Hot Wallets Vs Cold Wallets
There are two broad categories of wallets – Hot wallets and Cold Wallets.
Hot Wallets are online wallets that store you public and private keys online, making it easier to access it from any part of the world. One must absolutely be cautious with hot wallets as they are prone to hacks and have been hacked in the past many times.
Cold wallets on the other hand are safer and less prone to hacks and hot wallets as they store your keys offline while giving you the choice of making them online as per your discretion.
Let’s dive deeper into different types of wallets now;
- Web Wallets: By using web wallets, you are not creating your own wallet but you are using a service provided by a third-party such as an exchange. Such wallets store your keys on the cloud providing you easy accessibility but it comes at the risk of being hacked easily. MyEtherWallet is the most popular web wallet.
- Mobile Wallets: Mobile wallets are great in the sense that they help you to access your coins from anywhere as long as you have an internet connection. Additionally, mobile wallets are light clients as they do not download the whole blockchain, unlike a full node. As a result, they depend upon other nodes to get the information about the state of the blockchain. Being light clients, mobile wallets are easier to hack as compared to a full node. Examples of mobile wallets include BRD and Jaxx wallets.
- Desktop wallets: As long as you have your desktop and a ready internet connection, desktop wallets will be fine for your use. They also have the capacity to download the whole blockchain and become a full node, unlike mobile wallets. Full nodes enjoy additional benefits like improved security, the ability to validate transactions and reduced dependency on other nodes. However, you must ensure at all times that your desktop does not have any virus or malware to protect your wallet. Mist, Metamask, and Exodus are the three most popular desktop wallets.
- Paper wallet: As the name suggests, the paper wallet is nothing more than a record of keys on a piece of paper. You can print or write down your keys on a paper and hide it wherever you want. This removes the electronic record of your keys as the keys are with you instead of being online or on the desktop. The best practice is to make more than one copy of your keys and store it in multiple safe locations to provide against loss or destruction. It goes without saying that the place to keep the keys should be carefully chosen to protect your ether.
- Hardware Wallets: It is perhaps the most secure way of storing your ether. Hardware wallets are like pen drive or hard disks specifically made to store cryptocurrencies. You can store your coins online away from the hands of the hackers and make transactions by plugging it into the computer whenever you want. Modern hardware wallets also provide you with screens to execute such transactions without the need of any other device. In addition to this, they provide you with two-factor authentication which acts as an additional layer of security. Finally, for hardware wallets, Trezor and Ledger Nano S are your best bets.
Now that you have an appropriate wallet to store all your coins along with a public and private key, you send ether to other addresses, develop applications on the Ethereum blockchain and also buy ERC20 Tokens in exchange for ether.
To spend or receive funds you do not need to wait for days and months like you are supposed to do with the traditional banking system. You can just send your public key to the person who wants to send you some ether. Your wallet can also generate a QR code for your public key which can be scanned by the people willing to send you funds.
When you want to spend ether you need to sign the transaction with your private keys. The private key is like your signature and is linked cryptographically with the public key to ensure that only you can send funds from your account.
As you can see once everything is set up, it becomes super easy to send funds to any address of your choice. Once again, do keep in mind that a proper choice of wallets and security system decides the fate of your funds. If handled with responsibility, you will be able to enjoy the benefits of this system while keeping your funds safe!