Cryptocurrency Finance

Understanding the Importance of Cryptocurrency Wallets in Blockchain Technology!

Importance of Cryptocurrency Wallets

With the skyrocketing value of cryptocurrencies is resulting in a stir, this has lead to increasing demand for Blockchain wallets every single day. The study from Statistica shows that over 36 million crypto wallets were created so far. This positive trend has continued throughout the extended market and has upscaled in recent weeks. 

Cryptocurrency Wallets

What are Cryptocurrency Wallets?

Cryptocurrency Wallets is a software program that allows the users to store, use or buy the cryptocurrencies. As we all know, cryptocurrencies make use of encryption techniques to perform the transactions. To make it a secure transaction, Blockchain Technology has implemented Private and Public keys for the users. 

A Public Key is similar to an individual’s bank account. While Private Keys represents a secret PIN/Password for that bank account. A Cryptocurrency Wallet will hold these keys using which cryptocurrency transactions take place. These wallets display the total amount of cryptocurrencies in the user’s wallet and thus people can monitor their respective balance amounts. 

Working of Cryptocurrency Wallets

A Crypto Wallet usually will contain a wallet address similar to a bank account number. There is no harm in giving the bank account number to transfer your funds. Similarly in the space of cryptocurrency, if you are looking to transfer your coins or tokens, you should give them your wallet address. 

These addresses will have a Hexadecimal format similar to this:

2HGT5rGKh89JOIkl90qmjYHlxc134rQHJ78Po

Each Cryptocurrency Wallet address will have a unique Private Key and Public Key. A Private Key will allow the users to access the funds with the respective crypto wallet address. 

To put it in simple words, consider you want to transfer your funds from your account to another person. To do so, you need to enter your password for transferring. The Crypto Private Keys are similar to this, where you are the only person who knows them.

On the other hand, Public keys are the ones that are automatically linked to the crypto wallet address. 

Wondering how? This is done using the Hashed version. A hashed format is a one that allows the sequence of letters and numbers as an input which will be encrypted. The output of this encrypted version is called the Public Key. 

To make it simple, let us see an example:

          Public Keys: 99Yugujf775YKHKio9078hjkWQ

Private Keys: 1W1YkqIOG7857UP67hvhwmklr2568YTRVnvxq

These two keys may differ as two separate keys to the human eyes, but not to Blockchain Technology. This is how these two keys are linked to each other.

When someone wants to send the cryptocurrency to others, the receiver must have the private key which matches the public address of the sender. When both these keys match, the transaction takes place.

Types of Cryptocurrency Wallets

Crypto wallets generally are of two types: Hot and Cold Wallets. The primary difference between both of them is Hot wallets are Online wallets that work only when connected to the Internet. On the other hand, in Cold Wallets data’s can be accessed even in offline mode. These wallets are further divided into the following types:

  • Desktop Wallets

These are the Hot wallets that are installed on the Desktops similar to the software. Unless it is connected to the Internet, it can also act as Cold Wallet. But the risk here is, there are chances that they will get affected by virus or malware. Therefore, it is recommended to install an Anti-Virus program to get rid of these issues. 

Advantages of Desktop Wallets include:

  1. They are pretty good unless connected to the Internet.
  2. Private keys aren’t stored in any third-party server.

Disadvantages of Desktop Wallets include:

  1. Failing to back up the system can result in losing your crypto assets.
  2. There are chances that hacking can happen if connected to the Internet.

Popular Examples

  • Electrum
  • Armory Copay

Bitcoin Core

  • Mobile Wallets

Mobile Wallets are the Hot wallets which can be easily downloaded in the Android and iOS devices. Since they can be used in mobiles, users can easily and simply use them than the Desktop Wallets.

Advantages of Mobile Wallets include:

  1. Safer than other online wallets.
  2. Convenient usage.
  3. QR code scanning.

Disadvantages of Mobile Wallets include:

  1. Risk of losing crypto assets if the phone is lost or damaged.
  2. Risk of mobile viruses and malware.

Popular Examples

  • Coinomi
  • GreenAddress
  • Mycelium
  • Web Wallets

Web Wallets or Online Wallets are the most popular online platforms which are designed for cryptocurrency transactions. They can be accessed by popular web browsers like Google Chrome, Mozilla Firefox, etc. 

