If you want to trade cryptocurrencies or participate in mining, you need a so-called wallet. It is an electronic purse designed solely to store holdings of cryptocurrencies. However, strictly speaking, not the coins themselves are stored, but only certain records that represent a stock.
What types of electronic wallets exist?
In practice, there are now different types of wallet, even if they have the same purpose, namely to save records or Coinbestände. In the first place, a distinction is made between two groups, namely so-called online and offline wallets. In both groups there is another subdivision, so that the following four species exist in the market:
- Online wallet on a Crypto Exchange
- Online wallet at an external provider
- Paper Wallet
The first two variants are online variants, while both the paper wallet and the ledger fall into the group of offline wallets.
What qualities does an online wallet have?
With the online wallet you have to distinguish whether it is just a kind of account on a cryptocoin exchange, or whether it is an external wallet of a provider. Strictly speaking, the online wallet on a cryptocoin exchange, such as BitPanda, is not a real wallet. Instead, the coins are simply credited to an account, as you may know from online accounts in the investment space. These electronic purses are subject to a relatively high risk, because the access is possible from anywhere online and of course also offers hackers the chance to steal holdings.
The situation is similar with the online wallets external providers, which are indeed real electronic purses, but also there is an access via the Internet possible. In particular, due to these security concerns online wallets are now hardly recommended by experts. Instead, it makes sense that you opt for an offline wallet.
Offline variants: Paper Wallet and Hardware Wallet
The serious difference between the online and offline version is simply that with an offline wallet, no access via the Internet is possible because there is no online connection. That’s why offline wallets are now considered much safer compared to the online purses listed above. There are now two large groups of offline variants, namely the Paper Wallet and the so-called Hardware Wallets.
Simply put, the Paper Wallet is nothing more than an expression on a piece of paper. This includes both your public and private keys so you can access your coin holdings at any time with the Paper Wallet. However, it is important that you do not lose the paper, because without the data (key) printed there, you would no longer have access to your coin stocks. A slightly different variant is the hardware wallet. It is an external storage medium, which is in principle comparable to a USB stick. The leading hardware electronic purse is currently the Ledger, such as the Nano S Ledger.