If you’re new to cryptocurrency trading, you’ve probably come across the term wallet. The term is used quite a lot even if you’re looking for altcoin news. It is important that you understand all the dynamics and the terms before you start trading.
What is a Cryptocurrency Wallet?
A cryptocurrency wallet can be defined as a program where public and private keys are stored and provides a platform for interaction with various blockchain that enables a user to send and receive variously cryptocurrency using secure channels. It will mandatory to have some sort of wallet if you intend to use bitcoin or any other cryptocurrency.
How a Cryptocurrency Wallet Works
Despite millions of people using crypto wallets, not a lot of people have an actual understanding of how they work. Compared to traditional wallets, digital wallets don’t store any currency. It should be noted that the currency is not stored in any location and doesn’t exist in a physical form.
The purpose of the wallet is to store your private and public keys. You’re able to monitor your balance, trade, send, and receive money and a lot more. In order to unlock the funds, the wallet should match the public key that it is assigned to. There will be no actual exchange of coins at any given point during a transaction.
Why are there Different Cryptocurrency Wallets?
There are different types of wallets in the market that provide different ways of storing and accessing your digital currency. Wallets can be broken down into three distinct categories and that is paper, software, and hardware. Software wallet could be mobile, desktop, and online.
Desktop: The wallet is usually installed on your PC. You can only access the wallet from a single computer in which the application was installed. Desktop offers security but you’re still vulnerable to hackers if you use the computer to access the internet.
Online: Such a wallet is cloud-based and you can access it from anywhere with an internet connection. Even though they provide convenient storage, they vulnerable to attack since the platform is controlled by a third-party.
Mobile: The mobile wallet could be an app on your phone and come in handy since they can be used in retail stores or any shop that accepts crypto as a form of payment.
Hardware: This is very different from software wallets as the user private and public keys are stored in a hardware device like a USB or a computer hard disk.
Even if the hardware wallet can be used to make transactions online, it is very safe because it is stored offline. They are compatible with tons of web interfaces and offer support for different currencies. Hardware wallet could be seen as an ideal choice for some people as it lets you conveniently transact while keeping the money offline.
Paper: Paper is a physical copy of your private and public keys. It could also be used to refer to a piece of software that is used in generating the keys. The process of using a paper wallet is relatively straightforward. The transfer of cryptocurrency is accomplished by moving it to your paper wallet through a printout.
How Safe are Cryptocurrency wallets?
The level of security can be said to be varying. Not all wallets are the same. This means the level of security will be different from one wallet to another. A web-based wallet will always be riskier compared to an offline alternative. Hackers are always looking for vulnerabilities in systems and your whole wallet could be susceptible once there is infiltration.
That is why diligent security measures need to be taken to ensure that digital wallets are safe at all times. It should be noted that losing the digital key will result in loss of money regardless of the wallet you’re using. This also the case when your wallet is hacked or you happen to send money to a hacker. There are some precautions you can take to ensure that your wallet is safe at all times.
Update Software: Software updates are done to patch up the security. You could be leaving yourself vulnerable to hackers if you fail to update the software.
Back up the wallet: Only store small amounts of currency online since you won’t be needing a lot of money most of the time. The vast majority of your funds should be kept in a high-security environment. The best solution would be an offline storage that is secured.