What is a Cryptocurrency Wallet?
An integral and obvious necessity of any currency is the ability to spend, monitor, store, and receive it. Without these capabilities, you have no way to use your money.
Cryptocurrency wallets provide all of these capabilities.
As such, they are essential if you are to own any cryptocurrency. Before we take a look at the different types of wallet, let’s have a look at what each wallet will provide you with and how it interacts with the blockchain.
We have briefly mentioned public and private keys.
Your wallet will have both of these keys – the private one is known only to you and should always remain that way, whereas the public key is the “account number” attached to your transactions.
Whenever a transaction occurs, cryptocurrency is not actually being sent to your wallet.
Instead, the ownership of cryptocurrency is stored on the blockchain.
It is the matching of the public key and your private key that designates ownership.
This is why keeping your private key known only to you is incredibly important. If anyone were to acquire it, they could potentially take your cryptocurrency.
This concerning fact evidently brings security into question.
Unless you outright hand someone your private key, it will be very difficult for anyone to get their hands on it.
However, there are different types of digital wallets that have different levels of security. Using the best wallets will minimize the risk to your assets!
Different Types of Wallet
Online (Medium to High Risk) – These wallets are stored on the cloud meaning a third-party hosts your wallet so you can access it from anywhere. The risk of this is that the third-party could fall victim to various different attacks (e.g. DDOS, hacks). All those reports of cryptocurrency theft are because people keep their cryptocurrency on these! Don’t do it!
Mobile (Medium Risk) – A wallet that is run from your smartphone, typically of a smaller size but allows you to use cryptocurrency on the go. Not the safest, but not the worst.
Desktop (Medium to Low Risk) – The most common type of wallet, this is one you download and install onto your computer. It can only be accessed on that same computer. The risk of this wallet is if your computer gets a virus your wallet may be at risk. Remember to create a backup of it!
Hardware (Low Risk) – This is one of the safest ways to store your cryptocurrency. These wallets are essentially on a USB stick which can then be stored offline and away from harm. Simply plug in your USB stick into a computer and you will be able to access your wallet!
Paper (Cold Storage) (Very Low Risk) – You can escape any form of digital wallet via this wallet. There are various ways of accomplishing this, including simply printing out both private and public key, but all allow you to avoid storing anything digitally. This method is the biggest hassle – you don’t want to lose that piece of paper!