There are different types of cryptocurrency wallets to allow users to store and access their digital currencies in different ways. The question that is relevant in this context is how secure are these portfolios. Before addressing the security aspect, it is useful to understand the different types or varieties of cryptocurrency wallets that exist today.
Cryptocurrency wallet: types and varieties
These portfolios can be classified into three main categories:
- Software portfolios
- Hardware portfolios and
- Paper wallets
The cryptocurrency software portfolios can again be subdivided into desktop, online and mobile portfolios.
- Office software portfolios: These wallets are intended to be downloaded and installed on desktop and laptop computers. This particular variety offers the highest level of security although their accessibility is limited only to the computer on which they are installed. In addition, if the computer is hacked or infected with a virus, it is possible that you will lose all your money.
- Online software portfolios: This range of cryptocurrency wallets runs on the cloud. So they are easily accessible from any computer device and from any geographic location. Besides the convenience of accessibility, this type of digital wallet stores private keys online. The keys are even controlled by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile software portfolios: Unlike the other two varieties, mobile software portfolios work on smartphones via an app. These can easily be used anywhere, including retail stores and shopping malls. This range of wallets is generally much simpler and smaller than normal desktop computers to accommodate the very limited space on mobile handsets.
Difference between hardware and software portfolios
Hardware digital wallets differ from software wallets when it comes to storing a user's private keys. Hardware wallets store user keys in a hardware device (for example, USB). As the keys are stored offline, these wallets offer additional security. In addition, hardware wallets are easily compatible with many online interfaces and can also manage different currencies. This variety of cryptocurrency wallets is also easy to carry with. As a user, you just need to plug the device into any computer connected to the web before entering a PIN code, transferring currency and simply confirming the transaction. Your digital currency is kept offline by hardware wallets and therefore the risk factor or security issue is also much less important.
Digital paper wallets: This range of digital wallets is also user-friendly and guarantees a high level of security. The term "paper wallet" simply refers to the printing on paper of a user's public and private keys. However, given the instances, it can also refer to a software application intended to generate the keys securely before printing.
Sweep with paper wallets
Using paper wallets is relatively easier. In order to transfer any cryptocurrency to your paper wallet, simply transfer the funds from the software wallet to the public address that your paper wallet displays. Likewise, when you want to spend or withdraw your money, simply transfer the funds from the paper wallet to your software wallet. This procedure is commonly called "scanning".
Scanning can be done manually, by entering private keys or by scanning the QR code on a paper wallet.
How secure cryptocurrency wallets are
Different varieties of digital wallets offer different levels of security. The safety aspect mainly depends on two factors:
- The type of wallet you use – hardware, paper, online, desktop or mobile
- A chosen service provider
This does not require mention, it is much safer to keep currencies in an offline environment, compared to online. There is simply no way to ignore security measures, no matter which wallet you choose. If you lose your private keys, all the money kept in the wallet will be removed from your hands. On the other hand, if the wallet is hacked or if you transfer funds to a scammer, it will not be possible to cancel the transaction or recover that money.
Investing in cryptocurrency is a smart business idea and for this the use of a suitable wallet is inevitable. You just need to be a little careful to ensure the security and safety aspect of your fund transfers and transactions.