In this article, we want to learn about digital currency wallets and their types.
A digital currency wallet is simply a place to store digital currencies. In more specialized language, a wallet is a tool that allows you to interact with the blockchain network.
The digital currency wallet provides the possibility to receive and send bitcoins and other digital currencies. Wallets are equipped with software that allows ordinary people to transact globally without any basic knowledge of blockchain.
There are different types of digital currency wallets. which can be divided into 3 categories.
- Software
- Hardware
- Paper wallets
Of course, they are divided into two categories based on their mechanism of action
- Cold
- Hot
In the following, we introduce these wallets in detail. let’s dive in and explore together:
- How do digital currency wallets work?
- Important points about digital currency wallets
- Different types of digital currency wallets
- Software wallets
- Hardware wallets
- Paper wallets
- List of the best digital currency wallets
- Introducing the most famous digital currency wallets
- Different types of digital currency wallets based on the mode of operation
- Hot Wallet
- Cold Wallet
- The difference between hot and cold wallets
- Online and offline wallets
How do digital currency wallets work?
Contrary to popular belief, digital currency wallets do not store digital currency inside them. Instead, they provide the tools needed to interact with the blockchain network.
In other words, these wallets can generate the necessary information to send and receive digital currency through transactions on the blockchain network.
The wallet also contains an address in the form of a numerical identifier that is generated based on the private key and public key. In fact, this address is a specific location in the blockchain to which coins can be sent.
This means that you can share your address with others to receive funds, but you should never reveal your private key to anyone.
The private key gives access to your cryptocurrencies regardless of which wallet you use. So even if your computer or smartphone is compromised, you can still access your digital currency on another device, despite having the corresponding private key (or seed phrase).
Note that coins never actually leave the blockchain, they are only transferred from one address to another.
Important points about digital currency wallets
Knowing the technical details of wallets is not very important in the way of using them, therefore, we will not go into these details.
There are some very important points to know about using wallets:
- Unlike exchanges, when you send a currency, the transaction fee is deducted from that currency itself, in wallets, depending on the network on which you transfer your digital currency, the transfer fee will be deducted from the currency on which you make the transaction. For example, if you transfer a currency on the bep2 network, you must pay the fee from BNB currency, or if you transfer on the ERC-20 network, you must pay the fee from the ETH currency, or if you transfer on the TRC-20 platform, you must pay the fee Give from TRX currency. In this case, you must have the second currency in your wallet to be able to transfer.
- Unlike exchanges where you can choose your desired network when moving, this is not possible in wallets, that is, each currency along with the network defined on it can be selected separately on the wallet. For example, TRC-20 tethers are defined separately from ERC-20 tethers on Trust Wallet.
- Some wallets only support certain currencies. For example, they only support currencies that are based on Ethereum.
- Some wallets do not support Tether or only support certain types of Tether.
Different types of digital currency wallets
Software wallets
There are different types of software wallets, each of which has its own unique features. Most of them are somehow connected to the Internet (warm wallet). The following describes some of the most common and important types: web, desktop, and mobile wallets.
Web wallets
With no need to download or install, you can access blockchains through a web wallet through a browser. In most cases, you can create a new wallet and set a personal password to access it.
However, some service providers maintain and manage private keys on your behalf. Although this may be easier for inexperienced users, it is a risky practice.
When using cryptocurrency exchanges, you should consider using the protection tools available.
The most popular wallets on the web
- Coinbase
- MetaMask
Desktop wallets
As the name suggests, a desktop wallet is software that you download and run locally on your computer. Unlike some web versions, desktop wallets give you full control over keys and assets.
When you create a new desktop wallet, a file called “wallet.dat” is saved locally on your computer. This file contains the private key information used to access your cryptocurrency addresses, so you must encrypt it with a personal password.
If you encrypt your desktop wallet, you will need to provide your password every time you run the software so it can read the wallet.dat file.
If you lose this file or forget your password, you will most likely lose access to your funds. Therefore, it is very important to make a backup copy of the wallet.dat file and keep it in a safe place.
Alternatively, you can export the corresponding private key or seed phrase. This way, you can access your budget on other devices if your computer stops working or becomes inaccessible in some way.
In general, desktop wallets may be more secure than most web versions, but it’s important to make sure your computer is free of viruses and malware before setting up and using a cryptocurrency wallet.
The best desktop wallets
- Exodus
- Jaxx Liberty
- Armory
- Copay
Mobile wallets
Mobile wallets function almost the same as their desktop counterparts but are specifically designed as smartphone applications. This type of wallet is quite convenient to use as they allow you to send and receive cryptocurrencies using QR codes.
Likewise, mobile wallets are particularly suitable for daily transactions and payments, and are a good option for sending and receiving Bitcoin, BNB and other cryptocurrencies in the real world. Trust Wallet is a prime example of a mobile crypto wallet.
However, mobile devices, like personal computers, are vulnerable to malicious programs and malware infections. Therefore, it is recommended that you encrypt your mobile wallet and back up your private keys (or seed phrase) in case your smartphone is lost or damaged.
