Types of cryptocurrency wallet

Any wallet is just a way to store a combination of your public address and a private key, but various companies developed multiple software solutions to improve user experience and provide additional features that serve particular purposes.

1) Desktop wallets

Desktop wallets are software programs that you download and install on a computer or a laptop. They are easy to install and available for all operating systems though some of them can be used only on a particular OS. Most desktop wallets provide you with a mnemonic phrase upon installation. It's a long string of words that store information required for a wallet recovery. You will need it to get access to your wallet if it is re-installed. So it's vital to keep the mnemonic phrase in a safe place, far from prying eyes.

Benefits: Desktop wallets offer a high level of security as they are accessible only from the computer on which they are installed. Your wallet security is your responsibility. You don't have to rely on other people to protect your wallet from external threats. Also, desktop wallets usually have rich functionality and offer additional tools and features. Most cryptocurrencies have a desktop wallet created for their coin.

Drawbacks: Since your computer or laptop is connected to the Internet, your and your digital assets may fall victim to viruses and malware. If your computer is hacked or gets a virus, you may lose your virtual money. So antivirus, anti-malware software and a good firewall is a must if you want to keep your coins safe and sound.

2) Mobile wallets

Mobile wallets run as an app on a smartphone or a tablet and are very similar to their desktop siblings with additional features such as QR code scanner. They are the most frequently used type of wallets, which is hardly surprising as nowadays people like to do things on the go, be able to check their crypto balances, send and receive coins anytime, anywhere. All major cryptocurrencies have mobile wallets both for iOS and Android devices, though less popular ones may have only Android versions.

Benefits: Mobile wallets are very practical. You can easily use it in a retail store to pay or send coins. They are smaller and faster, tooled for being used on the fly.

Drawbacks: Mobile wallets have only basic functionality due to limited space and capacity of a mobile device. What's more important, an overwhelming majority of crypto wallets are vulnerable to cyber threats, viruses, and malware as they are always connected to the Internet and have weaker cryptographic security features. You also have to be extra careful about protecting your device as anyone who gets access to your phone or tablet with a crypto wallet on it, will be able to take your money away.

3) Online wallets

Online cryptocurrency wallets live in a cloud and can be accessed via web-browser from any Internet-enabled computer or mobile device. They combine the functionality of desktop wallets and accessibility of mobile ones, which makes them very appealing.

Benefits: Online wallets offer faster transactions as there is no need to wait for the app to connect to the server. Many of them are integrated with cryptocurrency exchanges or allow to transfer amounts between supported coins. They can be very handy if you treat them like a digital piggy-bank for small amounts.

Drawbacks: Low-security level is their weakest point. Your private keys are stored somewhere in the cloud and controlled by someone else, not you. It makes them a desirable target for hackers and other crypto villains. You should always keep in mind that online exchanges and online wallets are hacked much more often than any other type of wallet. So, the basic advice is not to put all your digital money to an online wallet.

4) Hardware wallets

Hardware wallets are fundamentally different from all the other types of wallets discussed above. They store your private keys on a separate offline device, like USB. If you need to send money, just plug the device in a computer with an Internet connection, make a transaction and disconnect the wallet. Some models have LED screens, which means that you can get one without a computer at all. Popular hardware wallets allow you to store over 22 cryptocurrencies and hundreds of ERC-20 tokens. They are the best option for saving large sums of cryptocurrency that you keep as a long-term investment and don't plan to move around too often.

Benefits: Hardware wallets focus on security. They offer the highest level of protection against cyber threats because they only make transactions online, but the keys are stored offline. You won't lose your money as long as you make sure that you don't lose the device itself.

Drawbacks: Hardware wallets are less user-friendly They are usually compatible with several web-interfaces, but their functionality pales in comparison to software wallets. Hardware devices cost about $70-$150 and often sold out in a split second, so if you might find it difficult to get one for yourself.

5) Paper wallets

Paper wallets are an early prototype of a hardware wallet. You create it via dedicated service, print your private keys and public addresses on a piece of paper- either as a string of letters and digits or as a QR-code - and start transferring coins from your software wallet to this one. If you need to spend some coins, you need to move funds from your paper wallet to your software wallet. This process often called ‘sweeping.’

Benefits: It is cheap and secure at the same time. Strange as it may seem, they are considered to be one of the most hacker-proof types of wallet as they are not stored on a computer or any other Internet-connected device.

Drawbacks: Paper wallets are not for newbies. You need some technical knowledge, patience and a high level of caution to create and use it afterward. Paper is not very durable material, so you have to take extra care to keep your wallet from fire, water, and a shredder.