The term wallet, taken literally, refers to a container that holds money in a pocket. Indeed wallets are mainly used for holding or saving money. The comfort and convenience attached to physical wallets are simply amazing. As a result, online financial services and cryptocurrencies have adapted their services to incorporate wallets.
How have wallets been incorporated into cryptocurrencies? What types of crypto wallets are available today? How can you make use of these digital wallets? This guide will address these questions as well as many others. However, before we commence, let us understand what Crypto Wallets are and how they function.
What Are Crypto Wallets?
In simple terms, crypto wallets are digital wallets that are used for holding cryptocurrencies. In contrast to a physical wallet that can be picked up and felt, a crypto wallet is an electronic program that can not be felt or touched. As well as storing digital currencies, crypto wallets can be used to save public and private keys of its users and other crypto users.
Moreover, crypto wallets are designed to interact with blockchains, allowing users to receive and send cryptocurrencies. Finally, crypto wallets enable traders to keep track of their balances. We simply can not overstate the importance of a crypto wallet, as it is essential to owning and trading cryptocurrencies.
The process for setting up a crypto wallet is simple and free. This process, however, can only be performed online. In most cases, users must create a password and provide a valid email address before creating their crypto wallets. Users may also be required to verify their accounts via automatic email to complete the registration process.
Users who complete the registration process for a crypto wallet will be given a wallet ID, which we can compare to a bank account number. As a result, each wallet ID is unique and different. There are a variety of ways that wallet holders can access their wallets. They can log in using these wallet options like mobile wallets, desktop wallets, online wallets, or hardware wallets. This brings us to the next part of our guide, types of crypto wallets available to crypto traders.
Types Of Crypto Wallets
Crypto wallets are available in many formats and can be used to store and access a variety of digital currencies. All crypto wallets can be classified into two main categories: Hot wallets and cold wallets. All other classifications for wallets fall under these two main categories.
Hot wallets are crypto wallets that have a constant connection to the internet. Although these wallets are convenient to use, they are susceptible to hacks. Examples of hot wallets include mobile wallets, online wallets, exchange wallets, and web wallets.
Software wallets are the most common type of crypto wallets available today. There are three common types of software wallets: desktop wallets, mobile wallets, or online-based wallets.
These are software wallets that can be downloaded and installed on a personal computer or laptop. Desktop wallets can only be accessed on the PC or laptop where they have been downloaded. As a result, they are very secure and safe. However, in cases of hacks, or virus attacks, owners of desktop wallets may lose all their funds.
They are designed to run as a mobile app on a user’s mobile device. Consequently, these wallets can be downloaded from mobile app stores onto the phones and tablets of users. Mobile wallets are very similar to desktop wallets; however, these wallets are generally smaller in size and are simpler to use. Further, mobile wallets are useful in a wide range of locations.
Online crypto wallets are digital wallets that run on the cloud. These wallets can be accessed using a mobile device in any location. As a result, these types of wallets offer their users convenience. However, the main disadvantage is that an external party or intermediary controls the private keys of online wallets. This factor means that funds are in online wallets and can be stolen through hacks.
A good example of online wallets are web wallets that can be installed as google chrome extensions. Examples include Phantom, Sollet.io, and Qtum web wallet. Other examples include exchange wallets like Binance and Huobi
These types of crypto wallets are not connected to the internet. As a result, they are safer than hot wallets. Crypto traders who want to prevent hacks or theft of their crypto wallets are better off using cold wallets. A perfect example of a cold wallet is a Paper wallet. Hardware wallets also incorporate some properties of cold wallets.
Paper wallets are straightforward and convenient to use. Additionally, users can count on high levels of security when using paper wallets. This form of cold wallet contains both public and private keys of their users, which are vital for processing transactions. However, paper wallets are non-custodial, meaning that external parties have no control over users’ private keys. Additionally, paper wallets don’t guarantee 100% safety of your crypto.
Unlike software wallets that store their user’s private keys with an external party, hardware wallets save users’ private keys on a hardware device like a USB. Hardware wallets have the capacity for processing online transactions. However, they are not stored online, meaning that they offer users secure and safe transactions.
Hardware wallets can be used across multiple web interfaces to support a wide variety of crypto assets. To use them, users simply need to connect their USB devices to an internet-connected device and input their pin. After that, users can carry out a variety of transactions using their hardware wallets. The main advantage of hardware wallets is that they enable easy transactions while keeping your money secure and offline. Popular hardware wallets include Trezor and Ledger.
Multi-currency wallets are online crypto wallets that can support several types of cryptocurrencies. These types of wallets allow users to hold multiple currencies in one location without setting up a new wallet. Popular multi-currency wallets include Atomic Wallet, Bread Wallet, Mycelium, Exodus, Ledger Nano, Copay, and Trezor.
How Do Cryptocurrency Wallets Work?
The growth and adoption of cryptocurrencies worldwide mean that millions of people now own a crypto wallet. However, there are many conflicting opinions among users on how crypto wallets work. So how exactly do they work?
Any time a person sends digital currencies, they are handing over ownership of that currency to the recipient’s wallet. The private key stored in your wallet must match the public key associated with the transaction before you can spend the coins and unlock the funds.
If the public and private keys match, the receiver’s wallet will increase in value, while the value of tokens in the sender’s wallet decreases. The process does not involve the exchange of real tokens. A change in value reflects in the wallet of the receiver as well as being recorded on the blockchain.