Ever since Bitcoin really started to take off and become more mainstream nearly two decades ago, more and more investors have found themselves gravitating towards crypto.
There are now far too many cryptocurrencies out there to name, yet they do tend to track one another, with Bitcoin leading the pack. That means that if Bitcoin is up, you’d better believe that other popular cryptos like Ethereum, Tether, and Dogecoin will all follow suit. As crypto can be very volatile, that does also unfortunately mean that the same can be said when it is trading down.
As mentioned, crypto is very volatile, which means that while there is a lot of risk, there is also a great deal of reward to be potentially enjoyed. Because of this, and because it has gone more mainstream, investing in crypto is now easier than ever.
If you do decide to invest in crypto, it will need to be stored in a crypto wallet. But what exactly is a crypto wallet and are crypto wallets safe? That’s what we’re going to look at today.
What are Crypto Wallets?
When you need to store your bank notes, spare change, and your banking cards, you’ll generally keep them in a wallet or a purse. That’s all well and good, but these are all physical things which exist in the real world. You can touch these items. With crypto, that’s not the case, so why does it need storing, and how do you store it in a wallet that doesn’t exist? This is where crypto wallets enter the fold.
A crypto wallet, also known as a cryptocurrency wallet, isn’t an actual wallet in a physical sense. It isn’t made of leather, kept in your pocket, and can be left on the counter at home. Instead, a crypto wallet is an application that is designed to function as a wallet to store your cryptocurrency in.
Some people believe that crypto wallets store the actual crypto itself, but that isn’t the case. Say for example, you own 2 Bitcoins, they aren’t actually kept in your crypto wallet. Instead, the wallet provides you with the interface needed to access your crypto, as well as the passkeys needed to sign for your transactions. That means that anybody who knows the passkeys can access the crypto linked to that address.
Essentially, crypto wallets are sophisticated applications that help to keep your crypto details safe, secure, and accessible only to you.
Different Types of Crypto Wallets
While there are numerous different sub-categories of crypto wallet out there, there are two primary types. These are:
- Custodial Wallets
- Non-Custodial Wallets
A custodial wallet is perhaps better known as an ‘online wallet’. This is an app hosted by a third-party which keep your keys safe and secure. Basically, these are specially designed wallets provided by businesses and platforms for you. Some cryptocurrency exchanges provide their users with these wallets.
A non-custodial wallet, however, is much simpler. These mean that each user is responsible for securing their own passkeys. Most crypto investors will use one of these wallets, rather than relying on a third-party. This is due to the convenience, as well as for security reasons.
Two sub-categories of crypto wallet that we need to explore in more detail, however, are known as hot wallets and cold wallets.
Hot wallets
Hot wallets are generally the most common type of crypto wallet in circulation. These are basically wallets specifically designed to store crypto which have an internet connection, or are connected to a device with an internet connection.
Cold wallets
Cold wallets are basically cryptocurrency wallets which are not connected to the internet. They are therefore completely offline. Because of this, many people consider them to be more secure, as hackers have no way of accessing them.
Are Crypto Wallets Safe?
When it comes to crypto investing, because the price of crypto is so volatile, we could very well be talking about some serious money. The last thing you’d want would be for your crypto investment to fall into the wrong hands.
Unfortunately, because there is so much money to be potentially had with crypto, there are a lot of scams going around. Needless to say, as we are talking about so much money, investors are nervous about whether or not crypto wallets are safe.
If you are using a genuine crypto wallet, and are taking the necessary security measures and precautions (more on that next) crypto wallets are indeed safe and secure. The problem is that there are a lot of scammers out there who are using increasingly sophisticated measures to gain access to your crypto wallets and the details and sensitive data they contain.
Crypto Wallet Security Tips
As we just looked at, providing you are using a genuine, trusted crypto wallet, crypto wallets are incredibly safe and secure. Because of what they contain however, hackers are using increasingly sophisticated ways of gaining access to them. This is why you must keep them safe.
As well as the above, there is also the risk of you losing the device your wallet is stored upon, or having it stolen. If this occurs, it’s vital you can access your wallet from a different device.
To help keep you safe and secure, here are some crypto wallet security tips for you to follow:
- Use cold wallets (making sure to keep all of your details in physical form in a safe and secure location)
- Two-factor authentication
- Do plenty of research before installing a wallet. It is not uncommon for hackers to disguise malware as a wallet
- Use a strong password
- Use seed words (making sure to make note of them and to keep this info safe and secure)
- Never use the same, or similar passwords or seed words for more than one wallet
- Never keep digital copies of seed words (write them down and keep them somewhere safe and secure. Don’t make it obvious they’re crypto seed words either)
- Only use safe, reputable, trusted sources
*Disclaimer* This is not financial advice. Only speak to professional financial advisors when seeking financial advice. Always remember that investments can fall as well as rise. Only invest what you can afford to lose.