What is a Cryptocurrency Wallet? with Examples

What is a Cryptocurrency Wallet: Let’s see an Example You’re sitting at your favorite restaurant sharing a meal with one of your friends.

The waitress comes to the table and asks if the meal will be on one ticket or two, unfortunately, your buddy doesn’t have his physical wallet with him but you tell him he can send you over part of a bitcoin to your crypto wallet to cover his a portion of the meal.

He looks at you with a glare showing that he has no idea what a crypto wallet is you go on to explain that just like regular wallets crypto wallets let you share money just like cash but is way safer and much more permanent given they have become one of the most sought after systems in the crypto space the influx of various projects tokens and coins mean that users may have to use separate wallets to store their assets.

But he’s not the only one who doesn’t understand what these wallets are and how they work and with hundreds of these wallets available most new investors have had a hard time understanding them well in this article we are going to review not only the main the idea of cryptocurrency wallets but we’re going to go into how they actually work their types as well as some of the best ones to choose from.

What is a Cryptocurrency Wallet
What is a Cryptocurrency Wallet

What is a Cryptocurrency Wallet?

Wallet well in the most basic form crypto wallets are simple programs software or systems that enable the storage of public and private keys technically the private key is your password but we’ll get to that later the usage of these public and private keys allow the user to send receive and also monitor their assets.

Before we continue let’s talk a little a bit about private and public keys.

What are Private and Public keys

So whenever you have a wallet you actually have two keys there is a public key that you can share with your friends so that they can pay you. but there’s also a private key you do not want anyone else to have that private key.

So think about it like this your public key is actually also your address kind of like a PayPal email anyone with that public address can send you money just like if they had your PayPal email.

However, your private key is the password to your email if you share this with someone they can have complete and total access to your money.

Now with the public key, you can only receive transactions but with your private key, you can send them a wallet that stores both.

Let’s See an example of what each public and private key might look like now one

thing you need to know about different cryptos is that they have a different address structure.

So a bitcoin address will look a little bit different than an ethereum address which looks a little a bit different than a Cardano address.

The addresses that I’m showing have no money in them but the keys just seem to be a seemingly random mix of letters and numbers I just wanted to show you what they look like I’ll also say how public and private key work is a little complicated.

All that you need to know is that a wallet is simply a public key and a private key.

Types of Cryptocurrency Wallets?

Software Wallet

Now, these wallets are usually online-based exchanges like coinbase or binance are great examples of software or online-based wallet.

The public and private keys are stored on their servers and they let you access them through your account now it is important to know that they could technically spend your crypto because a private key or the password is on their servers.

Hardware wallet

So if you don’t trust your information with a company or being online in itself, you can actually opt into using a hardware wallet.

These wallets are basically USB sticks that store your public and private keys for you, you can unplug them, and then basically, no one has access to them.

But these wallets usually have a very secure process of getting into them for example the ledger live uses a 24 keyphrase system to enter into its system and there is no recovery process if you forget them.

For example, if you forget those 24 phrases your crypto is gone forever. but this is a double-sided sword though nobody is going to be hacking into your crypto unless they get access to the ledger and know the password to get into it.

One thing to know here is that these physical devices can start to get a little bit costly I actually bought mine for around $90 a few months ago.

Paper Wallet

So the last wallet you can use for crypto would be a paper wallet and this wallet would consist of your private and public keys and maybe QR codes that are used to facilitate cryptocurrency transactions.

Basically, your public and private keys are literally written down on paper you can think of this as using cash to debit cards.

Though one of the largest problems with this method is the ability to lose or destroy the piece of paper if on purpose or by accident.

Now, this is the most secure way to store your crypto but it’s also the least practical which means you should really only use this if you have a large sum of money that you want to protect but not access it very often because you’d be typing in that private key every time you want to make a transaction.

Are Crypto Wallets Secure?

So another thing you need to know about wallets is that we classify them into two categories hot and cold

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Hot Wallet

A hot wallet is one that is connected to the internet whether it’s through another company or your own computer and it can be accessed online or through an application.

Cold Wallet

A cold wallet on the other hand is one that has to be connected to a computer like the USB method or having it written down on paper we call these offline wallets.

So now that we know these two basic types we can discuss if they are secure if you’re using a hot wallet it’ll always be vulnerable to online attacks and hackers are always trying to find the best new way to access a system.

Once your private key is public you can practically say to your bitcoin goodbye

However, if you’re using a cold wallet the biggest vulnerability is either losing it or forgetting the passphrases.

It really depends on the applications For example if you’re mining crypto and you want to immediately send that

crypto somewhere you can use a wallet

like coinbase. but if you’re investing hundreds of thousands of dollars you may want to invest in a ledger live that way you can unplug the USB and ensure that no hackers can get access to your private keys.

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