Thus, as long as you remain connected with the Internet, you can make instant transactions and payments. The thing here is, the online wallet provider stores your private keys on their server. Initially, they will send a cryptocurrency code as a form of verification. Then, they will store your private keys and would provide access to your keys. 

Advantages of Web Wallets include:

  1. Instant Transactions.
  2. Easily manage various currencies.
  3. User-friendly interface which facilitates trading.

Disadvantages of Mobile Wallets include:

  1. Risks of hacking and scams.
  2. Remember a third-party is storing your private keys.

Popular Examples

  • Coinbase
  • Binance
  • Bitrex
  • Paper Wallets

Paper wallets are the form of cold wallets that have a physical copy of the public and private key. It also refers to the printed copy of the public and private keys through the software. One can send funds by transferring the money to the wallet’s public address. To withdraw the currencies, one should enter the private keys or by scanning the QR code on the paper wallet.

Advantages of Paper Wallets include:

  1. It cannot be hacked easily.
  2. No intervention of third-party server, computer or mobile.

  Disadvantages of Mobile Wallets include:

  1. Lack of UX.
  2. They can be damaged easily.
  • Hardware wallets

As the name suggests, these are the wallets represent physical devices such as USB which stores the cryptocurrencies. One can still able to make online transactions. But since they are offline, we can consider them as Cold Wallets.

Advantages of Hardware Wallets include:

  1. They are more secure since they aren’t prone to online attacks and scams. 
  2. A good option to store multiple cryptocurrencies.

Disadvantages of Hardware Wallets include:

  1. High-priced Wallet compared to others.
  2. Lack of user-friendly features.

Choosing the right Cryptocurrency Wallets

Every single cryptocurrency wallet will be responsible to store & retrieve the crypto assets, monitor their balances, check for the history of transactions, etc. Therefore, most of the Fintech solutions will start to launch this type of crypto wallets with high-security. Here are the features which crypto traders are actually looking for:

  •  Completely Offline Wallets

Although Online wallets are more convenient with usage, they store private keys which are controlled by Third-parties. This can be an easy task for hackers to access the wallets.

While in the case of offline wallets, the private keys are not stored in the cloud or any third-party application. Rather, it securely encrypts the private keys on their own devices. 

In view of convenience, Online Wallets can be preferred. On the other hand, in case of security, Offline wallets can stay ahead. 

  • Multi-Currency Crypto Wallets

Even the most popular wallets fail to support various cryptocurrencies. Bitcoin and Ethereum are well-known currencies. But the thing is, traders are actually looking to store other Altcoins in their wallets. 

In such a case, you can go with Multi-currency wallets which can help you to store diverse cryptocurrencies. Yes, a single wallet that stores various currencies.

  • Multi-Platform Wallets

Traders love to have a wallet that is well-supported across various devices and platforms. Online Wallets usually support this feature by making it accessible across Windows, iOS, Android devices, etc. Offline wallets can also be made cross-platform supported if developers build different operating systems supporting this feature.

If you look for one such cross-platform support, you can choose this kind of wallet to store your cryptocurrencies. 

Safety precautions to secure the crypto wallets

Once you have your wallet in your pockets, it is the time to secure them with safety measures. Therefore most of the Cryptocurrency Exchange recommends the following precautions to their customers. Here are the ways to safeguard them properly:

  • Have a habit of backing up your wallet on a regular basis

This can protect the crypto wallet from any issues or malware in the system. This can, in turn, help you to retrieve your funds in case they are lost.

  • Frequent Updation

It is crucial to keep the wallets up to date such that all recent security features are integrated into them. Similarly, one should also update OS and other such software to get rid of issues.

  • Adding extra security layers

This means that you can regularly change your passwords. Additionally, it is advisable to maintain different passwords for Logging in and withdrawal. For higher security, you can turn on a 2-factor authentication feature as well!

Wrap Up

There are no wonders that cryptocurrencies will still remain to be top the headlines without any doubts. With the widespread adoption of cryptocurrencies, the usage of crypto wallets will still surge up! In the future years, we can expect cryptocurrency wallets for our daily usage undoubtedly!

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