Anyone who wants to have any kind of cryptocurrency will need to have a cryptocurrency wallet and know how to set up one, otherwise, you can't own any. This article will teach you how cryptocurrency wallets work, what are wallet types and what is the meaning of cryptocurrency wallets. Also, you can read our other article about wallets in cryptocurrency where we went through some of the most popular wallets and how secure the wallets are - "How safe and secure are cryptocurrency wallets?".
So what is cryptocurrency wallet?
Cryptocurrency wallets are software programs that give you access to the cryptocurrency such as Bitcoin, Ethereum or Ripple - any of them that you own. It is just like a bank account that allows you to store receive send or spend digital money. As mentioned before - If you want to trade, or just have cryptocurrency, you must need to have a wallet account.There are 5 types of cryptocurrency wallets which are:
- Desktop wallet
Desktop wallets are installed on a computer, which is easy to do. They are available on Windows, Linux, and Mac.
Desktop wallets are very secure if a software is not connected to the internet, because the access is available only from the machine on which the wallet is installed. The disadvantage is that they also rely on you to keep your computer secure and free of malware so antivirus and strong firewall software are needed to protect your wallet.
Note: It’s important to store cryptocurrency somewhere safe in case your computer dies or you need to format the operating system and re-install your desktop wallet.
- Online wallet
Online wallets are most often owned by exchanges or by third-party organizations. They run on the cloud and very easy to set up and use. Sometimes they only ask an email and password, but most secure ones require your passport ID.
Online wallets can be accessed by any computer and anywhere and they cannot be lost, however, being online is very risky, because it can be a great target for hackers - like why to attack only one wallet when you can attack thousands of them at once? But business keeping online wallets often have servers that are far more secure than the average user’s computer.
You need to be careful choosing the right online wallet because many online wallets ask fees for all of your transitions you make. Choose the less expensive and the most secure!
- Smartphone wallet
Smartphone wallets are almost like desktop wallets, but they are running as an app on smartphones. Also like desktop wallets - very secure because the access is available only from the machine on which the wallet is installed. The disadvantage is that they also rely on you to keep your computer secure and free of malware so antivirus and strong firewall software are needed to protect your wallet.
You need to very careful with your phone using this kind of wallet because if you lose the device, anyone who finds it - gets the wallet.
- Hardware wallet
Both hardware and smartphone wallets are very similar to desktop wallets, but hardware wallet is specially designed piece of hardware or USB stick that adds another layer of security. Like USB stick - you can plug it in any computer, then access the wallet and unplug it.
Also very similar to desktop wallets, hardware wallets add another layer of security by keeping the private key on a USB stick or specially designed piece of hardware. Apart from added security, hardware wallets allow the user to plug the USB stick into any computer, log in, transact and unplug. Also, keep the device very safe and back it up regularly to have a way to recover the contents in the event of failure.
- Paper wallet
If you want the highest level of security, then this is the wallet you want, but keep in mind that this type of wallet is the most complex one.
Paper wallet uses offline private and public keys by printing them out and those printouts you can use as a wallet. These wallets will need either a key generator or a software wallet to work.
If you want to transfer money to a paper wallet, you have to use a software wallet to send money to the public key printed on the sheet of paper, but if you want to transfer money from paper wallet to a different type of wallet, you will need to transfer to software wallet and then transfer money from the software wallet to the recipient as usual.
How do Cryptocurrency wallets work?
Your wallet connects and analyzes the blockchain (you can read what is blockchain - Blockchain explained - why you should care), which allows you to receive and transfer money to and from other users of that blockchain and check your coin balance. Digital money does not have any physical form, it only has records of transactions stored on the blockchain.
When someone sends you any type of digital currency, they are signing off ownership of the coins to your wallet’s address.
To spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the senders will decrease accordingly.
Sources:
https://ripplecoinnews.com/top-5-best-cryptocurrency-wallets
https://en.wikipedia.org/wiki/Cryptocurrency_wallet
https://blockgeeks.com/guides/cryptocurrency-wallet-guide/
https://www.finder.com/cryptocurrency/wallets
https://hackernoon.com/an-introduction-to-cryptocurrency-wallets-288629d879a4
Desktop wallets are very secure if a software is not connected to the internet, because the access is available only from the machine on which the wallet is installed. The disadvantage is that they also rely on you to keep your computer secure and free of malware so antivirus and strong firewall software are needed to protect your wallet.
Note: It’s important to store cryptocurrency somewhere safe in case your computer dies or you need to format the operating system and re-install your desktop wallet.
- Online wallet
Online wallets are most often owned by exchanges or by third-party organizations. They run on the cloud and very easy to set up and use. Sometimes they only ask an email and password, but most secure ones require your passport ID.
Online wallets can be accessed by any computer and anywhere and they cannot be lost, however, being online is very risky, because it can be a great target for hackers - like why to attack only one wallet when you can attack thousands of them at once? But business keeping online wallets often have servers that are far more secure than the average user’s computer.
You need to be careful choosing the right online wallet because many online wallets ask fees for all of your transitions you make. Choose the less expensive and the most secure!
- Smartphone wallet
Smartphone wallets are almost like desktop wallets, but they are running as an app on smartphones. Also like desktop wallets - very secure because the access is available only from the machine on which the wallet is installed. The disadvantage is that they also rely on you to keep your computer secure and free of malware so antivirus and strong firewall software are needed to protect your wallet.
You need to very careful with your phone using this kind of wallet because if you lose the device, anyone who finds it - gets the wallet.
- Hardware wallet
Both hardware and smartphone wallets are very similar to desktop wallets, but hardware wallet is specially designed piece of hardware or USB stick that adds another layer of security. Like USB stick - you can plug it in any computer, then access the wallet and unplug it.
Also very similar to desktop wallets, hardware wallets add another layer of security by keeping the private key on a USB stick or specially designed piece of hardware. Apart from added security, hardware wallets allow the user to plug the USB stick into any computer, log in, transact and unplug. Also, keep the device very safe and back it up regularly to have a way to recover the contents in the event of failure.
- Paper wallet
If you want the highest level of security, then this is the wallet you want, but keep in mind that this type of wallet is the most complex one.
Paper wallet uses offline private and public keys by printing them out and those printouts you can use as a wallet. These wallets will need either a key generator or a software wallet to work.
If you want to transfer money to a paper wallet, you have to use a software wallet to send money to the public key printed on the sheet of paper, but if you want to transfer money from paper wallet to a different type of wallet, you will need to transfer to software wallet and then transfer money from the software wallet to the recipient as usual.
How do Cryptocurrency wallets work?
Your wallet connects and analyzes the blockchain (you can read what is blockchain - Blockchain explained - why you should care), which allows you to receive and transfer money to and from other users of that blockchain and check your coin balance. Digital money does not have any physical form, it only has records of transactions stored on the blockchain.When someone sends you any type of digital currency, they are signing off ownership of the coins to your wallet’s address.
To spend those coins and unlock the funds, the private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the senders will decrease accordingly.
Sources:
https://ripplecoinnews.com/top-5-best-cryptocurrency-wallets
https://en.wikipedia.org/wiki/Cryptocurrency_wallet
https://blockgeeks.com/guides/cryptocurrency-wallet-guide/
https://www.finder.com/cryptocurrency/wallets
https://hackernoon.com/an-introduction-to-cryptocurrency-wallets-288629d879a4
3 comments:
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