What Are Cryptocurrency Wallets (Crypto Wallets)
A wallet is a software program built to store all your public and private keys and digital coins. It enables you to send and receive coins through the blockchain and monitor your balance.
One thing to consider is that private keys give you total control over the funds linked to your public keys. So it is essential to keep the private keys to yourself.
How to Crypto Wallets work?
Most people are confused on the technology behind it. The do not resemble ‘traditional’ wallets and unlike pocket ones, the digital currency is not kept in a single location. What does exist is a record of a transaction made and stored on blockchain.
When someone sends /receives bitcoin or other digital currencies to a certain wallet address, it means that the person is owner of that particular coin. And in order to use those coins and spend the funds that are available, the private key provided must match exactly to the public address linked to the wallet. A successful transaction translates into a record listed on the blockchain and an increase / decrease in the balance.
Types Of Cryptocurrency Wallets
There are different types of wallets depending on the method of storing and accessing your digital currency.
- Software wallets
The software wallets can be: desktop, mobile or online.Desktop wallets can be downloaded and installed onto your computer. Have in mind that they can only be accessed from the PC or laptop on which they are downloaded to. In addition, they present a very high risk security-wise as your computer may be hacked at any given moment and you might face the possibility of losing all your digital coins.Mobile wallets are available through an application which can be downloaded on your mobile device. The main thing with mobile wallets is that you can use the ‘money’ basically in any store anywhere you go. Downside is that they are rather simple due to the limited storage space on a mobile phone compared to other devices.Online wallets are stored in cloud and can be accessed from any computer, regardless of your location. This may be an advantage, however both the private, as well as the public key is held through a third party so this could make them more open to hacks.
- Hardware wallets
The clear distinction between hardware and software wallets is that the first one stores your private key onto a device, such as USB. Also, it is more secure as the transactions made online are actually recorded offline. You have a variety of wallets available that work on different web platforms and it’s rather simple to make a transaction. All you need is the device and a computer connected to the Internet. You plug in the device, type in the pin, send the coins and confirm.
- Paper wallets
Paper wallets are the perfect combination between user-friendliness and top notch security. It’s basically the printout of your public and private key generated by a software program. How it works is that you send the funds from your software wallet to the address listed on the paper one. And it goes the other way around, from the paper wallet to the software one if you want to withdraw digital coins.Regardless of the wallet you choose to use, you should always remember that none of them has bullet proof security. That is why it’s important to always have a backup and one way to do that is to keep small amounts which you can play around with on your online wallet and the rest in a safer environment.