What are the different types of crypto wallets?
Everything you need to know about different crypto wallets and their pros and cons.
In this article:
- What is a crypto wallet?
- What type of wallet is Exodus?
- What is a hot wallet?
- What is a cold wallet?
- What is a centralized wallet?
What is a crypto wallet?
Crypto wallets allow you to store, send, and receive cryptocurrencies.
Wallets are usually either hot, cold, or centralized:
- Hot wallets connect to the internet and are usually easy to use
- Cold wallets do not connect to the internet and offer the best security
- Centralized wallets, such as exchanges, are controlled by third parties
When using a crypto wallet, the crypto is not stored in the wallet but on the blockchain. Crypto wallets use your secret recovery phrase to access and interact with your funds on the blockchain.
To learn more, visit the article: Where are blockchain assets stored?
What type of wallet is Exodus?
All Exodus wallets are hot wallets.
Exodus Web3 Wallet, Desktop, and Mobile are all software wallets that you can install on a desktop or mobile device. Exodus is a hot wallet because its data is stored on your device that can access the internet.
You can also connect a Trezor hardware wallet, which is a cold wallet, with your Exodus Desktop wallet to increase your security. For more information, please visit: Getting started with Exodus and Trezor.
What is a hot wallet?
Hot wallets are any wallets used on devices that connect to the internet.
Because a hot wallet can connect to the internet, you can quickly access your funds and create new transactions. This makes hot wallets great for everyday use.
This is unlike cold wallets such as hardware wallets, as these wallets require a couple of extra steps. You have to connect your hardware wallet to a computer before you can access your crypto.
Software wallets like mobile, desktop, and browser-based wallets are hot wallets because the device the wallet is stored on can connect to the internet.
They are considered less secure because wallet information and data are stored on devices that can access the internet. This introduces the risk of being exposed to malware, hackers, and online threats.
If you'd like to learn more about how to keep your crypto as secure as possible, you can visit: How do I keep my money safe? How to store cryptocurrency safely.
What is a cold wallet?
A cold wallet is a crypto wallet that can't access the internet.
With cold wallets, the secret recovery phrase is generated offline. This keeps it safe from online threats. Because the secret recovery phrase is never exposed to the internet, cold wallets are more secure than hot wallets.
Compared with a hot wallet, it can be more difficult to access the funds on a cold wallet, because you need to connect it to another device, like a computer, to access your funds.
Hardware wallets like Trezor are cold wallets. They are small hardware devices that store your secret recovery phrase offline. To access the funds on a hardware wallet, you need to connect it to another device, like a computer.
A hardware wallet provides top-level security because the secret recovery phrase and private keys never leave the hardware wallet. This means the information that controls access to your funds is never online, which protects it from malware, hackers, and online threats.
If you have a Trezor, you can connect it to Exodus Desktop. To learn more, please visit: Getting started with Exodus and Trezor.
Paper wallets are generated offline, and the secret recovery phrase, private keys, and addresses are written down and stored on paper. By generating the secret recovery phrase offline, the wallet is protected from online threats.
The downside is that funds stored with a paper wallet are not readily accessible, because you need to import the paper wallet into another wallet, such as a hardware wallet or hot wallet, to access your funds.
If you import your paper wallet to a hot wallet, it is no longer considered a cold wallet because the secret recovery phrase and keys have been exposed to an online environment.
As with any wallet where you hold the keys, theft could be an issue if someone gains access to the paper wallet. Protecting your paper wallet from damage like paper deterioration over time and natural disasters like fires is essential. However, using more robust materials can prevent these issues.
What is a centralized wallet?
Centralized wallets like crypto exchanges are wallets where you do not control or have access to the secret recovery phrase or private key. Instead, they are managed by a third party.
With centralized wallets, you usually create an account with a username and password. Often, this information is stored on centralized servers, which makes this type of wallet particularly vulnerable to hacks and other exploits.
Centralized wallets are easy to access, and often you don't need to install anything. Some offer advanced buying and selling options or yield for staking. However, centralized wallets don't give you control of your private keys or secret recovery phrase. In other words, you trust another party to hold and protect your assets.
The risk of keeping your crypto in a centralized wallet is that if anything happens to the platform, such as it gets hacked, uses your funds without your permission, or goes bankrupt, you might not be able to recover your funds.