Ever since Bitcoin was introduced in 2009, the number of cryptocurrencies has been rising steadily. To date, there are close to 3,000 publicly available cryptocurrencies, making it practically impossible for the average user to keep up.
For users to acquire, store and transact with any of these cryptocurrencies, they need a cryptocurrency wallet relevant to the crypto asset they are looking to utilize or store. In 2019, there are now several different ways cryptocurrency investors can store their digital assets, including mobile and desktop wallets, paper wallets and even physical coins.
However, the great majority of cryptocurrency currency wallets can be separated into three simple types: hardware and web wallets. Web wallets are easily the most common type of wallet available, and are often the first choice for beginners, while hardware wallets are typically the expert’s choice.
To help clarify what is often a puzzling question for cryptocurrency beginners, let’s take a look at the major differences between web and hardware wallets, and identify which use-cases best fit each wallet type.
What are Web Wallets?
Web wallets are a type of cryptocurrency wallet that is offered through a web platform. These can either be client-side, meaning all the user data is stored locally on the user’s browser, or they can be centralized server-side wallets, where user data and funds are stored on a server.
Naturally, it can be overwhelming for the average user to keep track the myriad of cryptocurrencies now available, each of which has its own specific wallet. Because of this, many web wallets support a large variety of cryptocurrencies, which allows investors with a diverse portfolio to easily manage their funds.
Web wallets are used much like how traditional fiat virtual currency eWallets are used. These type of wallets give users the advantage of accessing their funds from anywhere, and from practically any device — so long as it has access to the internet.
However, these are also the most insecure kind of wallet, since improperly set-up web wallets can be compromised under certain conditions, potentially leading to loss of funds. Because of this, it is not recommended to store large amounts of funds on a web wallet for an extended period of time.
In addition to this, many web wallets do not allow users to access their private keys, which essentially locks users into the platform, since they cannot easily move to another wallet. Not being able to access your private keys can also be a costly issue, since users will miss out on any forks and airdrops that they might otherwise be eligible for.
For client-side web wallets, users are tasked with safely storing their own recovery phrase or private keys, since these are nearly impossible to memorize. Losing the private keys or the recovery phrase means funds would be irrecoverable if you somehow lose access to your wallet.
What are Hardware Wallets?
When it comes to cryptocurrency wallets, hardware wallets are widely considered to be the most secure option available. Unlike web wallets, hardware wallets give users full control over their own funds and do not need to worry about potentially exposing their private key to malicious third parties.
Hardware wallets are physical devices such as Trezor and Ledger which have built-in memory to store the private keys in an offline environment. Beyond this, most hardware wallets offer a range of additional features that can be added through additional apps. These apps also allow hardware wallets to connect to and interact with various online services and software wallets, giving you hardware grade security without compromising on usability.
Hardware wallets themselves are usually secured by a combination of institutional grade encryption, 2-Factor-Authorization (2FA) and PIN protection, making it near impossible to compromise the device. Beyond this, since cryptocurrency wallets keep your funds completely disconnected from the internet, they are considered a cold-storage option, making them suitable for long-term holders.
Like most web wallets, hardware wallets are usually compatible with a large number of cryptocurrencies, allowing you to store Bitcoin (BTC), Ethereum (ETH) and a whole range of other cryptocurrencies in a single secure place.
The great majority of hardware wallets feature a small screen on the device, allowing you to easily navigate, select apps and display your wallet addresses. These will usually connect to a computer using USB, such as the Ledger Nano S or Trezor wallet, though newer wallets such as the Coolwallet S and Ledger Nano X offer Bluetooth connectivity for ease of use.
Overall, though web wallets are better for absolute usability, cryptocurrency hardware wallets are quickly catching up, offering an ever-increasing feature set and unparalleled security.