We are all aware of the astronomical growth of cryptocurrencies over the last decade or so. Individuals, as well as institutions, have acknowledged the potential of crypto globally and we are gradually witnessing active participation in financial activities related to crypto. More importantly, the crypto industry has made its way through the financial sector and is now making its mark in other sectors.
However, the one thing that has remained constant is the growth of crypto trading as not only traders are investing for professional purposes, the general public is also taking an active interest in the world of crypto as they have acknowledged its role in offering a healthy passive income opportunity. All said and done, the cryptocurrency industry is booming and 2021 was arguably one of the most eventful years ever since the inception of crypto in the mainstream.
As the world of crypto continues to evolve and global citizens maintain the upward trend of investing in crypto, a deep understanding of the basics would be extremely crucial. One such concept is the crypto wallet – what is it, how does it function, and what are its different types.
As we know, traditionally people have been using banking services to save and store their financial assets. As the concept of cryptocurrencies came into being, the primary proposition was the fact that these digital currencies enable people to process peer to peer transitions without the need for any third-party intermediaries. S, in this context, the question is, where would people store their cryptocurrencies and digital assets if the concept of banks does not exist in this decentralized world of crypto? The answer is – Crypto Wallets. In this article, we will take a detailed look at the concept of crypto wallets.
What are Crypto Wallets?
Cryptocurrency wallets are the safehouse for all kinds of cryptocurrencies and digital assets. In other words, people can use these wallets as the foundation to save and store their assets in a safe and secure manner. Moreover, these wallets enable asset holders to access their digital currencies or digital assets at any time and even transact with third parties directly from the wallet. Crypto wallets can be generally categorized into two types – Hot Wallets and Cold Wallets. Both of these have unique purposes.
Hot wallets are connected to the internet and are digital in nature. For example, web-based wallets, mobile wallets, and desktop wallets are hot wallets. One of the most convenient aspects of hot wallets is the fact that they are digital in nature and users can access their assets and make transactions without the need for any physical device. Having said that, hot wallets are vulnerable to cyber-attacks as they are completely an internet-based service. Though they are protected by passwords and keys, the chances of being hacked into cannot be completely overruled.
Cold wallets, on the other hand, are physical hardware devices that can be used to store digital assets. To access these, one would have to carry around a piece of hardware, as cold wallets cannot be used digitally over the internet. Cold wallets are more secure than hot wallets, as hackers would need physical access to these devices in order to carry out fraudulent activities. However, one must be diligent enough to not lose a cold wallet. These are USB-type devices that need to be connected to another device like a personal computer. Hence, needless to mention, cold wallets are slightly more secure than hot wallets but are less convenient to use.
As mentioned above, cold wallets and hot wallets both have their own set of pros and cons. So, it is advisable to use hot wallets or digital wallets for on-the-go transactions and keep minimum funds stored in them. On the other hand, one might use a cold wallet or a physical wallet to store large funds in a safe and secure manner.
All in all, crypto wallets have become an absolute necessity for anyone willing to make crypto transactions, or even participate in token sales offered by various crypto projects. For example, ModiCoin, a blockchain-based DeFi ecosystem has recently announced the launch of its first private sale, and to participate users will need to download the Trust Wallet from the app store of their mobile devices, as Trust Wallet is a digital or hot wallet.