When you register a cryptocurrency wallet, you receive a private key. The crypto wallet is this key.
The usual “wallet” as such does not exist in cryptocurrency, since coins are just encrypted information in the blockchain registry.
The holder of the wallet and everything inside it is the only person who has access to this private key.
How does it function?
In the 1970s and 1980s, mathematicians at Stanford and MIT made a series of discoveries that, for the first time in history, allowed ordinary people to encrypt messages so that even the most powerful supercomputers could not break them.
The new technology is called “public key cryptography”.
It requires the creation of both a public key, which acts as a form of address that can be openly distributed with everyone, and a related private key, which must be kept hidden, in order to encrypt data.
Only the holder of the private key will be able to access the money kept in the wallet because the two keys are connected mathematically.
Even the most powerful supercomputer cannot compute the private key from the public key due to the intricate mathematical equations used to determine the special link between the public and private keys.
! Important: many holders of Bitcoin and other altcoins do not actually own them.
This is true since they were never equipped with the software or encryption key needed to function as a network node (node) or a cold wallet for cryptocurrency storage.
Almost all cryptocurrency owners, past, present, and future, use apps and exchanges without even recognizing that it is only a service that enables them to transfer and store cryptocurrencies, claims Buidlbee.
The optimal wallet to choose and potential risks
Although there are many different types of wallets, their main difference is whether they are “hot” or “cold”:
- A hot wallet is always connected to the Internet and accessible.
- A cold wallet is not connected to the Internet and allows you to save your money offline. The assets can still be viewed at any time, but they can’t be transmitted.
Hot wallets are all online storage, exchanges, programs, and mobile applications.
Examples of cold wallets include paper wallets, USB drives, and other offline storage devices.
Most cryptocurrency users switch back and forth between cold and hot wallets. Hot wallets are more useful for everyday trade, whereas cold wallets are best for long-term cryptocurrency storage.
Types of crypto wallets
1. Paper wallets
Paper wallets are normally kept in cold storage.
A paper copy or printout of your keys is referred to as a “paper wallet” in this context. The technology is sometimes used to produce a key pair and a digitally printed file.
A reasonable amount of security can be provided via paper wallets. Just scan the QR code to transfer your money.
On the webpage or community page, you should be able to find guidelines on how to do so if your desired cryptocurrency can be kept in a paper wallet.
MyEtherWallet is a global tool for making a paper wallet for all ERC-20 tokens as well as Ethereum, the second most popular cryptocurrency after Bitcoin (Ethereum-based cryptocurrency tokens).
Use the Bitcoin Paper Wallet Generator to generate a paper wallet for bitcoin.
2. Cloud wallets
Cloud wallets are hot by nature. With a cloud wallet, you may manage your money from any PC, gadget, or location.
Although they retain information online and are controlled by third parties, they are incredibly convenient. They are therefore more vulnerable to theft and cyberattacks.
Cloud wallets that are popular:
3. Software wallets
You download and install software wallets on a smartphone or a computer. These purses are in style. Although they provide a high level of security, they cannot protect you from malware and hacks, therefore you must take all necessary precautions to avoid infection.
Although both options help you manage your money easily, mobile wallets are typically far simpler to use than hardware wallets.
Some software wallets allow you to simultaneously access your money on multiple platforms, including computers, cellphones, and even hardware wallets.
- SB Wallet
4. Hardware wallets
In contrast to software wallets, hardware wallets save your private data on an external disk, such as a USB. They are completely safe. They also have the choice to pay online.
Some hardware wallets are web-based and accept a variety of currencies. Because they are designed to make payments quick and simple, all you need to do to complete the transaction is access them from any online device, activate your wallet, transfer funds, and complete the transaction.
Using hardware wallets to store crypto is the safest option.
Widely used hardware wallets:
Purchasing a hardware wallet directly from the manufacturer is the safest course of action. It’s dangerous to buy it from other people, especially ones you don’t know. Even if you buy a hardware wallet directly from the manufacturer, keep in mind that you need always activate and reset it manually.
Generally, you have complete discretion over which wallet you use. Every genuine platform ought to have a wallet of its own, accessible via the website.
However, having a multi-currency wallet that allows you to store many cryptocurrencies at once may occasionally be more practical.