From Starbucks to Domino's - many well-known outlets have started to accept payments in crypto, mainly Bitcoin. With the rising predominance of digital currencies, it is no longer a novelty that people are stashing away Bitcoin or other digital assets.  

As we discussed in our previous lesson, you can neither touch cryptocurrencies nor hand them over to the next person. They do not exist in physical form. So, you cannot tuck them in your purse or store them in bank accounts. Then, how do you securely store your digital assets? If not banks or purses, where can you keep them? 

In this lesson, we explain how and where to store cryptocurrencies.

Contents

• What is a wallet?
• Types of crypto wallets
• How to store cryptocurrencies on different wallets?

What is a wallet?

A cryptocurrency wallet is equivalent to a bank account. It allows you to store, send, and receive digital currencies. It is like your personal interface to the crypto network similar to how your bank account is an interface to the regular monetary system. 

A cryptocurrency wallet is basically software that stores your public and private keys and interacts with multiple blockchain networks. It allows crypto transactions and monitors the user’s balance. 

Let us take an example. When a person sends you one Bitcoin, they are essentially signing off their ownership of that BTC to your wallet address. There is no transfer of coin but the transaction record is stored on the blockchain and your wallet recognizes the increase in balance. 

Digital wallets do not store any currency like traditional wallets. They store the keys to access your crypto holdings on various blockchain networks.  

You don’t need separate wallets for different digital currencies. A single crypto wallet holds multiple keys and allows you to hold different cryptocurrencies. However, it is advisable to have several wallets for maximum security.

Types of crypto wallets

Based on their operation and location of storage, crypto wallets are classified into different categories. 

Hot wallets and cold wallets

To simply put, a hot wallet is connected to the internet and readily available for transactions. Whereas, a cold wallet is not connected to the internet and stores digital assets offline. Cold wallets are not intended for regular transactions. They are mostly used for storage purposes.  

Crypto wallets can be further classified into the following four segments,

• Software wallets
• Web wallets 
• Hardware wallets
• Paper wallets

Software wallets are generally hot wallets as they require the internet to operate. Hardware wallets and paper wallets are cold wallets. 

 

How to store cryptocurrencies on different wallets?

Software wallets

Software wallets can be downloaded and installed on your mobile device, PC, or laptop. There are two types of software wallets - desktop wallets, mobile wallets. 

When a software wallet is installed on a particular device, you can access it only on that device. 

You have complete control over your wallet and can access it instantly. This software file is encrypted. To access it, you need to have a customized passphrase. Software wallets are user-friendly and offer high security. But if the device is infected with a virus or hacked, your wallet will be compromised.   

Web wallets or exchange wallets

Web wallets or exchange wallets fit into the umbrella of hot wallets as they require the internet and are readily available to transfer. 

In addition to buying and selling, crypto exchanges also enable you to store crypto coins. When you purchase a cryptocurrency coin on zondacrypto, it is automatically stored in your exchange-hosted wallet. 

This type of wallet is web-based. You need to create an account and then sign in to access the exchange wallet. They are simple to use and beginner-friendly. 

Hardware wallets

Hardware wallets are physical electronic devices. They look like a USB thumb drive and they store your private keys in them. The devices use a random number generator (RNG) to generate public and private keys. 

Hardware wallets store cryptocurrencies offline and they are highly secured. However, the transactions are conducted online. 

When you want to send or receive cryptocurrencies using a hardware wallet, you need to plug in the device to any computer with an internet connection. You need to enter a pin to make the transaction and confirm. 

Hardware wallets are less user-friendly compared to software wallets and are not immediately accessible to make transactions. However, as they are not connected to the internet, they are also less likely to be hacked. 

Paper wallets

A paper wallet is a printout of your public and private keys. It is like a physical copy containing your keys. Paper wallet software securely generates a pair of keys and then prints them on paper. 

Paper wallets are easy to use but you also need to have a software wallet to access them. In order to perform a transaction, you need to transfer your digital currencies to a software or web wallet. If you keep your paper wallet safe, your cryptocurrencies are highly secured. 

Crypto exchanges and software wallets are beginner-friendly. If you are a beginner, it might be difficult to use a hardware wallet. Each type of wallet has its own advantages and risks. We advise you to choose a wallet based on your requirements. 

In the next lesson, we learn the key aspects of storing digital currencies - wallet address, public address, and private address.