The most popular mobile wallets
- Coinomi
- Mycelium
- Trust wallet
Hardware wallets
Hardware wallets are physical and electronic devices that use a random number generator (RNG) to generate public and private keys. The keys are then stored on the device itself, which is not connected to the Internet.
Likewise, hardware storage forms a type of cold wallet and is recognized as one of the most secure options.
While these wallets offer a higher level of security against online attacks, they can pose risks if the operating system is not implemented properly.
It can be said that hardware wallets are not user-friendly and it is more difficult to access financial resources in them compared to warm wallets.
To overcome the lack of access, you can use Binance DEX to connect your device directly to the trading platform.
This is a secure way to access your funds because the private keys never leave your device. Some web wallet service providers also offer a similar service that allows hardware wallets to connect to their browser interface.
Paper wallets
A paper wallet is a piece of paper on which the encryption address and private key are printed as QR codes. These codes can then be scanned to make cryptocurrency transactions.
Some paper wallet websites allow you to download their code offline to generate new addresses and keys. Likewise, these wallets are highly resistant to online hacking attacks and may be considered as an alternative to cold storage.
However, due to numerous flaws, using paper wallets is now considered dangerous. If you still want to use this type of wallet, it is important to understand the risks.
A major drawback of paper wallets is that they are not suitable for sending funds, but only for holding the entire asset at once.
List of the best digital currency wallets
If we want to name all the digital wallets and compare them with each other, it will definitely be boring. For this reason, we are faced with a table of the best digital wallets and explain its features:
| Available version | Wallet type | Wallet name |
|---|---|---|
| Mobile and Web | Software | Trust wallet |
| Mobile | Hardware | Trezor |
| Web and Desktop | Hardware | Atomic wallet |
| Mobile and Web | Software | Free wallet |
| Mobile | Software | Cool wallet |
| Mobile, Desktop and Web | Software | Blockchain wallet |
| Mobile and Desktop | Software | Coinomi |
| Mobile and Web | Software | MetaMask wallet |
| Desktop | Software | Bitcoin core |
| Mobile | Hardware | Ledger wallet |
| Mobile | Hardware | SafePal wallet |
| Web and chrome browser | Hardware | Keep key |
In the above section, we discussed some of the best and most common software and hardware wallets, but a user needs more information to be able to choose the right wallet for his digital currency. In addition, he should learn how to work with these wallets.
Introducing the most famous digital currency wallets
Stating the name and type of digital currency is not the only information needed to choose a digital wallet, because choosing the type of wallet is one of the most important things that users of the digital currency market must do to protect and take care of their assets and capital.
For this reason, in order to understand more the capabilities and advantages of the digital wallet, we continue to express and introduce its features:
Trust wallet
Trust Wallet is one of the most common and oldest digital currency wallets available in mobile and web versions. The very practical advantage of this wallet is its high security.
Also, the programmers and designers of the digital currency market have used a strong security system in the design and construction of this wallet, which has increased the reliability of this wallet.
Another practical advantage of Trust Wallet is that this wallet supports many digital currencies and is available to users for free. Trust Wallet is one of the first versions of the digital wallet, which was presented to the users of this field with the aim of preserving all digital currencies.
Trezor wallet
Another one of the oldest and most reliable digital wallets is Trezor. This wallet is presented to digital currency market users in a hardware form and in a mobile version.
The programmers of the digital currency market have used a very strong security system in the design of this wallet, making it one of the most secure digital wallets.
Unlike Trust Wallet, which was provided to users and investors for free, people who intend to use this wallet must pay a certain fee to access it.
Atomic wallet
Atomic Wallet is another software wallet that can be used in both web and desktop versions. In fact, users who intend to use this wallet can connect to this wallet using the Chrome browser and desktop and buy and sell digital currencies.
Atomic Wallet is one of the best desktop wallets that can be used on many PCs. For this reason, it is very popular among users.
Free wallet
Freewallet wallet is one of the best hardware wallets in the category of cold wallets. Of course, it must be said that this wallet has received less attention than other wallets, but it still has very practical advantages.
One of the great advantages of this wallet is the ability to transfer assets with zero fees. It can also be used in many mobile and web versions and allows users to use their wallet offline.
The security level of this wallet is very suitable and it gives its users the ability to create double passwords, so that users can use two passwords to store their currencies.
Cool wallet
Cool Wallet, a name that may be unfamiliar to many investors, but is considered one of the best and most secure digital wallets. Nowadays, many digital wallets are easily hacked by fraudsters because of their simple features, but Cool Wallet is one of the most secure digital wallets that are not easily hacked.
In addition to high security, this wallet has a three-step password creation feature that allows users to use a private password for their assets in addition to creating public passwords. Also, this wallet is provided as hardware and is included in the category of cold wallets.
Another very practical advantage of this wallet is that if it is uninstalled, it can be completely restored and all its information can be saved. It can also be used in mobile versions and its access is very simple.
Blockchain wallet
If we want to mention one of the most practical and widely used digital wallets, we should definitely mention the blockchain digital wallet.
