When you think of investing in Cryptocurrency, it is necessary to pick a suitable crypto wallet. However, the task is kind of easier said than done. Given the abundance of crypto wallets, picking the apt one can be very tough, more so if you are new to this sector. There are several types of wallets as well. You can opt for software based wallet-which is divided into cloud and PC based wallet. You can also opt for cold storage- if you prefer offline route more. When you store cryptocurrency in a device that is offline by default- it is called cold storage. Cold storage crypto wallets are preferred more by the security aware lot. These wallets can be ideal when you do not deal with crypto transactions on a regular basis as well.
Choosing between two types of cold crypto wallets
Cold cryptowallets can broadly be categorized into 2 types- paper and hardware based wallet. None of these types have direct internet connection and thus they are said to be more secure than hot/online wallets.
- Paper wallets- A paper wallet is the cheapest variant of cold wallet. It contains private/public keys pair which is printed on paper. The private keys are therefore generated offline, which boost safety level. For different types of cryptocurrency, you have to deploy distinct paper wallet clients. They can be generated anytime.
- Hardware wallets– The hardware crypto wallets are deemed safer inherently. These devices resembling the USB drives let you make crypto transactions and you can also use them to generate private keys offline. Most such wallets come with backup seed key to receiver info if the device is lost.
While technically, you can use regular USB thumb drives for storing crypto keys, it is not a prudent idea. These devices usually lack inbuilt safety measures –contrary to the hardware crypto wallets. These drives also have higher failure rate.
However, these cold wallets too come with their share of drawbacks. Before you can decide which one to pick -analyzing and comparing their pros and cons makes sense.
Hardware wallets: The pros
Typically, the hardware based wallets are deemed safer than paper wallets.
- Secure element chip- The latest generation hardware crypto wallets generally come with Secure Element Chip. You get it in every Ledger model. There is no denying it acts as an additional safety layer for the end users. It safeguards you from the side-channel attacks as well as software attacks.
- Coin Support- It varies from one company to another but nowadays most hardware crypto wallets sport support for all major crypto currencies. For example, the Ledger’s Nano X supports almost 1100 different cryptocurrencies and Trezor supports nearly 700 types. So, a hardware wallet enables you to deal with many types of coins without hassles.
- Protection for PIN- When you deal with a hardware wallet for crypto transactions, the transactions are safeguarded by PIN. The wallets like BitLox Bitcoin Hardware Wallet and the Ledger Nano X have physical methods for putting in the Pin on the device.
Hardware wallets: The cons
Of course, the hardware based crypto wallets have their share of drawbacks. These include:
- Cost- While the cost of hardware wallets have reduced to an extent, they are still not exactly affordable for all! The Nano Ledger X costs upwards of $100 and the Trezor model T touches $200 mark. If you have deep wallets, go for the Trezor One Metallic which costs $685. These devices are definitely not suited for the newbies in this sector.
- Beware of copycats- Quite often you can come across cheap deals on hardware crypto wallets but not all of them are real. Instances of people ending up buying fake copies of these wallets are there. Not everyone is capable of distinguishing fake crptyo hardware wallets from genuine ones. To stay safe, buy such devices directly from the brand website.
- Backup woes- You can land up in trouble if your hardware crypto wallet gets lost or stolen. A solution is making note of seed phrase and storing it on paper. However, that makes a hardware wallet no better than a paper wallet! Ledger and Trezor actually give a little card for the users for writing the phrases.
- Wrong address -A hardware wallet cannot really thwart the user from sending the tokens to an invalid address. A malware lurking in the desktop or laptop can track the transactions and it may also replace the destination address.
- Software bugs-Hardware wallets also have their own firmware. If there is any bug during any firmware update, that can lead to user data compromise. This may allow a hacker to get access to confidential data.
Paper wallets: The pros
Paper wallets do have their areas of strengths.
- Free- You can opt for paper wallets when the budget is low. There are websites where you can find free tools to make paper wallets. This makes paper wallets ideal for the beginners in this world.
- Malware proof- You can never be assured of getting rid of malware attacks when you deal with hardware crypto wallets- regardless of its price, features or brand name! Stealthy new strains of malware are discovered quite a lot these days. Paper wallets are quite immune to malware.
- Multiple Copies-You can make multiple copies of a paper crypto wallet and store them separately. This however does not imply you should be making a lot of copies! This helps you stay safe from the risk of loss or stealing.
Paper wallets: The cons
Paper wallets are not perfect either and they have a few drawbacks.
- risk of damage- Paper is not an indestructible material, to begin with. Inks can fade, paper can get torn or damaged in fire and exposure to water etc. So, that can cause trouble to the owner.
- Creation process loopholes- Paper wallets are secure as long as you create them in the secure way. However, there exist a few security loopholes in the wallet creation process. From insecure wifi connection to the tool used to create the wallet- an element of risk remains.
- Usage woes-Paper wallets make you reuse addresses. Usually, people do not like making fresh wallet each time. This poses considerable security risk.
So which one should you pick?
It is hard to say which of the two is better. It ultimately boils down to 2 factors- your usage needs and budget. Both type of cold storage wallets have respective advantages and drawbacks.
For beginners in crypto currency sector, who would not need huge support for coins, the paper wallets are better. The paper wallets are also better when you do not want to spend a lot for dealing with crypto sector. However, these wallets are fragile.
The hardware wallets, on the other hand, are ideal for serious crypto users who have long terms goals and seek security too. They are more durable than paper wallets. Nowadays, hardware wallets are made with additional safety features.