurrency private keys offline. 

They provide top-notch protection and security of your crypto capital against hackers and are ideally suited for long-term storage of cryptocurrency positions.

How They Work:

  • Setup: Users configure their hardware wallets according to the manufacturer's instructions.
  • Backup: When setting up this wallet, the user is provided with a mnemonic phrase or recovery seed that can be used to restore the wallet if it is lost or damaged.
  • Usage: Hardware wallets store private keys offline and require physical confirmation for transactions. They typically feature a small screen and buttons to navigate the user interface and confirm transactions.

Advantages:

  • Security: The most secure way to hold cryptocurrency is offline and with a hardware wallet as hardware wallets are offline and not connected to the internet in any way, and the private keys are not exposed.
  • Cold Storage: Because hardware wallets are stored offline, they are safe from hacking attacks and malware.
  • Durability: Hardware wallets are built to last, and resist both physical damage and tampering, so your funds stay safe - no matter what happens.

Disadvantages:

  • Cost: Hardware wallet offers a more expensive upfront than software wallet.
  • Learning Curve: Hardware wallets take a higher level of learning curve compared to other types of wallets.
  • Accessibility: It is a bit more inaccessible than the mobile or desktop wallets as you need the actual device to access funds.

Conclusion

Cryptocurrency wallets range from the ultimate in security and safety to the ultimate in ease of use and accessibility, responding to different users' needs and desires in differing ways. 

While mobile wallets are good for making frequent payments, desktop wallets are more secure as they also can self custody your money and hardware wallets are best for long term storage due to the emphasis on security. 

The user should understand how to use each of the wallet types and the benefits and drawbacks of these wallets to choose the appropriate wallet for his/her cryptocoin tendencies.

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