What Are Wallets and Why Do I Need a Wallet?
What are wallets and why do I need a wallet?
Wallets allow you to keep track of your cryptocurrency holdings. The most important features of those wallets are the public and the private key.
The public key is an identifier for your wallet. It works similar as an username on a social network. With the pubic key someone can send you money.
The private key on the other hand is like your pin for your bank account. With it you can check your balance or initiate transactions.
What is the difference between a hot and a cold wallet?
The main difference between those two types of wallets is that the hot wallet is constantly connected to the internet and the cold wallet isn’t. For a hot wallet you usually don’t need any additional hardware. This makes the hot wallet more accessible and convenient. But on the other side they are more prone to hacking. Therefore you shouldn’t store significant amounts of cryptocurrency in a hot wallet.
Hot Wallet
For hot wallets we need to differentiate between exchange connected wallets and software wallets.
Exchange connected wallets
Exchange connected wallets are provided by exchanges like Coinbase or Bitstamp. Those exchanges will handle the underlying infrastructure and the public and private key of the wallets. If the exchange may suffer a hacking attack your wallet may be at risk.
Software wallets
Software wallets are applications you can download and they aren’t linked to an exchange. Therefore you are in full control of the wallet and the keys. But it is still very prone to hacking, as your computer is most of the time connected to the internet.
Cold Wallet
The types of cold wallets range from USB, CD, hard drive, paper, offline computer to specially designed hardware wallets.
Paper wallet
Here the public and private keys are just printed on a paper. Additionally a QR code will be printed on the paper which can be easily scanned to make transactions. If the paper gets lost, stolen or destroyed you will lose access to your funds.
Hardware wallet
Hardware wallets are specially design tools to help you store your keys securely. The most popular options are Ledger and Trezor.
Ledger
- Ledger Nano S* - 59€
- Ledger Nano X* - 119€
Trezor
- Trezor Model One - 58,31€
- Trezor Model T- 189,21€
My Wallet
I wanted a cold wallet as they are more secure. And therefore I chose and bought the Ledger Nano X. After some time using the Ledger Nano X I will publish a review about it.
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