This wallet is available in three mobile, desktop and web versions and is one of the most useful digital wallets. Of course, it should be noted that most users use the browser version of this wallet.
In general, the amount of users who use this digital wallet is around 81 million people.
Coinomi wallet
Coinomi is the simplest digital wallet that was presented to digital currency market investors in mobile and desktop versions. This wallet has moderate security and supports all currencies in the digital currency market. Users do not need to pay any fees to use this wallet and can do all currency transactions or transfer their assets for free.
MetaMask wallet
Metamask is another very simple wallet that is used for novice users and investors. In fact, investors who have not yet worked in the digital currency market or do not have much experience in this field can use this wallet to store their currencies.
This wallet is available to users for free in two mobile and web versions. But one of the most important points of this wallet is that it supports Ethereum digital currency and its related networks. Therefore, it is the best wallet for owners of Ethereum currency and its affiliates.
Bitcoin core wallet
As we said, digital wallets are sometimes specially designed and used for a digital currency using the features and advantages they have.
The bitcoin core wallet is exactly one of the common wallets that is specially used for a digital currency.
Bitcoin core wallet is used to keep Bitcoin digital currency and can be used in the desktop version. It is also prepared as a software and supports only Bitcoin digital currency. For this reason, those who have spent a lot of capital to buy Bitcoin digital currency use this digital wallet.
Ledger wallet
In the digital currency market, a wallet that can be older and used more by users is more popular. Ledger Wallet is one of these wallets that is available to users in different versions and as a mobile version.
Of course, other versions of ledger wallets can also be used on desktop, but the most common wallet is used on mobile.
This wallet has a very high internal security system and supports some famous currencies such as Ethereum, Tether, etc.
SafePal wallet
SafePal is one of the hardware wallets that has received less attention from users compared to its features and advantages. This mobile wallet is available to users and supports most digital currencies. It also has very strong security and its use is required to pay a fee.
Keep key wallet
Keep key wallet is one of the old wallets that has undergone a lot of changes during the time it has been offered. This wallet was initially used by users on the web, but with the passage of time and the emergence of the risks of profiteers accessing this currency, the programmers upgraded this wallet and improved its internal security system.
Now the users of this program can use this digital wallet using the Chrome browser.
Also, working with this wallet is very simple and has a very basic function. But one of the disadvantages that many users have added to this wallet is the limited support of this wallet for digital currencies, or in simpler words, this wallet supports very limited currencies.
Different types of digital currency wallets based on the mode of operation
As mentioned, cryptocurrency wallets may be defined as “hot” or “cold” depending on how they operate.
Hot Wallet
A hot wallet must be connected to the internet in some way. These wallets are quite easy to set up and the funds are available quickly, which is perfect for traders and other high-transaction users.
Disadvantages and advantages of warm wallet
Warm wallets, like cold wallets, besides their features, include some disadvantages and advantages that we will mention in the following section:
Advantages
- The possibility of very fast transactions for daily purchases and sales
- Simple and convenient use
- Usable for novice investors
Disadvantages
- The need for permanent and stable internet
- Easier hacking
- Inability to install if it is deleted
Cold Wallet
Cold wallets, on the other hand, have nothing to do with the internet. These digital currency wallets use a method to store keys offline. This makes them resistant to the online attempts of hackers. This method, which is called cold storage, is suitable for investors who hold long-term bitcoins or other digital currencies.
Online exchanges often keep a small amount of users’ assets on a warm wallet and keep the rest of users’ assets on a cold wallet without internet connection to maintain the highest level of user security.
Advantages and disadvantages of cold wallets
All the wallets offered by the programmers and designers of the digital currency market have some advantages and disadvantages. In the following section, we will state some of the advantages and disadvantages of cold wallets:
Advantages
- Offline storage capability
- Very high security
- Very easy accessibility
- Portable anywhere
Disadvantages
- Need support at any given time
- Weak and slow adaptation
- Need to update in every version
The difference between hot and cold wallets
The wallets that are popular in the digital currency market with the names cold and hot have different functions. Cold or hardware wallets are digital wallets that do not require the Internet and can be used offline.
On the other hand, warm wallets or software wallets are those digital wallets that definitely need the Internet to connect and perform currency transactions.
In fact, users who use these digital wallets cannot be accessed without an Internet connection and cannot buy and sell digital currencies or transfer assets.
Online and offline wallets
Hot and cold wallets or hardware and software wallets are known separately due to their online and offline capabilities. Online wallets allow their users to do all their currency transactions with much greater speed and security.
Offline wallets also have almost the same capabilities and advantages as online wallets, but they do not need the Internet to perform currency transactions and transfer assets and can be done offline.
But one of the obvious differences between these two categories of wallets is that online wallets are faster than offline wallets.
In this article, we explained what a digital currency wallet is and introduced the types of digital currency wallets.
You can choose any type of wallet depending on your needs, but remember to back up your data and assets regularly. Also, if you use warm wallets, use the latest and most up-to-date software.