When you step into crypto space and try to learn everything about it, there are chances you can get confused between what is a crypto wallet and which type of crypto wallet you should use. If you want a one-word answer for which Bitcoin wallet you should use, we would say Hardware wallet. Don’t overthink, we are here to help you understand the difference between various types of crypto wallets and why leaving crypto on exchange wallet is risky. So, let’s get started and know about different types of crypto wallets and how safe they are.
If you are someone interested in Bitcoin or altcoins and want to invest in it, you might want to know more about investing in cryptocurrency. Well, you don’t need to go anywhere else because, at cryptoknowmics, we provide information about pretty much everything related to crypto. So, just have a look at our guides and end your quest about cryptocurrencies and trading.
Crypto Wallets Explained
In simple words, a crypto wallet is where you store your crypto coins. It can be an online wallet, a software wallet compatible with windows, Linux and macOS, or the most secure type, the hardware wallet. Technically, you don’t store your cryptocurrencies but its private keys in the wallet. There are two types of keys, private and public in cryptocurrency. While the public key is merely an address of your cryptos and comes in use when you want to receive cryptos in your account, the private key is like the password for your assets that you require to access your cryptos. Without private keys, you cannot send or use your cryptocurrencies. Moreover, if you lost your private keys, you would end up losing your cryptocurrencies forever unless you had backup of your wallet.
So, now you know what a crypto wallet, let’s understand its various types and then find our why leaving crypto on an exchange is not safe.
Software Wallet vs Hardware Wallets
There are basically five types of crypto wallets, that includes, web wallets, desktop wallets, mobile wallets, hardware wallets and paper wallets. These wallets, however, can also be categorized simply into online wallets, software wallets and hardware wallets. As you tell by its name, online wallets are the wallets that can be accessed from a browser, software wallets are the wallets that can be used on mobile and computers and hardware wallets are hardware devices that are used to access cryptocurrencies. The reason hardware wallets are considered safe is that it doesn’t require an internet connection and hence is safe from hackers. Another type of offline wallet is a paper wallet, which is basically writing your private keys on a piece of paper and storing it somewhere safe.
Why Web Wallets Are Not Safe?
Web wallets, often called online wallets are the wallets that you can simply access from your browser. Remember that these types of wallets are not recommended for storing large amounts of cryptocurrencies as your private keys can be easily hacked. In these types of wallets, your private keys are either password protected or stored on the site in the custody of the web portal owner. By using these wallets you are actually trusting the third party for keeping your private keys secure even when it is password protected. Either way, you are trusting the custodian or the server where your private key is sitting.
If you don’t know, it is just a matter of a couple of minutes for a good hacker to breach web servers and get access to your private keys. So, no matter how secure a web wallet claims to be, there is always a high risk of security breaches and losing access to cryptocurrencies.
Are Desktop And Mobile Wallets Safe?
Well, Desktop and Mobile wallets are safer than online wallets but still can’t be trusted for keeping large amounts of cryptocurrencies. Desktop and mobile wallets claim to not keep your private keys on their servers but on your devices only which is why they are considered a bit safer than web wallets. However, if the private keys would be stored on your devices, hackers can still get access to them through the internet or by introducing malware into your device. If you decide to store your cryptocurrencies in Desktop wallets, make sure you run antivirus scans regularly and ensure the security of your device. For storing large amounts of cryptos, we always recommend using Hardware wallets, as they are offline wallets and cannot be hacked easily.
Why Leaving Crypto On Exchange Is Not Safe?
Exchange wallets are hot wallets that can be accessed either from web, desktop or mobile. Exchange wallets are not safe for the same reason why web, desktop and mobile wallets are not safe. Moreover, crypto exchanges are the primary target of hackers and there are already many examples of security breaches in exchanges in the past. Take the example of Mt Gox, Quardrica CX or any other exchange that went bankrupt leaving its users in a helpless state. When you keep your cryptocurrencies in an exchange’s wallet, you are actually trusting your exchange to keep your cryptos safe which won’t turn out to be good. With a lot going into crypto space, it is important that you understand and ensure the security of your cryptocurrencies. The first point why you should not trust leaving crypto on an exchange is to never trust a third party for keeping your private keys after all the basic concept of cryptocurrencies is that it is decentralized. What is the point of involving a third party? Secondly, exchanges are highly risky for hacks and security breaches. And lastly, most of the exchanges aren’t even regulated or completely centralized.
We guess you’ve understood why leaving crypto on exchange wallet is risky. If you are planning to invest in cryptocurrencies for a longer period or own a significant amount of cryptos, the safest thing is to use either a Hardware wallet or paper wallets. It is the only way you can stay secure from hackers and ensure that no one else can get access to your private keys. So, whenever you trade on crypto exchange or buy or sell assets, make sure you transfer your cryptos immediately after completing the trade.