As there is a lot of chatter around cryptocurrencies these days. More and more people are intrigued to become part of this world of digital currencies. While many governments around the globe have recognized crypto wallets as a legitimate mode of transaction, some of them are still sitting in the dilemma of how to develop a transparent and robust regulatory framework around it. But no matter what governments are thinking, the interests of people and businesses are swelling every day by leaps and bounds. In this article, we have inculcated everything you should know about crypto wallets, including what they are, how they work, and the types of crypto wallets among others.
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Just think that you have a dollar bill, you can just fold it and keep it in your wallet or you can simply keep all your money together and store it in a safe. Well, that is not the case when it comes to storing cryptocurrency, such as Bitcoin, Ethereum, Dogecoin, etc. So, a crypto wallet is an application that works similarly to a physical wallet and keeps your cryptocurrencies in a safe and secure environment. As in a physical wallet, we can put cards and cash, crypto wallet is used as an interface to access your digital currency and to keep the passkeys required for doing crypto transactions.
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Now that you know what crypto wallets are, you must be wondering how they work? Crypto wallets work by using two types of keys, public keys, and private keys. A public key, which is known as the address is like your account number and it gets generated when you form a crypto wallet for yourself. This key can be shared with other third parties for payment purposes without any fear of getting duped. If you have given authorization, others can also withdraw funds from your crypto wallet.
Contrary to a public key, the private key is like a password for your bank account. It is used to access funds in the crypto wallet. In case it gets into the wrong hands, it will have results that you may face in an actual bank account.
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Hot and cold wallets are defined as per the internet connectivity they are using. While hot wallets require an internet connection and hence they are more prone to cyber-attacks whereas cold wallets are used even with no internet connectivity at all, hence they possess better security and are less at risk. Cold wallets are like a vault where one can store a substantial amount of money than a wallet and are better protected. It is quite convenient to set up a hot wallet and the funds here are easily accessible; this is why they are usually used for doing day-to-day transactions. On the other hand, cold wallets are protected against unauthorized access and only a small amount of funds are kept in hot wallets.
Software wallets are applications that can be downloaded on a desktop or mobile device. It also comes in the form of web-based wallets which can be accessed from anywhere online. Software wallets can be further classified into three categories, namely desktop wallets, online wallets, and mobile wallets.
Desktop wallets are installable software packs where private keys are kept in cold servers on your desktop. They require robust anti-virus software as they are connected to the internet and are always vulnerable to malware attacks. Just turn your wallet offline, do the financial transactions, and bring the system back online. In case the main server is lost, then a cold server, basically your desktop, is used as a backup server. Desktop wallets are user-friendly, offer privacy, and there is no third-party involvement in them. However, they require frequent computer backups. Exodus, Electrum, and Bitcoin core are to name a few renowned desktop wallets.
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As desktop wallets are made for desktop usage, mobile wallets can be used and accessed through any mobile device and for both iOS and Android operating systems. They come with a user-friendly interface making it easy for users to make transactions. All that you need to do is to install the mobile application on your mobile which would work as a hot wallet. However, they are more vulnerable to online attacks and require encryption. Mycelium is one of the best mobile wallets available for users.
Web wallets fall in the category of hot wallets and use the internet for their operation. The best part about using web wallets is that they can be accessed from across any device without the need of downloading any specific application or software. Be it a mobile device, a tablet, or a desktop, you can simply access it using a web browser. GreenAddress is a popular Bitcoin wallet that is not just available on the web but also has a desktop, iOS, and Android apps as well.
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A hardware wallet is a physical device that typically looks like a USB that stores your private keys in a protected and secured device. Like a USB, they are portable devices that can be plugged in with a computer device. Hardware wallets work only when the device is connected to a computer system. The best thing about them is that they are a hard nut to crack for malicious attacks and provide improved security than its counterparts. Trezo, KeepKey, and Ledger are some of the best-known hardware wallets available in the market.
For better understanding, you can consider paper wallets as an offline process for keeping your cryptocurrencies. It is a printed paper that comes with both public and private keys and can be accessed by using a QR code. It works in sync with the software wallet to transfer your cryptocurrency from the software wallet to the public address mentioned on the paper wallet. These wallets come with robust safety, so you can park hefty amounts of cryptocurrencies. MyEtherWallet and Bitcoin Paper Wallet are the two most sought-after paper wallets.
There is a steep rise in the popularity of cryptocurrencies and a lot of people are looking out to take a plunge into this domain. A crypto wallet is a gateway for those who want to learn how things work in the crypto world. As of now, many crypto wallets are available for users to handle their crypto transactions. However, users are required to be extra cautious while picking a crypto wallet and should learn more about it from security and privacy aspects before choosing the final one.
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