You should have known by now that you can’t fold up a crypto coin and put it in your wallet. And if you own or want to buy crypto for investment or because you want to spend online- you will require a crypto wallet. Before using it, What Is A Cryptocurrency Wallet?
By using a crypto wallet, you can keep your cryptocurrency safe while allowing you to make transactions. Now, this article ultimately helps you know what is a cryptocurrency wallet and here’s everything you should know about it!
What Is A Cryptocurrency Wallet?
By definition, crypto wallets store private keys to keep your cryptocurrency safe and make it easy to access you. The wallet helps to send, receive and spend cryptocurrencies.
But a crypto wallet is nothing like a regular wallet. You can reach for your wallet, open it up, and take out physical money or put money back into it in real life. But a wallet will not protect your money except in the rain.
However, a crypto wallet is different from the regular one. It is more like your identity when you Invest in any Cryptocurrency. So the address of the crypto wallet is based on how your buying or selling of crypto is recorded on a blockchain.
So, technically you don’t need a wallet when doing anything with your crypto coins. You can leave them or write down the address and passkeys of the wallet so that you don’t forget where you left them. Jokingly, this technique in the cryptocurrency world is referred to as a paper wallet, and it is the best way to make sure you never see your cryptocurrency again.
Moreover, it’s always better to be safe when dealing with this massive amount of money, so a software wallet is a good idea. Interestingly, you will get many options like some crypto exchanges to come with built-in wallets, which means you can do the transactions and store them from a single interface.
Hot Wallets And Cold Wallets
Both the mentioned types of walkers are examples of software wallets. The hot wallets or storage means the wallet is connected to the internet, so you can use it directly for transactions and even acquire new crypto in real-time.
However, cold storage is the opposite of hot storage. It is not connected to the internet, and its only role is to store your keys ( remember, I mentioned above- the private keys). This means it is a hardware wallet that can be a USB key that you can plug onto a computer, and it will grant you access to your exchange of choice.
A paper wallet is also a thing where you can technically write down your access code on a piece of paper- they are also a form of cold storage. But this isn’t exceptionally safe if you are the type of person who leaves pieces of paper all around the house.
When we are talking about keys, it’s essential to understand what public and private keys are. The public key is to identify the block of tokens, and the private key is to access them.
Hardware And Software Wallets
Though it’s straightforward to understand the difference between hardware and software in some instances, the distinction gets blurred. You can use the hardware wallet to get your hot storage, and you can use the software wallet to update the cold storage.
Aside from these offbeat cases, you can assume the software walkers are designed for hot storage and hardware walkers for cold storage. Cold storage is suitable for people looking to invest in a cryptocurrency in the hope of a significant payday somewhere in the future.
How Do Crypto Wallets Work?
A Blockchain is a public account book that stores the data in -blocks. These are like a record book of all your transactions, the balances you held on a given address, who has a key to those balances, etc.
As I said, technically, cryptos are not stored in a wallet. The cryptocurrency exists in a blockchain, and the wallet’s software will allow you to communicate with the balances present on that blockchain.
Some crypto walkers also have features like swapping between the tokens, holding up tokens for a fixed return, and accessing the decentralized application built on many networks. Every wallet has its fine distinctions, but here are some general steps that are followed for sending it receiving funds using a crypto wallet-
- For receiving funds, you have to retrieve an address called public key from your wallet. Search for the “generate address” feature in your wallet, click on it, copy the alphanumeric address or the QR code shown on the screen and share it with the person who wants to send you a crypto coin.
- Sending a coin requires a fee paid to miners in exchange for processing the transactions. For sending funds, you need the address of the receiving wallet. For this, on the “send” feature in your wallet, enter the address you want to send the coin and click on the “confirm” tab.
Boon And Bane Of Crypto Wallets
Boons of using crypto wallets are-
- Ownership of money- if you have your private keys, then crypto belongs to you as the money in the bank is technically the bank’s money.
- You will be able to send coins to whoever you like. The decentralized cryptocurrencies are generally censorship-resistant whenever you want so that no one can control the network, and thus no one can stop the transactions.
Some bane of using crypto wallets are-
- Responsibility- becoming your bank means you have to take 100% liability for anything that goes wrong.
- Learning Curve- for using a crypto wallet, a basic knowledge of computers is required for getting familiar with the new financial system.