cryptocurrency wallet

A simple step-by-step guide to What is Cryptocurrency Wallet

You store your fiat money in your wallet. But how do you store a virtual currency like bitcoin? Of course, you don’t store in your physical wallet. So where do you store? Yes, it’s a cryptocurrency wallet.

But what is a cryptocurrency wallet and how does it work? Let’s find it out now.

What is a Cryptocurrency Wallet?

what is cryptocurrency wallet
Cryptocurrency Wallet

Cryptocurrency and bitcoin are one of the booming fields everybody is talking about. When a person buys a cryptocurrency he/she needs a cryptocurrency wallet to store it. It can be defined as follows:

A cryptocurrency wallet is a software application that interacts with all the blockchians of different cryptocurrency, in order to send and receive cryptocurrencies and monitor the balance.

How does cryptocurrency wallet works?

In a physical wallet, all the money is stored in it. Many peoples having cryptocurrency wallet thinks that all the cryptocurrency is stored in that wallet.

But in the realtime scenario, cryptocurrency is not stored at any place. All cryptocurrency that exists are records of transactions stored on the blockchain.

  • Imagine that Alice has 5 bitcoins.
  • Bob needs help from Alice to buy a car.
  • So Alice sends Bob 1 bitcoin.
  • The only thing that cryptocurrency does it calculate how much bitcoins are left with you, it doesn’t store the bitcoins.
  • So now Alice has 4 bitcoins.

This is the simple working of a cryptocurrency wallet. But if it is not stored in a cryptocurrency wallet then where is cryptocurrency stored. Let’s find it out.

Where are Cryptocurrency stored?

Actually, there is no answer to it. In the case of bitcoin, it is not stored anywhere. Neither on blockchain nor in a cryptocurrency wallet.

Contrastingly in the case of Ethereum, it’s more like a bank. Ethereum blockchain stores the balance of all accounts just like a bank.

What are Public and Private Keys?

The public and private keys both ensures that the transactions are done to the correct person.

Public Key

Public key
Public key
  • It’s like your nickname.
  • It helps others to identify that it is you but it does not give any other sensitive information such as your name or your address.
  • It is necessary for others to know your public key so that they can check whether the transactions are authentic or not.

Private Key

Private key
Private key
  • It is like a password of your account.
  • It is used to prove that you are the legit owner of your account.
  • If you reveal your password to anyone, he/she will have total control over the account and can do anything with your account.

Warning : Never ever share you Private key and passwords to anyone. Absoloutely no one, even your girlfriend/boyfriend or wife.

Types of Cryptocurrency wallet

Now that we know what cryptocurrency wallet actually is let’s have a look at the types of wallets. The cryptocurrency wallet is of two types software and hardware wallets. Let’s deep dive into the types of wallets.

Hot Wallets

It is also referred to as Software Wallets. This is constantly connected to the Internet hence the name hot wallet. This type of wallets are:

  • Easy to access.
  • User-friendly.
  • Usually free.
  • More vulnerable to hacks.

It is divided into 3 categories as follows

Desktop Wallets

desktop-wallet
Exodus desktop-wallet
  • Software is installed on a computer and can be accessed from the computer only.
  • If your computer is hacked you will lose all your funds.
  • Examples: Exodus, Jaxx, etc.

Mobile wallets

mobile-wallet
Coinbase Mobile Wallet
  • It is the application that is installed on your phone.
  • If your phone is hacked or stolen you will lose all your money.
  • Example: Jaxx, Coinbase, etc.

Web Wallets

web-wallet
Credits: CoinDCX
  • It can be accessed by browsers.
  • You may lose your funds if your phone or desktop where you are browsing is hacked.
  • Example: Coinbase, Coindcx, etc.

Cold Wallets

It stores private keys offline. It is more secure than the hot wallet. This type of wallets are:

  • More Secured
  • Expensive

It is divided into 2 categories as follows

Hardware Wallets

hardware-walllet
Credits: Ledger Nano X
  • It stores public key and private keys and transactions offline in a device.
  • They are connected to the computer via USB cable.
  • The device asks for Pin code during login.
  • In order to approve a transaction, you need to click on a hardware button.
  • Many Cryptocurrencies are supported.
  • Example: Ledger, Trezor, etc.

Paper Wallet

paper-wallet
Credits: walletgenerator.net
  • It is simply a piece of paper that has a copy of the private and public key printed or written on it.
  • Provide a high level of security.
  • It needs a software wallet in order to access the account and initiate the transactions.

We recommend you to use a hardware wallet as its the most secured cryptocurrecny wallet.

Which Wallet to Choose?

We now know that what is cryptocurrency wallet. The best wallet is a hardware wallet. But it is expensive we have simple criteria for you to choose the best wallet for you.

  • If you invest in cryptocurrency less than $1000 than software and paper wallets are best for you.
  • If you have your budget between $1000 – $10000 or above we would recommend you to immediately order a hardware wallet.

According to us, Ledger Nano X is the best hardware wallet for you. You can also try some other hardware wallets such as Trezor.

Summary

  • A cryptocurrency wallet is a software program that helps you to send and receive cryptocurrency and monitor the balance.
  • It contains Public and Private Keys.
  • There are 2 types of wallets: Cold and Hot wallet.
  • Cold wallet stores public and private key offline. It is divided into paper and hardware wallets.
  • Hot wallet stores public and private keys online. It is divided into Desktop, Mobile and Web wallets.
  • A hardware wallet is the best wallet.

About the author

Wikicrypto45

I am Vijay Dangi, a Cryptocurrency, and Blockchain enthusiastic from India. I became interested in Cryptocurrency and Blockchain Technology in 2017 when I came across the powerful security of blockchain while browsing Youtube. I was very inspired and keen to invest in Bitcoin at the same time. But rules and regulations in India didn't allow me to do that. So I started a blog to follow my passion for Cryptocurrency and Blockchain Technology.

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1 Comment

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