Crypto wallets are digital storage locations that safeguard the private keys that are associated with a user's cryptocurrency holdings. They can take the form of hardware gadgets, computer programs, or web-based services, among other things.
However, much like cryptocurrency itself, the idea of a cryptocurrency wallet can be somewhat abstract. Let's dive further into the inner workings of these key crypto tools.
What Is A Crypto Wallet? How Does It Work?
The first thing you should know about cryptocurrency wallets is that they have nothing in common with the wallet you keep in your purse or back pocket for bills and credit cards. Instead, a cryptocurrency wallet is a digital wallet that allows you to safely store and retrieve your cryptocurrency.
Cryptocurrency is a digital currency that lacks a central issuing body and a central bank, making it an impractical medium of exchange like cash. On a bigger blockchain, it only exists as a string of code.
What exactly do you acquire when you make a purchase of Bitcoin (BTC)? A pair of Bitcoin blockchain public and private keys.
The public key can be thought of as a bank account number in that it can be given out to everyone without giving them access to the funds in the account.
You can think of the private key as a password for your financial account. Don't tell anyone or they'll use it to drain your bank account.
Any crypto may be rendered useless if the owner were to lose their private key. In a similar manner, a person who possesses a private key has unrestricted access to the crypto. It is crucial to keep your private keys safe in a crypto wallet.
A cryptocurrency wallet might be software-based or hardware-based. Different types serve slightly different purposes, but they all have the goal of providing safe access to whatever cryptocurrency you may hold.
To be clear, a cryptocurrency wallet does not store any cryptocurrency itself. Instead, it stores the information about public and private keys that are required to carry out cryptocurrency transactions. Many decentralized cryptocurrencies use a technology called blockchain, which is a digital ledger that records transactions chronologically and publicly.
Types Of Crypto Wallets
In general, crypto wallets can be divided into two types: those that are always online (hot wallets) and those that are offline (cold wallets). Let's have a closer look at these.
- Paper Wallets
The most basic kind of cold storage wallet is a paper wallet. That's right; it's just a note with your key information on it.
- Hardware Wallets
Hardware wallets are physical devices that store and secure digital currency in a cold storage environment. There is often a resemblance to a USB drive in their appearance. The device stores your private key, which you'll need to access your cryptocurrency on the blockchain.
Many people believe that storing their cryptocurrencies in a hardware wallet is the safest option, given that it is not online and is a tangible object. Without this tool, a hacker on the other side of the planet won't be able to access your encrypted data.
Unfortunately, hardware wallets have a few drawbacks. To give just one example, the popular products sold by businesses like Ledger and Trezor tend to come at a high price. If you lose your cryptocurrency wallet, it's not the end of the world, but you'll need a recovery seed to get it back. If you misplace your recovery seed, it's game over.
- Online Wallets
Your primary means of storing value is likely to be a hot wallet, which refers to an online wallet or a software wallet. These wallets, which can be accessed from any device with an internet connection (desktop, smartphone, or web), are more convenient but also more vulnerable to theft than cold wallets.
Custodial Wallets Vs. Non-Custodial Wallets
Wallets that do not store your information on a third party's servers are called "non-custodial wallets." For the same reason that your private keys are never stored on anybody else's servers, these wallets are often the favorite among crypto experts.
Two examples of non-custodial solutions are the Exodus and MetaMask offline wallets. Claimed to be more resistant to hacking, these wallets are a popular choice.
On the other hand, cryptocurrency exchanges and other cryptocurrency firms like Gemini Wallet, BlockFi Wallet, and eToro offer what are known as custodial wallets.
If you decide to use this kind of wallet, you will essentially be giving the company access to your private keys. There are, however, conveniences associated with these wallets. Simply logging into your account and specifying the recipient's address is all that's required to access and send your cryptocurrency from this kind of wallet.
You can normally use these hot wallets for free, and they may even let you stake your cryptocurrency.
How To Get A Crypto Wallet
Obtaining a cryptocurrency wallet is a simple and straightforward process. Several cryptocurrency exchanges, including Coinbase and Gemini, provide their customers with the option of using an online cryptocurrency wallet. If you are interested in purchasing a cold wallet, you may do it either by going directly to the website of the maker or by purchasing one from Amazon.com.
How To Use Crypto Wallet
Depending on the wallet you use, different steps may be required to make cryptocurrency purchases or transfers. Nonetheless, it's usually as easy as sending any other form of digital currency.
It's easy to send cryptocurrency to another person; just enter their public address, and the amount then proceeds to complete the transaction.
When dealing with cryptocurrencies, there are fewer options available in the event of a dispute than when dealing with traditional currency.
Cryptocurrency transactions are irreversible, so make sure the address you enter is correct. An invalid address will prevent you from retrieving your coins.
Read Also: Why is Cryptocurrency Worth the Hype
Things To Consider When Choosing A Crypto Wallet
There are, however, a few things to keep in mind when selecting a cryptocurrency wallet:
- Customer Service
If you're just getting started with cryptocurrency ownership, it's important to pick a wallet with reliable, responsive customer care.
Because of the potential transaction fees associated with using a third-party hot wallet, your net earnings could be lower.
Check that the wallet service you plan to use is reliable and uses appropriate precautions to safeguard your cryptocurrency private keys.
- Types of Cryptos Supported
It's possible that certain cryptocurrency wallets will only support a small number of projects, while others could support hundreds.
Keeping all of this in mind, it's clear that there is no such thing as a "best" cryptocurrency wallet, as every wallet has its own advantages and disadvantages.
Users often choose to use numerous wallets simultaneously, which can increase security when it comes to dividing up assets. But everyone has to make up their own mind on which wallet is best and most fit for them based on their own tastes.