Understanding Cryptocurrency Wallets: Types, Security, and Best Practices

By Hirose Yamasaki | Hirose Yamasaki | 9 May 2023

Hi Cryptorians

Meet again. As of today, I would like to emphasize and talk again about cryptocurrency wallets. I will briefly detail the types of wallets available, their security, and last but not least, the best practices.

As most of you know, we like to store our very own cryptocurrency on decentralised exchanges (DEX) such as Binance, Kraken, Coinbase, and Kucoin. Thus, you know that those online wallets are considered Cold Wallet. Maybe some people did not know that, but most people just acknowledged that when they store their cryptocurrency on such reputable exchanges as Binance, nothing will happen and their assets will be 100% safe. Always keep in mind that Mt. Gox Exchange was the most famous exchange in the world at that particular time, and nobody could have foreseen that it could be hacked.

There are only two types of wallets available: which are Cold Wallet and Hot Wallet.

Cold Wallet has the following features:

Easy In and Out. With just a couple of clicks, tadaa, you can deposit and withdraw the crypto that you like, and having a peer to peer (P2P) exchange also lets you easily withdraw the crypto into fiat currency or vice versa. Thus, it is customer friendly.

While comparatively, Hot Wallet has the following features:

Difficult to transact. Of course, when you need to use a different device to access your crypto and have an extra layer of processing to put in your private keys to get access, you don't have direct access to deposit, withdraw, or P2P.

Cold Wallet has the following features:

Less security. Always remember, not your keys, not your crypto, since your crypto is being stored in exchange, you are subject to the exchange and how they take measures to ensure the security of the asset stored with them. As an example, previously Kucoin had been a target of hackers who managed to steal some assets, but Kucoin managed to recover with the help of other DEX.

While comparatively, Hot Wallet has the following features:

High security. You don't need to worry about online scammers and hackers anymore since it's stored totally offline. But you still need to worry about having lost it.

Cold Wallet has the following features:

Fast process. Nowadays, humans want everything to move fast, be it aeroplanes or cars, so using the Cold Wallet, every transaction that is a no-brainer can get done in a split second.

While, comparatively, Hot Wallet has the following features:

Slow process. Quite a few steps need to be taken, thus slowing the process.

All in all, how do I choose: which or which? I choose both. For the long-term cryptocurrency that I would like to store for the long term, like BTC, ETH, and BNB, I will choose the Hot Wallet to make sure that it is safe.

On the other hand, for the short and medium term, I will use Cold Wallet and maximize its ease of use.

That's all,