Even newbies and not experienced users know that there are two categories of crypto wallets: hot and cold. Hot wallets are those wallets that are on devices connected to internet (computers, smartphones, tablets, etc.). In other words hot wallets are online wallets. Most users prefer these wallets for convenience even so that these wallets are the least secure from all other wallets. Cold wallets are offline wallets. Most popular are hardware wallets and paper wallets. They are more secure than hot wallets, but are less convenient for users.
What newbies do not know is that there are four different types of hot wallets, four different types of warm wallets, and seven different types of cold wallets, which have different levels of risks, security and convenience.
A simple way to rank different types of crypto wallets by risks levels is to ask these three questions:
-Where private keys are generated?
-Where private keys are stored?
-How many possibilities exist to hack or damage private keys?
The table below gives us different possible combinations.
The table below gives us fifteen different types of crypto wallets, ranked by the level of risks from the least secure -1 to the most secure -13.
1 Ordinary online wallets with private keys recovery options
Keys are generated online and stored online in encrypted files or in web browsers caches. For recovery of these keys some sequences of words/symbols are required. This recovery information needs to be saved in some places which is an additional option for hacking (security risk). Most of mobile, desktop, web-browsers wallets belong to this group.
2 Ordinary online wallets without private keys recovery options
Keys are generated online and stored online in encrypted files or in web browsers caches. These wallets are more secure than similar wallets with recovery options, because there are no possibilities to hack them via information required for the private keys recovery.
3 Generated on demand (GOD) online wallets with public interfaces
Keys are generated online but are not stored in any place. They are generated on demand and do not exist in our physical world after a web browser window with them is closed and the web browser cache is emptied. With such wallets users do not need to worry about encryption, storage of keys and also the private key loss conundrum (see [4]). A demo of such wallet is at this URL: https://www.dynpass.online/demo/demo.html
4 Generated on demand (GOD) online wallets with private interfaces
These wallets are similar to the above wallets with the difference that their locations are confidential private information and known only to the users, which make them more secure than the GOD online wallets with public interfaces. Once this information is known to other people the security rank of GOD online wallets with private interfaces is reduced to the rank of GOD online wallets with public interfaces. Fortunately, such breaches are easy to detect and recover.
5 Hardware wallets on encrypted flash drives/cards/devices with private keys generated online
Keys are generated online and stored offline on encrypted flash drives/cards/devices.
6 Hardware wallets in encrypted files on non-encrypted flash drives/cards/devices with private keys generated online
Keys are generated online and stored offline in encrypted files on non-encrypted flash drives/cards/devices.
7 Hardware wallets in encrypted files on encrypted flash drives/cards/devices with different types of encryption and with private keys generated online
Keys are generated online and stored offline in encrypted files on encrypted flash drives/cards/devices. For the reason that encryption schemes are different, these hardware wallets are more secure than the previous types of hardware wallets.
8 Offline paper wallets with private keys generated online
Keys are generated online, which is a security risk. They usually are recorded on a paper, which then is stored in a secure safe deposit box. Some people, for better security, cut the paper (on which private keys are recorded) on several parts and keep each part in different safe deposit boxes, in different places.
9 Hardware wallets manufactured by companies
Keys are generated offline and stored offline on hardware devices with some software to manage different operations with them. They can be compromised or damaged via software or hardware operations. Hardware wallets can be stolen, broken, damaged, confiscated, lost, etc. Users have no options outside those given by the device manufacturers. Also, these devices are expensive with an average price of most popular hardware wallets about $100.
10 Hardware wallets on encrypted flash drives/cards/devices with keys generated offline
Keys are generated offline and stored offline on encrypted flash drives/cards/devices. For the reason that users can increase security with more advanced encryption schemes, these hardware wallets are more secure than the previous type of hardware wallets, where options are limited by manufacturers of such devices. The other advantage is that these wallets have lower costs than the previous type of wallets.
11 Hardware wallets in encrypted files on non-encrypted flash drives/cards/devices with keys generated offline
Keys are generated offline and stored offline in encrypted files on non-encrypted flash drives/cards/devices. These wallets have the same level of security as the previous type of wallets.
12 Hardware wallets in encrypted files on encrypted flash drives/cards/devices with different types of encryption and keys generated offline
Keys are generated offline and stored offline in encrypted files on encrypted flash drives/cards/devices. For the reason that encryption schemes are different, these hardware wallets are more secure than the previous types of hardware wallets.
13 Offline paper wallets with private keys generated offline
Keys are generated offline and stored offline. They usually are recorded on a paper, which then is stored in a secure safe deposit box. Some people, for better security, cut the paper on several parts and keep each part in different safe deposit boxes, in different places.
14 Generated on demand (GOD) offline wallets with public dynamical passwords generators (DPGs)
Keys are generated offline and are not stored in any place. They are generated on demand when needed and do not exist in our physical world, outside the time interval on which they are generated and used. In this type of wallets the generation procedure has three steps (see, for example, [1]). On the first step, a set of dynamical passwords is generated online from easy memorable information (a key and a date), using a public DPG (see [5]). There is no a security risk on this step because the private keys do not exist on this step. On the second step, a user select 32 symbols from the generated dynamical passwords. This information (which symbols to select) is known only to the user and can not be found in any place. There are over 2*10^54 different possibilities of such selections, therefore this step is very secure. On the last step, the user generates the private keys, offline, using a converter which converts the selected 32 symbols into an offline wallet. For the reason that the keys are not stored on any device or in any place, it is not possible to hack, steal, damage, confiscate, lost, etc. them.
15 Generated on demand (GOD) offline wallets with private dynamical passwords generators (DPGs)
This type of wallets is similar to the previous type, excepts that it has an additional security level. Locations of the private DPGs are not public information and are not known to other people.
Hot wallets are convenient, but are not secure. Cold wallets are less convenient, but are very secure.
Different types of wallets are needed for crypto investors to use and explore many options available in crypto, DeFi and high APY projects.
It is prudent to not keep many coins/tokens in hot wallets for extended periods of time. For this purpose cold wallets offer more secure options. Hot wallets are useful for short term transactions with different sites, exchanges, dApps, DEXs, etc. Users of hot wallets should always remember that such wallets can be hacked by experienced hackers.
P.S. Here is a deal: Everyone who will buy a private DPG till the end of this year will receive for FREE the following items:
1) a private online generated on demand (GOD) wallet for BTC;
2) a private online generated on demand (GOD) wallet for LTC;
3) a private online generated on demand (GOD) wallet for ETH;
4) a private online generated on demand (GOD) wallet for XNO.
Those who do it before October 1st, 2022 will get in addition a bonus - a private online generated on demand (GOD) wallet for XRP.
In the next post we consider a simple way to get a share of a micro or mini business without financial investments
References
[1] A simple way to create a generated on demand (GOD) offline nano wallet
[2] A simple way to import an offline nano wallet into an online nano wallet and make a transaction
[3] A demo of a public online generated on demand (GOD) nano wallet
https://www.dynpass.online/demo/demo.html
[4] A simple solution to the private key loss conundrum
[5] The simplest way to manage multiple dynamic passwords for multiple online accounts
