What Are Cryptocurrency Wallets

This guide will cover all the things you should know about cryptocurrency wallets, how they function and which ones are the best and safest on the market.

So, What is a Cryptocurrency Wallet?

A wallet as we know is something that can help us to contain our money to carry around and keep it safe in one place, while still making it easily accessible to us when we need to make a transaction. Well, a cryptocurrency wallet works kinda in the same way, but it is a software program that stores private and public keys and interacts with different types of blockchain. This enables users to send and receive cryptocurrency and monitor their balance. If you ever wanted to obtain your first Bitcoin or any other cryptocurrency, you will need to have a cryptocurrency wallet.

How Does a Cryptocurrency Wallet Work?

Vast amounts of people use cryptocurrency wallets, but there is one major misunderstanding about their functioning. Unlike traditional wallets, cryptocurrency wallets do not store any currency. In reality, not any type of currency gets stored anywhere, and the only thing that exists are records of transactions that get stored on the blockchain.

These digital wallets are software programs that store private and public keys that belong to you, and they interfere with different blockchains so the user can monitor their balance, and conduct transactions. When a person would send you any type of blockchain currency, they are giving away their rights to that amount to your wallet’s address. If you want to access those funds and receive them in your wallet, you must have your private key match the public key that was assigned to that currency. If both of the keys match, the balance in your wallet will increase, but the balance in the sender’s wallet will accordingly decrease. The only proof of this transaction is a record stored on the blockchain and an increase or a decrease in your wallet.

Different Types of Cryptocurrency Wallets

There exist several types of cryptocurrency wallets. Each of them provides the user with a different way to access their digital currency. These wallets can be sorted into three categories – hardware, software, and paper. Software wallets can be mobile, desktop, or online.

Mobile: the wallets run on an app on your mobile device and are really useful because they can be easily carried around, accessible with your phone, and can be used anywhere. Compared to desktop wallets, mobile wallets are much smaller and simpler because of the limited space that is available on a phone.

Online: wallets run on the internet and can be accessed from any computer from anywhere in the world. They are more convenient to access and store your private and public keys. They are so convenient because they are controlled by a third party, but with that convenience, you are sacrificing security because they are more vulnerable to hackers and theft.

Desktop: these types of wallets are downloaded and installed on a laptop or PC. They can only be accessed from the computer that they are initially installed to. These types of wallets offer one of the highest levels of safety, but if your computer gets a virus or gets hacked there is a chance that you could lose all of your funds.

Hardware: wallets differ because they store private keys on an external device like a USB stick. Users are able to take actions online with these types of wallets, but after use, they are stored offline. This provides them with an increased level of safety and security. Depending on what hardware wallet you use, the web interfaces and currencies you will be able to access will differ. Making transactions with these wallets is also really easy which makes it a win-win situation for security and ease of use. To send currency with hardware wallets you need to plug it into a device that is connected to the internet, input the pin, send the amount of currency, and accept.

Paper: wallets are simple to use and provide the user with high levels of security. Paper wallets can refer to physical printouts of your private and public keys, but also can refer to software that securely generates keys and prints them out. Using a paper wallet is really simple. Transferring a cryptocurrency to your paper wallet is done by a transfer from a software wallet to the public address shown on your paper wallet. And the opposite for when you want to withdraw or spend your currency.

Are Cryptocurrency Wallets Secure

The level of security of the wallet depends on what type of wallet you use and the service provider. Storing your money online is always riskier than storing it offline. Online wallets can be exposed to many vulnerabilities which can be exploited by hackers. In the meantime, offline wallets are not affected by such vulnerabilities because they are stored offline and do not rely on a third party for security.

Using online wallets can be risky, but there can be precautions made and followed to make your wallet more secure. Good to remember that no matter what wallet you plan on using, losing your keys will lead you to lose all access to your wallet and lose all of your money. And if your wallet gets hacked there is also no way of retrieving your funds. To be safe you should take these precautions:

Backing up your wallet. Keep only small amounts of currency online whilst keeping most of it in cold or offline wallets in a high-security environment. Transferring your fund to offline wallets will protect you from computer failures and allow you to recover your wallet if it were to be stolen or lost. But at any time when your funds are stored online, they oppose the risk of being targeted by hackers. There is no way of avoiding that.

Using updated software. Keeping your software always up to date is a good idea for any type of security measure because it provides you with the latest security fixes and makes you less vulnerable to past methods of hacking.

Extra layers of security. The more secure, the better. Having long and complex passwords is always a good idea when you want to protect something important. Also ensuring that any type of transaction requires that password. Only use wallets that have a good reputation and can provide you with high levels of security, like two-factor authentication and pin code requirements.

Single-Use or Multi-currency

With new cryptocurrencies emerging every day it could be troublesome to get your hands into all of them, but the good news for the people that plan on doing that, you do not need to set up a new wallet for each currency, but instead, you can create a cryptocurrency wallet that supports multiple types of currencies. This will allow you to use multiple types of cryptocurrencies from a single wallet.

Are Transaction Fees Imposed

There is no simple answer here. Fees may vary on what you want to achieve. Fees will sometimes be needed to be paid to network miners as a processing fee, whilst some transactions will not have a fee at all. It is possible to set fees yourself. In some cases, if your fee is set too low, your transaction might get low priority and would take longer than other transactions with larger fees to go through. So if you want your transaction to go through fast, you will need to pay larger fees. But in the end, you should not worry about fees that much, because you will be either small amounts, set your own fees, or completely avoid paying any fees.

Are Cryptocurrency Wallets Hidden

Cryptocurrency wallets are pseudonymous, they are not tied to the identity of the user. All the transactions are stored on the blockchain. Your living location will not be shown, but data like your wallet address can be used to trace your identity. There are multiple ways how to get full anonymity, but there are downsides to that as well, like lack of trust.