Different types of cryptocurrency and their usage

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  • Two types of wallets are there hot and cold
  • Cold wallets are the safest mode as they have offline transactions

Learn about the functioning of the crypto market before investing in it. There are risks involved in transacting in cryptocurrency. So, here is a guide on how to choose a crypto wallet and what could be the advantages and disadvantages of it. Since the time the Reserve Bank of India has uplifted the ban on cryptocurrency, there has been a massive increase seen in the adoption of blockchain usage. People have been investing in cryptocurrency with a hope to earn back handsomely.

Many traders new to this mode of investing have also started increasing. To help understand the working of crypto market and how they can save money is the key to the lock. There are cryptocurrency wallets through them people start trading. But how do they work?

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These are wallets in which the tokens or coins or cryptocurrency is stored safely. This could be like a software on the mobile, just like your Paytm, PayPal. Here your tokens are safely secured through a blockchain technology. You can also send the money or purchase any asset through this platform.

Types of wallets

Hot and cold wallets are the two types which are popular among the traders. These are broadly utilized by the traders old or new. So how are these wallets function? Usually hit wallets are like any other online wallets available for transactions. This can  be used 24/7 and from the internet from anywhere. These are broadly cloud wallets, mobile wallets, software wallets or crypto exchanges.

On the other hand, cold wallets are different from hot wallets and do not function online. The crypto is stored offline under this category. One can receive the funds anytime of the day but do not transact or send the funds to others if they are online. Once you are offline, the trader has to sign the transaction  with the private key provided to the cold storage holder. Private key is never shown on the internet. Under cold wallets there are further two categories I.e. hardware and paper wallets.

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For storing crypto hardware wallets are the best as they not only give security but also provide convenience to your assets. They also protect your private keys from digital methods of storage like computers or mobiles which can be hacked easily. But if the private key is always intact and remains in the device, then it will not be hacked. If this Wallet is lost or breaks then traders can access bitcoin with the help of recovery seed words.

The other most secured wallet is the paper wallet where wallets are stored on printed sheets of paper. They are one of the safest options currently. Traders can either transfer the crypto by using the private key or scan the QR code on the paper. Since they are not available online, they cannot be hacked. Also one does not have to rely on a third party server. However, there is a word of caution that all crypto owners should know

Never take a photo of your paper wallet from your phone. Seed words picture too should not be taken from the mobile.

Risks involved

There is risk involved everywhere. Even I’d you are doing transaction online a risk of getting hacked is always there. Digital wallets are the most vulnerable ones to attacks and scams. For traders it is a cumbersome process to trust anyone. But you need to trust the crypto exchanges to park your assets with them. But before doing so a well researched approach is very important. Look out for the past thefts or any scams, or any negative news for the exchange. Only then shall proceed further. Whereas, cold storage is the safest as they are offline. So the hacking or online attacks are out of question here but the total responsibility is on the person holding cold wallets.

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One can lose the crypto forever if you cannot keep the paper wallet safely or do not have a copy of it. If the QR code is missed or you forget your recovery seed word then your game is over.

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Ritika Sharmahttp://www.thecoinrepublic.com
Ritika Kumari Sharma is an Economics Honors graduate from the University of Calcutta. She is completely into finance and believes that cryptocurrencies are the future. She is an enthusiast learner about the cryptocurrency and blockchain technology.

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