Are you new to Cryptocurrency and Blockchain technology? You should take time out and read this article from start to finish. We have answers to vital questions every newbie would be asking in relation to cryptocurrency wallet.
In this article we will take a look at the following:
1. How do you store cryptocurrency?
2. Where do you store cryptocurrency?
3. What is a cryptocurrency wallet?
4. Functions of a Cryptocurrency wallet.
5. What are the types of cryptocurrency wallets available?
6. How does a cryptocurrency wallet work?
7. Different wallets to store your cryptocurrencies.
HOW DO YOU STORE CRYPTO?
Cryptocurrency is basically a digital form of money and the same way you store your paper money in a bank, you also need a place to safely keep your cryptocurrencies. The disruptive idea behind cryptocurrencies is to digitalize money and transform everyone to their own bank. For Crypto you don’t need a central place like a bank for paper money to store your coins/tokens.
Basically to store cryptocurrencies you need a cryptocurrency wallet. Now, what is a Cryptocurrency Wallet?
A Cryptocurrency wallet is a device, physical medium, or an encrypted software program which stores private and public keys and directly interacts with various blockchain to enable the wallet user send and receive digital currencies such as Ethereum, Tron, EOS, Ripple, Cardano, Bitcoin, Eterbase Coin, etc. When a user acquires cryptocurrency, such as bitcoin, he or she can store it in a cryptocurrency wallet and from there use it to make transactions.
FUNCTIONS OF A CRYPTOCURRENCY WALLET
1. Managing your balance
2. Sending and Receiving digital currencies
3. Safely Storing your digital currencies
4. For staking your cryptocurrencies
WHAT ARE THE DIFFERENT TYPES OF WALLETS?
1. Web wallet: It’s a kind of crypto wallet that is downloaded and installed directly on your PC or Laptop. There can only be accessible from the single computer in which they are downloaded. They offer the highest level of security but in rare cases where your computer is hacked or gets a virus there is a possibility you may lose all your funds stored in your wallet downloaded into the computer.
2. Online wallet: This type of wallet are completely cloud based and are accessible from any computing from any location. Online wallets store your private keys online and are controlled by a third party which makes more vulnerable to hacking attacks and thefts.
Example of online wallets are wallets in centralized exchanges such as Binance, Kucoin, Okex, Bithumb, etc.
3. Mobile wallet: This class of wallets runs on an application on your phone and are more useful and easily accessible. Example of mobile wallets are Blockchain wallet app, MyEther Wallet app (MEW), etc.
4. Hardware wallet: This type of wallet differs from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets make transactions online, they are stored offline which delivers increased security.
Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy. Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
5. Paper wallet: This type of wallet are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed.
How Does a Cryptocurrency Wallet Work?
A wallet address is like a bank account number. So for someone to transfer any digital currency to you, you need to first give your cryptocurrency wallet address, as people will need it if they are to transfer you funds.
Just like in the real world where no two bank accounts are the same, no two wallet addresses are ever the same in the cryptocurrency world, which means that there is no chance that somebody else would get your funds. Also, there is no limit to the number of wallet addresses you can create.
To give you an example of what an Ethereum wallet address looks like, here is an ethereum wallet address
0xfd551Ac45bFB6d96ab18E3D5c173E708F9d29D4c
As you can see, it uses a combination of numbers and letters, using both upper case and lower case. As most blockchains are transparent, it is easy to find out how much money a certain cryptocurrency wallet has, as well as the transactions the owner has previously made.
However, a cryptocurrency wallet address does not reveal the real-world identity of its owner, which is why the blockchain is referred to as “pseudonymous”.
Private and Public Key
So, now that you know that a wallet address is very similar to a bank account number, I am now going to explain how you are given control of the funds. People often think that a public key is the same as a public wallet address, however, this is not correct.
Essentially, each individual cryptocurrency wallet address (remember, no two addresses can be the same) each have a unique private and public key. The private key allows you to access the funds that are related to the crypto wallet address.
To give you a real-world example, when you want to transfer money from your bank account to somebody else’s bank account, you will need to enter your private password. Nobody else has access to this password, not even the bank. Otherwise, if somebody knew what it was, they would be able to send money from your bank account.
A private key does the exact same job and it is linked specifically to the individual crypto wallet address. So what about a public key? A public key or cryptocurrency wallet address is similar to your bank account number and as such does the exact same job.
The different Cryptocurrency wallets available
Exodus
Exodus is a multi-currency desktop wallet that allows you to store lots of different coins, such as Bitcoin, Litecoin and Dash, as well as various ERC-20 tokens.
One of the best features of Exodus (other than it being free) is that it is really user-friendly. When you log in, you can view you entire cryptocurrency portfolio on a visual pie chart, which also lets you know the current market value of each coin.
The wallet provider never has access to your private keys, nor are they connected to the Exodus servers. For even more convenience, Exodus even has a ShapeShift API built in, which allows you to buy and sell cryptocurrencies within the wallet.
Bread Wallet
If you are looking to store your Bitcoin on your mobile phone, look no further than the Bread Wallet! The developers claim that the wallet offers “Nerd-level security”, as the wallet is connected directly to the Bitcoin blockchain.
The user interface is really clean, making it perfect for beginners. Bread also has a really cool feature that allows you to scan the QR code of the wallet address you want to send funds to, which also allows you to spend Bitcoin in a real-world store.
Unfortunately, Bitcoin is the only coin the wallet supports, however, don’t forget, it’s completely free.
Ledger Nano S
For the ultimate layer of security, it doesn’t get any better than a hardware wallet, such as Ledger Nano S. You will receive a physical device that allows you to store a range of cryptocurrencies offline.
More and more cryptocurrencies are being added all the time, however, to check which coins they support, you can click the link here.
When you want to send coins to someone, you simply need to plug the wallet into your device (such as a laptop) and then enter your private pin number. If the wallet is lost or stolen, you can recover your coins by entering your backup passphrase on another device.
You will need to pay about 90 Euros for the Ledger Nano S, however, if you have a large number of coins, it is well worth the investment. Only ever buy it from the official Ledger Nano S website.
Jaxx
Jaxx is also one the most popular multi-currency wallets and it is available for download on most desktop and mobile devices. For extra convenience, you can also access your wallet through a Google or Firefox browser extension, making it great if you need to send funds on the go.
The Jaxx developers never hold your private keys, as these are only stored on your device. Moreover, just like Exodus, there is a built-in ShapeShift API that lets you easily trade/swap coins directly from your wallet.
Conclusion
If you have read this article from start to finish, you should now have a really good understanding of what a cryptocurrency wallet is, how the technology works and what it can be used for.
You should also have a good idea of the different types of wallets available.