Cryptocurrency Wallets Explained

A collection of Cryptocurrency wallets, hardware wallets and software wallet thumb drives

Cryptocurrency Wallets explained

Cryptocurrency wallets are used to interact with a blockchain network, it does not store the currency but generates the necessary information needed to send and receive cryptocurrency via the blockchain network.

Cryptocurrencies or digital currencies have become increasingly popular due to their many improvements over traditional fiat currencies, and as with fiat currencies making use of a traditional material wallet, if you want to use any of these blockchain-based cryptocurrencies you will need to keep them in a wallet for safe storage and therefore understand how blockchain wallet’s function.

A crypto wallet makes use of a public key “address” and a private key “passcode” each generating 12 to 35 alphanumerical characters to firstly form a unique address code pointing to a particular cryptocurrency wallet and secondly a unique passcode to secure the cryptocurrency information. An Example of a digital address: 1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2. P2SH

A cryptocurrency wallet enables a user to manage, exchange and transfer different types of cryptocurrencies between different blockchain networks All transactions are secure as they are cryptographically signed.

Wikipedia - A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions.

Coinbase - Crypto wallets store your private keys, keeping your crypto safe and accessible. They also allow you to send, receive, and spend cryptocurrencies like Bitcoin and Ethereum.

There are three major types of wallets. Hardware, software, and paper, which all can be categorized further as hot and cold wallets.

This article "cryptocurrency wallets explained" will discuss the different types of Blockchain cryptocurrency wallets.

Hot and Cold Wallets

Hot and cold wallets are defi-ned by their connectivity to the internet.

Hot wallets are connected to the internet and are therefore less secure and pose a greater security risk, but are more user friendly. They are used primarily for daily transactions as the funds are easily accessible and the wallets are easy to set up. Generally, only small percentages of funds are stored in these wallets.

Cold wallets are the opposite and are never connected to the internet, improving security, and posing less risk, but making them less user friendly. These wallets are stored offline in a safe and are generally used to store the majority of your funds. These wallets are hack resistant and used by long term HODLers.

Hardware wallets

A hardware wallet or device can be categorized as a cold wallet that individually handles the public addresses and private keys.

It is a battery-less device that can be accessed via a USB port on a computer system and similar to a flash drive.

They are available in different forms and have varying functionality and security.

Paper Wallets

A paper wallet can be categorized as a cold wallet and is a physical piece of paper with a QR code printed on it.

They are hack resistant unless the safe that they are kept in is breached.

They used to be very popular until the introduction of Hardware wallets as they have one major flaw, as you are not able to send partial funds from them and forced to “unpack” all funds on the code as the code cannot be reused.

Desktop Wallets

Desktop wallets can be categorized as hot and cold wallets.

Provided the desktop is never connected to the internet and runs on a clean system they will fall under the cold wallet storage category and are regarded as the best cold storage method, but generally, they are connected to the internet.

They are primarily a software pack running on an operating system hiding behind antivirus and firewalls.

They are easy to use convenient, give privacy, autonomy, and security.

Mobile Wallets

Mobile wallets fall under the Hot storage category and are software packages installed onto smartphones.

They are convenient and practical and suitable for daily transactions although they are vulnerable to virus attacks.

They are secured by making use of QR codes and encryption.

Web Wallets

Web wallets fall into the category of hot wallets and even further categorised as loss wallets as they are the least secure method.

They can be hosted, whereby an exchange, for example, is in control of the private keys, and as they say “you don’t control the keys, you don’t control the crypto” or non-hosted but as they are kept on internet browsers, they are prone to DDOS attacks.

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