How does a crypto wallet work?

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How does a crypto wallet work?

Safety first, especially with crypto. That is why there are wallets in the cryptoworld. Hot and Cold, online and offline and why have a back-up of your coin(s)? Let us tell you more about a crypto wallet and why these wallets are so important. 

One of the most important steps in investing in crypto is safety (as you might have read in our last blog). Your coin(s) might not be safe enough at an exchange, because during a hack or a bankruptcy of your chosen exchange, you may lose some, or ‘simply’ all of your coin(s). A crypto wallet will ensure the security of your coin(s). 

Offline wallets

An offline wallet is similar to a USB-stick. It is a piece of hardware, where you can store your access keys to your coins. These keys are (literally) the keys to your coin(s). The best part of having the offline one is the full safety, and the fact that you’re not using your ‘easy-to-hack’ online wallet. 

DemaTip: We highly recommend Ledger as an offline wallet.

Difference between hot and cold

The difference between a hot and a cold wallet is very simple. Hot is online and cold is offline, but why make a difference between these two and more importantly: how do you make the right choice to secure your crypto? The main reason you use a hot wallet is that this type of security is safe and simple. But be aware that a hot wallet is easy to hack. Investors choose this hot wallet when they have a little amount of crypto, so the risk is not that big. However, there are investors who want to keep the funds tradeable, so they keep everything (all their coins) at the exchange. And of course the hot wallets are a free service from your exchange. 

The cold wallet is offline and hardware. Because your wallet is not online, it is a lot safer. But cold wallets are not accepting every currency, usually only the big and popular coins. Your cold wallet is protected against hackers, because it has no internet connection. Depending on your needs and wishes you can choose between a hot or a cold wallet (or a combination of both). 

The choice based on….based on what?

So, when you have a bigger amount of crypto with a lot of value, you should consider safety and make sure hackers will not hack your wallet. For all that, the hot wallet is still a good opportunity to start. Hot wallets give you the possibility to store multiple coins, which are small and not popular yet. This will make safety and security accessable. Some exchanges also guarantee your money back when they get hit by a hacker.  

Would you like to know more about wallets, trading and crypto, make sure to subscribe to our newsletter and stay tuned for more! 

*Links on our website may be affiliate links. This means that our partners might share a bit of the income they may have through our recommendations. We only recommend services or products we either use ourselves or believe add value to you as a customer. We will never affiliate for something we don’t believe in for commercial motives. 

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