Today, it is impossible to separate cryptocurrencies and wallets. Both form the benchmarks of any transaction. To indulge in a bit of analogy, if the cryptocurrency represents the fiat currency, the wallet, on the other hand, represents the bank account. Indeed, thanks to the cryptocurrency wallet, one can save and manage crypto assets as if they were a balance in a bank account.
In cryptocurrency, transactions are recorded in the blockchain using asymmetric encryption. It uses a public key to complete the encryption and a private key to decrypt. Wallets are also in the same boat. However, the public key represents the Iban which authorizes the transfer of cryptocurrencies to the account. The private key is an access code to the wallet’s balance.
The cryptocurrency wallet
If you plan to invest in cryptocurrency, you need a place to store your money. You will also need an opportunity to make transfers of your cryptocurrencies. In this case, a cryptocurrency wallet is your best bet.
- What is a cryptocurrency wallet?
A wallet is a tool that allows you to make online payments. Very often, it is presented as an application. The wallet allows more secure storage of digital versions of your credit and debit cards. It saves you from carrying a physical card for every payment or entering your banking information. The wallet also allows you to store digital versions of your transportation tickets: bus, train, airplane, etc., and your electronic coupons to keep them always at your fingertips.
A cryptocurrency wallet is a safe storage and management solution for users of blockchain and cryptocurrency assets. Users can spend, receive, and exchange digital currency through this wallet. It is true that some crypto wallets only support one cryptocurrency. However, several multi-active solutions can allow you to manage multiple currencies, notably Bitcoin Cash, Litecoin, Ethereum, and many other digital currencies.
These kinds of solutions guarantee the owner of the tokens that he is the only person or entity able to access the funds. For this, he will have to set a password and enter it every time he tries to access it. He can also set other security measures. Cryptocurrency wallets are also accessible through smartphones and computers.
- How does the wallet work?
The functioning of the cryptocurrency wallet is straightforward. In this matter, it is used to secure private keys. It is actually the code that ensures the user’s ownership of their crypto assets. For example, Bitcoin is secured by two digital keys. The first digital key is public and ensures that the cryptocurrency you hold in the computer network is unique. This key allows the user to receive other virtual currencies. The public key is similar to the traditional banking system’s bank identity statement (BIS).
The second key is a private key that allows its holder to keep his funds and thus ensure the ownership of his cryptocurrencies. The private key is created randomly. It consists of a 256-digit sequence of 0’s or 1’s. Given the importance of the private key, keeping it is very important. The security of the tokens is at stake. In addition to storing private and public keys, the crypto wallet interfaces with the blockchains of various cryptocurrencies.
When cryptos are sent to another cryptocurrency wallet user, the sending is done as a transaction. This simply means that the coins change ownership (transfer of ownership). The goal is for the user to be able to check their balance and send and receive tokens. If the user who received the tokens wants to spend them, his key must match the public address through which the coins were sent.
Digital wallets are, therefore, beneficial for transactions. Thanks to them, the latter is carried out safely, quickly, and efficiently.
What are the different types of cryptocurrency wallets?
There are two prominent families of cryptocurrency wallets online today. We have hardware wallets (physical wallets) and software wallets (online wallets). These different families of wallets each have their own characteristics and have within them several types of digital wallets. For example, hardware wallets are physical and paper wallets. They often come in the form of a secure USB key that keeps the keys and access to the wallet.
These have the advantage of being very secure. To use it, you will have to connect it to a computer each time. As for the wallet software, it is available online via mobile applications and websites. It also allows you to keep your public and private keys safe. Unlike hardware wallets, they are easier to access and use. However, the risk is greater with this type of cryptocurrency wallet.
- Physical wallets
Physical wallets come in the form of USB sticks. They are encrypted devices that keep users’ digital currencies offline. Therefore, they provide greater security against threats present on the internet. Thanks to their offline nature, hardware wallets are safer tools for keeping cryptocurrencies. Also, it should be noted that they can hold multiple cryptocurrencies and transactions with them are much faster. However, physical wallets have some drawbacks. First of all, their price is relatively high. Secondly, there is no deposit insurance. Finally, the storage of your coins is your responsibility.
- Software crypto wallets or desktop wallets
Desktop wallets are downloadable as software. You can therefore install it on your PC. Just like other wallets, they help you store private keys. They also allow you to send and manage cryptocurrencies. This type of wallet has the advantage of being free and accessible to everyone. Also, they allow you to save the keys offline.
Yet, you should regularly update your computer’s antivirus software. This will make its use optimal and protect your personal data. However, there are some disadvantages of wallet desktops. Some of these programs are not very reliable. Moreover, you are forced to always protect the computer against intrusion. Finally, you will need to be connected to the internet to save the keys.
- Online wallets
Online wallets are the easiest to access. Also called hot wallets, you need an internet connection to access them. The best part is that they are not only available on PCs but also on your mobile devices. With them, you can sell, buy and exchange your coins without difficulty. By using an online wallet, you can access your data from anywhere. You don’t need to install it beforehand; it is free to use.
Finally, it is easy to use, and customer service is always available. For all these reasons, they are the favorite wallets of users. Unfortunately, online wallets have reduced security compared to other types of wallets. Indeed, the risks of hacking are higher. Moreover, private keys are managed by third parties.
- Paper wallets
Paper wallets offer the highest level of security. However, they are a bit complex and are therefore used by advanced users, those who want a high level of security. This type of wallet is available completely offline. You just need to print your public and private keys on paper. This paper will serve as your wallet.
To transfer money to a paper wallet, you must use a desktop wallet and send the money to the public key written on the paper. Usually, this is a QR Code, which allows it to be scanned easily. Nevertheless, the use of this type of wallet is not at all easy for a beginner.
How to choose your cryptocurrency wallet?
To choose your cryptocurrency wallet, you must consider several criteria. But before that, you must first know why you want to buy it, how often you use it, and finally, how much you want to keep it. Based on this information, you will choose the cryptocurrency wallet that you need. The first thing to consider is the security of the wallet. This is a crucial point. You need to know what level of security the wallet offers you. The security of your personal data is at stake. Then, you have to take into account the speed of the transactions. You should think about choosing a cryptocurrency wallet with excellent transaction speed. Finally, the amount of data (the amount and frequency of transfers) will also have to be considered.