What Is A Cryptocurrency Wallet And How Does It Work? Everything You Need To Know

What Is A Cryptocurrency Wallet And How Does It Work? Everything You Need To Know | Image source: Pexels

As cryptocurrencies continue to get popular worldwide, storing and accessing them efficiently, easily, and securely is highly important, especially as their store of value and use cases continue to grow at an astronomical scale.

While there are several platforms and methods of storing cryptocurrencies, if they’re not stored properly, quickly accessing them when you want to make an urgent trade could be difficult and also, they could get stolen if not stored properly.

If you own or are looking to own cryptocurrency sometime in the future, you first need to know exactly what a Blockchain or Cryptocurrency wallet is:

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What Is A Blockchain Or Cryptocurrency Wallet?

A blockchain or cryptocurrency wallet is a hardware device or software application that is used to store and transfer cryptocurrencies. It is like a bank account, only that you control it 100% because you own the private keys and can receive or send funds easily and almost instantly without the need for approval from a central body.

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How A Blockchain Or Cryptocurrency Wallet Works

Every blockchain or cryptocurrency wallet has a public and a private key.

What Is A Public Key?

The public keys, which are usually many, are generated from private keys and are usually the wallet addresses that can be used to send cryptocurrencies from wallet to wallet. This means that multiple public keys can be generated and sent to different people trying to send cryptocurrencies to the same wallet.

What Is A Private Key?

While the public key is important, the private key is the most important part because it cannot be generated in multiple forms and if anyone has access to the private keys, they can take control of the wallet and steal all the funds in it.

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Types Of Blockchain Or Cryptocurrency Wallets

There are two types of cryptocurrency wallets that you can use:

1). Hot Wallets:

A hot wallet is a wallet that requires internet access to be used. This makes them easily accessible by the owners of the wallets, but less secure and susceptible to security threats and hacking attacks.

While hot wallets are user-friendly, the risk of losing privacy and security is always present.

Some types of Hot Wallets are:

a). Web-Based Wallets:

These types of wallets are on the internet and your private keys are hosted online on their platforms. Some examples of web-based wallets are cryptocurrency exchanges like Kucoin or Binance.

b). Mobile Wallets:

A mobile wallet is software that is installed on a smartphone. They could be hosted on the smartphone or also hosted online. If they’re only hosted on the smartphone, then it means you’d be responsible for storing the private keys.

Some mobile wallets are TrustWallet and Metamask.

c). Desktop Wallets:

Just like mobile wallets, desktop wallets are installed on a desktop computer and the private keys can be hosted online or offline. Some desktop wallets are Metamask, etc.

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2). Cold Wallets:

Cold wallets are hardware wallets that store cryptocurrency tokens offline and are totally secure. because thieves would need to have direct access to the hardware wallet to be able to use them.

Hardware wallets are like flash drives, but more durable, secure, and act as a vault that the owners can use to carry out transactions. Some are connected to the internet and some aren’t. But unless a hacker or person has access to the wallet, they cannot steal your cryptocurrencies because the private key is only stored on it

If you have sensitive amounts of money in cryptocurrency, it may be best to store them in a hardware wallet for the most security.

Some popular cold wallets are Trezor and Ledger.

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To Sum It Up

Owning cryptocurrencies as an asset class is becoming more important every day. But knowing how to store it properly, depending on if you prioritize accessibility over security or security over accessibility, is an important thing to know. If you’ve always wanted to understand how cryptocurrency wallets work, this article is a great start for you.

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What are your thoughts on what a cryptocurrency wallet is and their two types? Let me know by leaving a comment below.