Wallet (Hardware/HD/Paper/Software)
A physical or software object where you have a combination of public and private key stored.
Hardware wallet: A hardware device which stores public and private keys of the particular cryptocurrency. Most popular of them are Ledger Nano S, Trezor and Keepkey. Hardware wallets are dedicated devices that are intended to provide an additional layer of security to cold storage options such as paper wallets. By contrast, hardware wallets have a secure chip in them (or equivalent) that means when you connect them to a computer to access your cryptocurrency you never need to input your private key on the computer itself. You simply input a pin code on the piece of hardware, meaning that trading on a compromised computer is safer. If the hardware breaks or is lost, then you can restore your access to your currency on a new device from the ‘seed words’ you receive with your hardware wallet (i.e., a string of random words used to restore your wallet and recover your currency).
HD wallet: Wallets which generate the hierarchical tree-like structure of numerous public and private keys starting from the root seed key.
Paper wallet: A paper wallet is a document containing all of the data necessary to generate any number of private keys, forming a wallet of keys.A paper wallet is simply a printed piece of paper that contains a cryptocurrency address and private key that are accessed using a QR code. The advantages of paper wallets are that they take the form of cold storage, as they are not connected to the internet and thus reduces risk of hacking. In addition, they are also one of the cheapest options for cold storage.
On the other hand, if you lose the paper wallet and have not created a backup copy, there is no means of restoring your access to your currency. In addition, as stated above, as you still need to use a device to access your currency if you are using a paper wallet, and if your device is compromised or hacked then your currency could still be vulnerable.
Software wallet: Software wallets are based on computer software. We differentiate three types of software wallets which are : desktop, mobile and online wallets.
Desktop wallets are computer programs that store your cryptocurrency locally on your PC or laptop. By using a desktop wallet you have complete control of the cryptocurrency without having to rely on any third party interface but this means that the security is your response. If you get hacked or compromised or if your computer or hard drive breaks down, you may lose your coins forever.
Mobile wallets operate through an app on your mobile phone. The primary advantage of mobile wallets is that it allows users to quickly access and easily use their coins but the security is your response, the same as with the desktop wallet.
Online wallets are web based wallets that can be accessed from anywhere and are thus more convenient as they can be accessed from any device, and may also be linked to desktop or mobile wallets. On the other hand the disadvantage is that the private keys are being stored by the website owners rather than locally on your device and this type of wallet therefore requires you to put a lot of trust in the owners of your online wallet and their levels of security.