Trading Education

Types of Crypto Wallets: What's the Difference?

Security should be given special attention primarily when it comes to the reliability of cryptocurrency funds. To transfer or receive cryptocurrencies such as bitcoin, ether, or kick, one needs to open a cryptocurrency wallet. Today we will consider several types of wallets as the most reliable way to keep your crypto assets from being stolen.

How it works

Wallets generate the necessary data to send and receive cryptocurrencies using transactions. This data consists of one or more pairs of public and private keys. The wallet includes a public address, which is an identifier in the form of a set of letters and numbers, which is generated based on the public and private keys. Such an address is a kind of location on the blockchain where coins can be sent. This means that a user can share their public address with another user to receive funds, but the private key should never be revealed to anyone.

The private key provides access to the user's cryptocurrencies, regardless of which wallet is used. Thus, even if the device is compromised, the user can still access his funds from any other device, provided that the corresponding private key is available.

Online wallets

They are a service owned by a third party. In this case, the keys are located on remote servers. They allow not only to open several wallets for different cryptocurrencies but also to carry out convertible operations, trade on exchanges, calculate commissions using built-in calculators, etc.


  • Quick registration;
  • Anonymity. Verification is not required, the owner of the wallet remains unknown;
  • An ability to work with multiple cryptocurrencies;
  • High speed of transactions.


  • Risks inherent in cryptocurrency exchanges. Some wallets were created for deliberately fraudulent purposes, the risks of hacking wallets remain;
  • Additional expenses. In addition to the exchange commission, you will have to pay a commission to the service.

The main recommendation for protecting money comes down to diversifying risks, that is, working with several wallets at the same time. Considering the profitability of cryptocurrencies from 100% in a few months, this option is optimal.

Offline wallets

They are the storage keys without access to the Internet. There are several options here:

  1. Desktop. Wallets that store keys on a hard drive. They are considered one of the most reliable options among offline wallets. They are a program installed on a computer with the help of which access to data on a cryptocurrency account is carried out. Their disadvantage is the need for constant updating, which takes up a lot of memory (from 100 GB). 
  2. Hardware. They are separate removable media like a flash drive. This method of storing keys is not yet very popular, because it is only suitable for long-term storage (it is inconvenient to trade with it). But it does not overload the computer.
  3. Browser. Programs that are made as extensions for Chrome and Firefox browsers. 
  4. Mobile. They are programs for installation on mobile media (gadgets). It is rather a transit option for storing cryptocurrency since mobile devices do not provide for constant updating of the blockchain.
  5. Paper. A unique option for storing keys, which is a printout of a picture with a QR code containing a public address and a private key. Long-term storage option for those who don't trust electronics.

How to protect cryptocurrency wallets

Online platforms are a third party risk. But offline wallets are not completely safe either. Many viruses read key data and pass it on to third parties. Some viruses not only open access to passwords but also install hidden software that uses the power of the computer for mining. Besides, anti-virus programs are not always effective, therefore the best protection is autonomy and control over which sites are used and programs are downloaded.

Additional ways to protect cryptocurrency wallets

  • Encryption. The wallet is password protected. The classic method of protection that minimally protects data. It does not give a guarantee, since there are viruses that read keystrokes. Any password can be cracked;
  • Backup. Data used for changes in transactions can be stored in different places and not available to the user. Therefore, we are talking about a full backup of the wallet;
  • Multisignature. Optimal protection against hacking of online wallets involves signing transactions by two or more people. A multi-signature is used in a business environment where an account can be owned by multiple partners. It is possible to create 2 accounts from different devices - thus the investor builds multi-level protection. The most mentioned multi-signature cryptocurrency wallets are:
  • Armory - users control their private keys themselves without relying on the wallet server or third-party servers. It allows users to create tiered addresses using the Lockboxes feature. It provides a maximum 7-of-7 ratio for signing transactions.
  • Electrum - supports integration with third-party hardware wallets for storing private keys. Provides up to 15-of-15 signatures.
  • Copay - users are responsible for their private keys. No hidden or third-party servers are used. Provides up to 2-of-3 multi-signature for signing transactions.
  • BitGo - here users can store tiered addresses in the Ledger Nano S and Ledger Blue hardware wallets. It provides up to 3-of-3 multi-signatures.
  • Coinbase has two options for storing private keys - on its servers and the user's own. The wallet uses a 3-key architecture (Coinbase key, public key, and user key). The maximum scheme is 3-of-3.

Closing line

Cryptocurrency wallets are an integral part of the use of cryptocurrencies. This is one of the main elements of the infrastructure that requires special attention, as it allows users to send and receive funds through the blockchain network. Each type of wallet has its advantages and disadvantages, so it is very important to understand how they work before moving on to their usage.

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