There are different types of cryptocurrency portfolios that allow users to store and access their digital currencies in different ways. The question that matters in this context is how secure these portfolios are. Before you look at the security aspect, it is useful to understand the different types or varieties of cryptocurrency portfolios that exist today.
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Cryptocurrency portfolio: Types and varieties
These portfolios can be broadly classified into 3 categories:
- Software wallets
- Hardware wallets and
- Paper wallets
Cryptocurrency software portfolios can again be divided into desktop, online and mobile wallets.
- Desktop wallets: These wallets are designed to download and install desktops and laptops. This particular variety offers the highest level of security, although their availability is limited to the computer on which they are installed. In addition, if a computer is hacked or infected with viruses, a person is likely to lose all their money.
- Online software portfolios: This range of cryptocurrency portfolios works in the cloud. In this way, they can be easily accessed from any computer device and from any geographical location. In addition to the convenience of accessibility, this type of digital wallets store private keys online. The keys are controlled even by third parties; this makes them easily vulnerable to hacking and theft.
- Mobile software wallets: Unlike the other two varieties, mobile software wallets run on smartphones through an application. They can be easily used anywhere, including shops and malls. This range of wallets is usually much simpler and smaller than normal desktop wallets to fit the very limited space of mobile phones.
Difference between hardware and software portfolios
Hardware digital wallets differ from software wallets in terms of storing the user’s private keys. Hardware wallets store user keys in a hardware device (such as USB). Thus, because the keys are stored offline, these wallets offer additional security. In addition, hardware wallets are easily compatible with many online interfaces and can handle different currencies. This variety of cryptocurrency portfolios is also easy to make transactions. As a user, you simply need to connect the device to any computer connected to the network before entering the PIN, transferring the currency and simply confirming the transaction. Your digital currency is kept offline by hardware portfolios, so the risk factor or security concerns are also much lower.
Paper digital wallets: This range of digital wallets is also user-friendly and guarantees a high level of security. The term “paper wallet” simply refers to the printing on paper of both the user’s public and private keys. However, given the cases, this may also apply to a software application designed to generate keys securely before printing.
Sweeping with paper wallets
Using paper wallets is relatively easier. To transfer any cryptocurrency to your paper wallet, simply transfer the funds from the software wallet to the public address that your paper wallet displays. Similarly, when you want to spend or withdraw your money, simply transfer the funds from the paper wallet to your software wallet. This procedure is popularly called “sweeping”.
Clearing can be done manually, by entering private keys or scanning the QR code on a paper wallet.
How secure are cryptocurrency wallets?
Different types of digital wallets offer different levels of security. The security aspect depends mainly on two factors:
- The type of wallet you use – hardware, paper, online, desktop or mobile
- Selected service provider
Needless to say, it is much safer to store currencies offline than online. There is simply no way to ignore security measures, regardless of the portfolio chosen. If you lose your private keys, all the money stored in your wallet will disappear from your hands. On the other hand, if the wallet is hacked or you transfer funds to a fraudster, it will not be possible to reverse the transaction or refund this money.
Investing in cryptocurrency is a smart business idea and therefore the use of an appropriate portfolio is inevitable. You just have to be a little more careful to ensure the safety and security of your money transfers and transactions.