Introduction to Cryptocurrency wallet

Introduction to Crypto Wallets

A crypto wallet serves the same purpose as a physical wallet because it stores your valuable assets. You can put your cash in your wallet or your cards if you are the type who is very savvy, or both if you don’t like surprises. The same is true with a cryptocurrency wallet—you store your tokens in them so as to keep them easily accessible on the go. 

In the early days of cryptocurrency, sending tokens was a very tedious process. One would need to deliver long keys to whoever one wished to send them to. The case is different today, as recent wallets have made the Blockchain much more accessible and user-friendly. 

What is a Crypto Wallet 

A cryptocurrency wallet is any device, software, or material that holds and protects your private keys and allows you to access your coins.

A cryptocurrency wallet stores your cryptocurrency assets. However, it has a twist in that instead of storing your tokens directly, it keeps the private keys you use to authenticate your crypto transactions and provides an interface for transacting with your coins. 

This is because your cryptocurrency is always on the blockchain but is not accessible without a private key that validates that it belongs to you. It is also important to note that keeping your private keys is necessary because anyone with them can make fraudulent transactions using your address.

It is impossible to access your tokens without a private key and software that allows you to access the Blockchain. 

Categories of cryptocurrency wallets

There are two main categories of wallets: custodial wallets and non-custodial wallets.

  1. Custodial Wallet: Custodial wallets are wallets in which the owner does not bear the responsibility of protecting the private keys themselves. A third-party organization keeps the users’ private keys and protects them at all costs. 
  2. Non-custodial Wallet: These wallets require the user to take responsibility for securing their private keys. Hardware wallets, which typically fall into this category, are a typical example. 

These wallets can be further divided into two subcategories: Hot and Cold wallets. A Hot wallet connects to the Internet or is linked to a device with an Internet connection, while a Cold wallet does not. 

Types of cryptocurrency wallets

If you like simplicity or complexity, cryptocurrency wallets could range from easy-to-use applications to high-end solutions like hardware wallets.

You can choose from any of the three main types of wallets: 

  1. Paper Wallets: This is the most common way we store all our very important information. Writing them on a physical medium like a private journal or a piece of paper stored somewhere is the most reliable way to keep your private keys safe from fraudsters since it’s not in any way connected to the internet. However, the drawback of paper wallets is that the paper deteriorates with time, so you need to check them out constantly. In the case where this paper is missing, the individual who pwns the tokens will no longer be able to access them.
  2. Hardware wallets: These devices look similar to USB drives, and they usually cost between a hundred and two hundred dollars. These hardware devices are plugged into the computer or any other device to perform your cryptocurrency transaction without needing to enter any keys. This circumvents the ability of a hacker to gain access to the private keys. A few examples of hardware wallets are Ledger and Trezor

Hardware wallets - Cryptocurrency wallet
Image Source_ cryptocurrency.org.nz

  1. Software wallets: These are also regarded as online wallets. Private keys are kept safe in an app, making cryptocurrency transactions seamless and effective. Software wallets like Coinbase wallet, Trustwallet, Exodus, Electrum, Metamask and Mycelium are very effective and offer a blend of an easy user experience and security.

An effective software wallet will manage all cryptocurrency in a single, secure place. Many software wallets have added a feature that allows you to make payments by scanning a code. You can pay on the go by selecting the amount, authenticating with your private key, and sending it. The software wallet then deducts a very low transaction fee.

How to secure your crypto wallet

Crypto wallet security is important because cryptocurrencies are very valuable, and anyone with access to your private keys can make a successful transaction on your cryptocurrency account. 

A major security measure for software wallets, in addition to choosing a very strong password, is to use two-factor authentication for transacting and ensure that you don’t store large amounts of cryptocurrency online. 

Choosing the best Crypto wallet

The best wallet to use is the one you have researched properly. This means that you should take reviews from others seriously and be certain about your needs before choosing the type of wallet that can secure your keys.

It is important to note that nothing beats an offline wallet—a wallet without any connection to the internet. A good wallet will not stop you from accessing your funds because of any issue the custodian is facing. 

Why do some cryptocurrency wallets use seed words? 

If you are familiar with modern software wallets, you will notice that most use twelve unique seed words. These twelve random words link to the keys in the wallet. This phrase is important for restoring your wallet if you lose your phone or tablet or it develops a fault. That’s why storing these words in a safe place is very important. Anyone with access to them will also be able to access your cryptocurrency.

Final words on crypto wallets

  • Cryptocurrency wallets are tools that store private and public keys for managing and transacting with cryptocurrency assets. 
  • Private keys are important for safe blockchain transactions. 
  • Wallets are classified into two types: custodial (maintained by a third party) and non-custodial (controlled by the user). Non-custodial wallets can be hot (online) or cold (offline).
  • Paper wallets (safe but require maintenance), hardware wallets (physical devices for enhanced security), and software wallets (convenient, frequently with two-factor verification) are examples of wallet types. 
  • The best wallet depends on your demands; however, offline wallets are the safest. Some wallets employ seed words for wallet recovery. 
  • Strong passwords and keeping low quantities of tokens online are two security considerations.