Have you ever heard of digital wallets? A wallet with which you can work with cryptocurrencies or better said, without which you do not belong to the crypto world!
But what is digital wallet or crypto wallet?
Crypto wallet acts like a medium between users and blockchain network. In this article we are going to define crypto wallet in detail! So stay with us!
What is crypto wallet?
As you know, cryptocurrencies are virtual and non-physical asset, value or currencies that came into existence with advantages like high transaction security, anonymity and low fees. But their most important feature is their decentralization and removing mediums. They have developed the world of technology and fintech into a higher level. If you want to know more about cryptocurrencies, you can read here!
Cryptocurrencies are available on a decentralized and distributed network called blockchain. The fact that it is a decentralized network means that no one can control or manage it. meanwhile, it is distributed which means the network management is distributed among its users. Therefore it has high level security and every act on it is anonymous. You can read more about blockchain, here.
Now let’s go to our main topic, crypto wallets! The term crypto wallet is a general concept. You may have heard about bitcoin wallet. Bitcoin is the most known digital coin of the world and that is why crypto wallets are known as bitcoin wallets. You can also read about bitcoin here.
Digital wallets are one of the key tools in trading and investments related to cryptocurrencies. All people who are busy with selling, buying or transferring any cryptocurrency, should own a crypto wallet in order to store the value of their digital assets. Crypto wallets or bitcoin wallets are softwares that play the role of medium between the users and blockchain network which enable their owners to act in the realm of cryptocurrencies using a private key and public key. Such wallets can connect to any blockchain so that the owners can store their digital currencies on the safe blockchain network, send them to another user or receive them from another user.
So now you know that you cannot use cryptocurrencies without a digital wallet.
How does a crypto wallet work?
Many people use digital wallets but they have no idea what they are doing! Digital wallets do not store any currencies. Cryptocurrencies and transactions are recorded on blockchain network and the crypto wallet work as a medium for you to access them.
Crypto wallets have a private and a public key. The public key is your wallet address and acts just like your bank account. You can give it to anyone who wants to send you some cryptos. But the private key is your main key to access your wallet. You can think of it as your credit card password. Upon holding the private key, you can transfer any number of cryptocurrencies from your wallet. Therefore, private key is something personal and should not be disclosed to anyone.
If anyone seeks to transfer any currency to another wallet, they have in fact deprived their ownership of the asset and transferred it to someone else. In order to do the transaction, the private key of the wallet should match the public key in the cryptocurrency. If they are matched, the transaction will be done automatically. You should know that in cryptocurrency transferring, no physical currency is transferred and it is just the transaction that is recorded on blockchain and the amount is deducted from the sender balance and added to the receiver balance. It is interesting to know that the process of confirming a transaction and sending the cryptocurrency is called mining and is done by miners. You can learn about it here.
Kinds of cryptocurrency wallets
There are different kinds of crypto wallet which diversify in methods of storing and accessing the cryptos and can be activated on various devices. Digital wallets can be put in three categories of software, hardware and paper wallets. The software wallets are also divided into three forms of online, desktop and mobile wallets.
Online software digital wallet:
These wallets are active on their special websites. Through them, you can access your cryptocurrencies from anywhere, at any time and with any device. Since these wallets store your private key online and on a third-party software, you would have a high risk of being hacked and robbed.
Such wallets are downloaded from the net and can be installed on your PC or laptop and through using the mentioned software, you can access your digital assets. These wallets can only run on a specific system and that is the one that has downloaded them. These wallets are highly secured but if your PC or laptop is exposed to virus or being hacked, you can lose your digital assets!
These wallets run on your smart phones and are very applicable; since they are available at any time and place.
Hardware digital wallets:
These wallets, save the users private key on a device like USB. Since the hardware wallets receive the information online and they store them offline, the security of such cases is very high. Upon connecting these digital wallets to a device connected to internet, you can easily access your digital coins and do your transactions.
Paper crypto wallets:
Paper wallets have incredibly high level of security. There are softwares which create your private key and print them on a paper. your wallet public key is also on your paper wallet and you can use it to receive cryptocurrencies. If you intend to spend your digital coins, you can transfer your coins from your paper wallet to your software wallet. This process is called “wipe”. To wipe, you can insert the digital keys manually or scan the QR code on the paper wallet.
Crypto wallets security
Each wallet, according to its usage has different level of security. Online wallets, comparing to offline and hardware wallets are more exposed to being hacked. Yet the hardware wallets are exposed to viruses. Aside from the kind of the wallet you are using and its level of security, you should consider all security actions to stay safe. You should also notice that if you lose your private key, you have lost your assets and, in this case,, the kind of your wallet is not important. Moreover, if you send your cryptos to a wrong person, there is no way to prove it and retreat your coins. SO BE CAREFUL!
Backup your wallet and always keep the amount that you need on your online wallet and leave the rest on your hardware or paper wallet. Always update your software so that you can use the new security features. Also activate your two-factor authentication to sleep at peace.
Digital wallet is a general concept which is known as bitcoin wallet by some people. The blockchain network is able to record all your assets and transactions therefore, the digital wallets are only mediums between you and the blockchain network which enable you to access the network and your assets easily.
There are different kinds of crypto wallets suitable for different needs. However it you who define the security of a crypto wallet.