When we hear the word “wallet,” we immediately think of the pocket or purse accessory that holds our cash, credit, debit, and ID cards. However, unlike cash, digital currencies are not stored in a specific location and do not exist in physical form. Instead, cryptocurrencies, account balances, and transaction histories exist on a blockchain.
A blockchain is just a fancy term that describes a running ledger of transactions. But this isn’t an article explaining blockchain, but one to help you better understand how crypto wallets work.
If we’re going to talk about crypto wallets, then the first thing you want to understand is what they are.
Crypto wallets are software programs that create and store your private and public keys. They are also used to interact with the blockchain, monitor your balances, and allow you to send and receive crypto assets.
You can download and install a cryptocurrency wallet on your desktop or mobile or purchase a physical device installed with the wallet program (more on hardware wallets later). You can use crypto wallets to make regular purchases, hold crypto tokens for long-term investments, or use cold storage facilities.
Video: Crypto wallets explained
How do crypto wallets work?
To use cryptocurrency, you need a wallet to store virtual coins. Each wallet has a unique address, like your bank account number. The address differs depending on the cryptocurrency.
These addresses look like randomly generated strings of letters and numbers, but it’s much more than that in reality. For example, when a user sends cryptos to another user’s wallet, he effectively transfers ownership of the currencies or tokens to the recipient’s wallet address.
Whether you’re a seasoned stakeholder looking to get the best plays out of the DeFi ecosystem, or just starting out in the crypto space, you’ll need a crypto wallet you can rely on.
CoinStats is an all-in-one best crypto wallet that offers integration with the most common exchanges (such as Kraken, Binance) and wallets (such as MetaMask, Trust Wallet).
One of the app’s standout features is that it allows you to keep track of all your holdings across portfolios, execute various crypto transactions, and even receive personalized recommendations based on insights gleaned from your crypto data.
As stated earlier, a crypto wallet comprises a public and a private key.
You can think of your public keys as your wallet “account number for simplification purposes.” You can share your public keys with anyone who wishes to carry out a transaction with you.
On the flip side, private keys are private, as the name suggests. They’re like a password, pin, or verification code that grants you access to the actual funds on the blockchain ledger. So if a hacker or thief gets your private keys, they basically have control of your crypto assets.
It is simple to send crypto tokens from one wallet to another. Simply log in to your wallet, decide how much you’re willing or need to transfer, then send it to the recipient’s wallet address.
There are different types of cryptocurrency wallets, such as hosted wallets, hardware (cold) wallets, software (hot), and paper wallets. Hardware, software, and paper wallets are non-custodial wallets meaning you control the private keys. Hosted wallets, on the other hand, are custodial wallets.
Hosted or exchange wallets owe their popularity to their simplicity and ease of use. Hosted wallets are directly “hosted” on the exchange you bought your crypto. Most beginners use hosted wallets because they aren’t aware of other wallet types.
The crypto exchange usually retains your private key when using a hosted wallet. Since this information is stored and accessible online, it isn’t as secure and can be hacked.
Hosted wallets may have limitations in terms of what they can do. For example, it may hinder you from carrying out specific crypto transactions, like purchasing NFTs. On the plus side, you won’t have to worry even if you forget your password because exchanges offer tools to assist you in recovering your information.
These are physical devices known as “cold storage wallets” or “cold wallets.” They have a similar appearance to a USB stick. This device stores your private key, which you need to access your crypto assets on a blockchain.
A significant threat in crypto is cyber hacks, so most people consider hardware wallets the safest option to store cryptocurrency since it doesn’t have internet connectivity and exists as a physical device. So unless they gain their hands on the physical device, a hacker won’t be able to gain access to your crypto funds.
Video: If you are serious about Bitcoin and cryptocurrency security in general, you need to get a hardware wallet.
Software wallets are downloadable programs that you can install on your mobile, laptop/desktop, or access through a web extension. To access the coins you’ve saved in this wallet, you’ll need to enter a password.
Suppose you forget your password or your computer is broken or hacked. In that case, you may restore and retrieve your coins using the recovery phrase, just like with hardware wallets.
The main disadvantage of software wallets is that they still have internet connectivity, making them vulnerable to any malware or virus hiding in the background.
A paper wallet is a printed paper sheet with keys and QR codes on it that you may use to make crypto transactions easier. Paper wallets were once thought to be safer than other forms of crypto storage since they were not connected to the internet. However, hardware wallets are now considered the gold standard of cold storage wallets.
Choosing a crypto wallet depends on your familiarity with the crypto space and its intended use. A few things to consider when picking a crypto wallet include:
Security features differ across the different types of crypto wallets. If security is your highest priority, then go for a hardware wallet. However, even if you prefer a software wallet, you should double-check them before putting your money and trust in them.
- Cryptocurrencies supported
Some crypto wallets support many cryptocurrencies, while others have a smaller selection. Consider how frequently you’ll need to switch currencies, as it’ll help you determine the level of capabilities you’ll require.
If you are a heavy computer user, you should consider a desktop or a hardware wallet. But if you’re always on the go, mobile or browser-based wallets may be ideal.
Most crypto wallets are free, except for hardware wallets, since you’ll need to buy the device. The price of hardware wallets varies depending on the product and its features.
Software wallets are typically free, but some include the option of upgrading your security for a fee.
If you want to store your cryptocurrencies safely, you need a crypto wallet. Unfortunately, you’ll expose yourself to security breaches and risk losing all your hard-earned money without one.
Looking for an ideal wallet that gives you the accessibility you need while remaining secure? Then try CoinStats wallet, the all-in-one DeFi wallet.
The content in this post belongs to the respective owners. If you find anything otherwise — please feel free to write to us on email@example.com and we shall immediately take it up with the owners.