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Crypto wallets types

Wallets groups: software, hardware and paper

The crypto wallets can be classified in three groups: software, hardware, and paper wallets.

Software wallet

The majority of crypto wallet providers are based on software.

It can also be also classified in desktop, mobile and web wallets.

  • Desktop: a software which is installed in your computer, so, you download and execute locally on your machine.
  • Mobile: an software, knowing by app, which is installed in your smartphone. These are quite convenient as they allow you to send and receive cryptocurrencies through the use of QR codes.
  • Web: here we have two types:
    • browser extension: instaled in your browser.
    • web site, accessed through a browser interface without having to download or install anything.

In this course we are using the wallets Nifty or Metamask. Both of them are web browser extensions, they stored your keys locally, in your computer.

Some service providers hold and manage the private keys on your behalf. Although this may be more convenient for inexperienced users, it's a dangerous practice! If you don't hold your private keys, you're trusting your money to someone else.

There are a popular phrase related to this:

Not your keys, not your cryptos!

Hardware wallet

Hardware wallets are physical, electronic devices to store your keys, generate addresses and create transactions.

Some of them uses a random number generator (RNG) to generate public and private keys. The keys are then stored in the device itself, which isn't connected to the Internet.

Others can be connected on internet only during the time that you are creating and sending a transaction.

The software wallets are more convenient than hardware wallets. However, hardware wallets tend to be the most secure alternative.

You should consider using a hardware wallet if you plan to hold your cryptocurrency for a long time or if you're holding large amounts of them.

Paper Wallet

A paper wallet consists of a "wallet" printed out on a piece of paper.

So, it is a piece of paper on which a crypto address and its private key are physically printed out in the form of QR codes. These codes can then be scanned to execute cryptocurrency transactions.

It is good to understand the concepts of public and private key, they have a great use in events to teach the these first concepts, but their use is now deemed as obsolete and unreliable.

Wallet types: hot or cold

Depending on their working mechanisms, they may also be referred to as hot or cold wallets.

Hot wallet

A hot wallet is any wallet that is connected all time to the Internet.

Most part of software wallets are hot wallets, connected to the Internet.

Cold wallet

Cold wallets, on the other hand, have no connection to the Internet. Instead, they use a physical medium to store the keys offline, making them resistant to online hacking attempts.

Hardware storage is a type of cold wallet and it is one of the most secure alternatives.

So, cold wallets are safer alternative of "storing" your coins. This method is used by long-term investors or HODLers.

Multisig wallet

In a short, a multisig wallet is a wallet which needs more than one signature (or approval) in order to send a transaction, it means, transfer cryptos.

Some service providers offers shared control of wallets, they can know one key, you and other persons can know other keys and it must have more than one key to send a transaction.

It's important to check the technical approach of each wallet before choosing the most suitable for you.

Closing thoughts

Each wallet type has its advantages and disadvantages, so it's important to understand how they work before moving your funds.

The next step is to take a test to be sure you have learned everything.

The result of your test will be recorded on your course registration.

In the next module you will learn about smart contracts, and also create your first smart contract :)