What is a crypto-wallet?
A cryptocurrency wallet is a digital tool to store private and public keys that interacts with various blockchain, allowing users to send and receive digital currency and control their balance. If you wish to use Bitcoin or any other cryptocurrency, you need to have a digital wallet.
How does a digital wallet work?
Millions of people use wallets, but there is some confusion on how they work. Unlike regular “leather” wallets, digital crypto-wallets don’t contain currency. Actually, currencies aren’t stored anywhere, nor do they exist in any physical form. All there is and is protected in the wallet is the data and results of your transactions, recorded on the blockchain.
When someone sends you bitcoins or any other kind of digital currency, essentially, they are signing the ownership of the currencies off to the address of your wallet.
So, simply said, the wallet is kind of like your small corner of the blockchain to which only you can access and that holds the percentage of the cryptocurrencies you’ve earned in any way.
How do you send cryptos?
In order to receive the currency that, for example, a friend is sending you, the private key of your wallet has to match the public address to which your friend sent the crypto.
If the public and private keys correspond, the balance in your digital wallet will increase and the sender’s balance will decrease accordingly. To access your wallet and spend the currency, you will need to enter your private key into the wallet software.
Therefore, there is no actual exchange of real currency. The transfer simply results from the recording of the transaction on the blockchain and a change of balance in your wallet.
What kinds of crypto-wallets are there?
There are different types and formats of wallets that provide different ways of storing and accessing digital currency. Digital wallets can be divided into three categories: software, hardware and paper. Software wallets can be for desktop, mobile or online.
you download and install a desktop application on your computer. This type of wallet is only accessible from the specific computer on which it was installed and set up. Desktop wallets offer one of the highest levels of security, but if your computer is hacked or infected with a virus there is a strong chance that you will lose your cryptos.
also known as hot wallets, online wallets rely on the cloud and are accessible from any device at any location. Although they are the most convenient to use, they store your private keys online and they are controlled by the site or extension you rely on, making them more vulnerable to hacker attacks and theft.
you access this type of wallet from an app on your phone. They are practical because they can be used anywhere, even in shops, for instance. Smartphone wallets are usually much more compact and with fewer functionalities than desktop wallets because of the limited space available on a phone.
they differ from software wallets in that they allow a user’s private keys to be stored on a hardware device such as a USB flash drive. Although hardware wallets are still used for online transactions, they are kept offline, which provides better security. Hardware wallets are usually compatible with several web interfaces and support various currencies, it only depends on which one you decide to use. In addition, making a transaction is easy. Users can simply connect their device to any computer or other devices, insert a pin, send tokens and confirm. Hardware wallets make it easy to complete transactions while keeping your funds offline and out of harm’s way.
Easy to use and with a very high level of security. The term “paper wallet” can simply refer to a physical copy or print of the public and private keys, but also to software that is used to safely generate the pair of keys that are then printed. The use of a paper wallet is relatively simple. The transfer of Bitcoin or any other currency to your paper wallet is performed by transferring funds from your wallet software to the public address written on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you have to do is transfer funds from your paper wallet to your software wallet. This process, often called “sweeping“, can be done manually by inserting private keys or scanning the QR code on the paper wallet.