A crypto wallet can be described as a software program which stores both private as well as public keys and interacts with different blockchain platforms to allow users send and receive digital currency and check their balances. For you to use, send or receive any cryptocurrency you will need a digital wallet.
How Wallets Work
Digital wallets do not work the same way as traditional ‘pocket’ wallets. While traditional pocket wallets store money, the digital ones do not. As a matter of fact, no digital currency exists physically and, as such, they cannot be physically stored in one location. Wallets store records of transactions that are stored in blockchain platforms. Wallets are used to monitor balances and make transactions.
To start with digital wallets store both private and public key. Private keys can be equated to your bank PIN number that you need to access your money in an ATM while the public keys are similar to your bank account number. After sending Bitcoin or any other cryptocurrency, you send a value that is in form of a transaction, meaning you transfer the ownership of the coin to the recipient. For the recipient to use the new coins received, their private keys must be in tandem with the public address that the coins were sent to.
Types of Wallets
There are various types of wallets that offer divergent ways of storing and accessing your digital currency. However, they can be divided into three main categories:
These are devices which serve as wallets for different cryptocurrencies. These wallets are cold storage meaning that they are offline. They are said to be the most secure way of storing your coins and at the same time easily accessible. Examples of hardware wallets include Ledger Nano-S, KeepKey, Trezor, and Bitbox.
They come in different forms starting with desktop wallets which are installed in laptops or computers. Desktop wallets can be used without the need of the internet. The other form of software wallets is mobile wallets which are used with mobile devices like smartphones which are also downloaded. Since they require the use of QR codes, they are relatively safe. The last type of software wallets is online wallets. This requires connection to the internet and a third party gives you permission to use their software using the cloud. They are also known as cloud wallets.
Also referred to as paper wallets. These are wallets which are undigitized and use papers to keep your wallets. You will need to print out the generated private and public keys and lock them up in a safe or keep them in a secure place.
How to Secure your Wallet
Ownership of the private keys offers a person total control of the coins associated with the corresponding public keys. For this reason, it is important to keep the private keys a secret just like the PIN of your card. If another person knows your private keys they will take control of the coins that you hold.
Having a backup of the private keys is also important as losing them means a loss of the coins that you hold.