Since most cryptocurrencies are not yet regulated by a central authority, crypto owners cannot store their currencies in traditional bank accounts. Thus, the cryptocurrency wallets (or crypto wallet) was developed.
These wallets generally come in the form of either software or hardware—also called hot or cold wallets. Hot wallets connect to the internet and allow the owner to both receive and send crypto tokens. Cold wallets, on the other hand, do not connect to the internet. For this reason, hot wallets have more security features than cold wallets.
Many people use both hot and cold wallets: cold for long-term storage and hot for near-future use.
Other types of wallets include exchange and paper wallets. Exchange wallets are provided by the cryptocurrency exchange where users trade tokens and traditional currencies. However, these are exclusive to the exchange platforms.
Paper wallets, on the other hand, are simply printouts of a user’s private and public keys. Users scan the keys on the page in order to use the tokens. This storage method has fallen out of favor in recent years.
Like with any other kind of currency, owners must work to ensure they keep their tokens safe from theft. At the same time, however, they must have easy access to their tokens whenever they want to use them.
No matter how small the investor and no matter what type of token used, access and storage must be primary considerations. Thus, users must choose wallets carefully.
With regards to crypto wallets, the line between internal and external data may not be entirely clear. To access a wallet, users must have the public wallet address and a private, usually encrypted, key. However, this private, encrypted key may be held either by the wallet owner or by the exchange broker. These are referred to as non-custodial and custodial wallets, respectively.
Both methods have their pros and cons. Non-custodial wallet users, for example, enjoy complete control over their funds but have no recourse in the event that they lose or forget their private key. Custodial users, on the other hand, can depend on the cybersecurity expertise of established organizations but must also verify their identities before making any transactions.
As cryptocurrencies become increasingly valuable and mainstream, the opportunities for bad actors to hurt users increase and this must be dealt with; thus, it is essential for wallet providers to employ the latest cybersecurity data.
Of course, hot wallets rely on this data to stay abreast of the latest security news to find and dispense with new threats. However, even cold wallet providers must stay alert to security threats: hardware providers have had hackers breach their customer data and attempt to extort money from users.
Another important source of data include regulations and laws. This data source will become a more prominent figure in the cryptocurrency field as time goes on, and the consequences of ignoring it should be obvious.
Other external data that wallet providers may find useful include biometrics, product development, and customer data. Biometrics and product development data, of course, keep wallets secure and make them more attractive to potential customers. Similarly, consumer data—demographics in particular—help provide better customer service and improve marketing campaigns.
While wallet providers seem to face a never-ending series of product development and security management tasks to overcome, crypto wallet users also have a lot of concerns to balance. Users must choose a type of currency and a type of wallet (or several types of wallets). And if users choose non-custodial wallets, they must manage security on their own.
According to the testimony published on Reddit, the crypto user known as “Onnar” claimed to have lost access to 2.6 BTC from the transfer of his wallet to a new computer acquired during the Christmas holidays. […] Onnar detailed that he had already encrypted backups of his private keys on two USB drives stored in separate locations. He then plugged one of the USB drives into the computer to verify that everything was properly stored, which he later realized that it was not enough.