What is a Cryptocurrency Wallet?

A Cryptocurrency Wallet is like an e-wallet or electronic wallet, that is used to buy, sell as well as manage the cryptocurrency balance by storing its private and public keys. To trade in cryptos, you are required to have a cryptocurrency wallet, as there has to be some medium to manage your digital currency. So cryptocurrency wallets do the task for you.

Most of the cryptocurrencies have their own crypto wallets, whereas there are many, that prefer using a third-party cryptocurrency wallet. The wallets that are owned by a single cryptocurrency can only trade that particular currency in exchange with similar cryptocurrency or with the fiat money. But the third-party cryptocurrency wallets allow you to trade in multiple digital currencies, along with the fiat currency. But not all the multiple-currency wallets support all the digital currencies.

Cryptocurrencies, like Bitcoin, Etherium, and Litecoin, have their own wallets, named Bitcoin Core Wallet, MyEther Wallet, and Litecoin Core Wallet, respectively. Whereas, the Coinomi wallet is the example of the wallet that supports multiple cryptocurrencies.

Though you can also keep your digital currency on the exchange, doing so is not secure for your cryptocurrency, as these are more are vulnerable to hacks. So using a wallet for the cryptocurrency is always best for you.

How do Cryptocurrency Wallets Work?

We all know that the digital currency or the cryptocurrency does not have a physical existence. It is electronic and is managed electronically. So the cryptocurrency wallet is the one that enables the users to carry out all the electronic operations related to the cryptocurrency.

So how does it actually work?

There are several types of cryptocurrency wallets out there, and every wallet works in almost a similar way. The wallets are not supposed to store the cryptocurrency but enable the users to send and receive the digital currency through a Blockchain exchange. For that, the wallet stores a secure digital code and public secure code. This secure digital code is none other than the private key and the other, as the name suggests, is the public key.

While sending the cryptocurrency, over a Blockchain exchange, to another person, you are sending the ownership of that particular crypto to that particular recipient. The private key acts as the secure code you will use to access your bank account (for instance) and the public key will act like the account number related to that secure code. When you transfer the crypto, the recipient should have the private key of the exact match as of your public key, in order to get the ownership of the crypto.

Like an important password, your private key should be secret, such that you are safe from any kind of theft or hack. The wallet also monitors the budget and keeps the record of every transaction you made through it. So it is also a kind of your ledger that keeps all the data related to your every transaction.

Types of Cryptocurrency Wallets: The cryptocurrency wallets are categorised into two types and that includes:

• Hot Wallet
• Cold Wallet

Hot Wallet: Hot wallets are the ones that are connected to a network and make use of the online platforms. These wallets are very common among the crypto owners, and the wallet providers are responsible for the security of the cryptocurrencies. These wallets can be run on a web browser or downloaded as an app on a smartphone. But, it is never safe to keep a large amount of digital currency in a hot wallet as these are always connected to the internet and are at high risk for hacking.

Most of the times, the hot wallets are free. These are easy to use and provides quick access.

Cold Wallet: Cold wallets are safer, as these are entirely offline. These can be a software or an app, that you can run on your smartphone, desktop or keep it in a plugin hardware device, like a USB. Since these are kept at a particular place, these do not provide instant access. To make transactions through a cold wallet, one needs to push a button which is not approachable for the hackers. Hence it becomes more secure than the hot wallet. The wallet is further secured by a pin or a password, enhancing the safety of the private and the public key stored in it. But since these provide the maximum security, these are expensive too.

There are following five types of cold and hot cryptocurrency wallets:

1. Online Wallet: The online or web wallets are cold wallets. These wallets are the most convenient as these reside in the cloud and can be accessed with the help of an internet connection, independent of the place and device you are using. But these are more vulnerable to theft and hacks. So you need to make sure you use extra security for these wallets.
2. Mobile Wallet: The mobile application that you download to your smartphone, and use to keep your private and the public key, is the mobile wallet. These can be both hot and cold wallets. If you are using an internet-connected mobile wallet, the security vulnerability is the same as for the hot wallet. But, if it is a cold wallet, these mobile wallets are more secure. These are quite handy too, as you can use them even at the physical stores to make payments.
3. Desktop Wallet: These are the cold wallets that you need to download and install on your PC. These are safer but not that convenient, as you need to open your desktop and use the installation device to use it to make even a single transaction. These can be at risk if your system is attacked by a virus or malware.
4. Hardware Wallet: The hardware wallets make use of the plugin devices to store the private and public keys for a cryptocurrency. These are the cold wallets, but when connected to the internet can act as the cold wallet as these are also compatible with the web. You can make both online and offline transactions using these wallets. These provide the maximum security to the crypto owners from any hack attacks, as these are also secure from the desktop viruses as well.
5. Paper Wallet: The paper wallets literally store the private and the public keys on a paper and are the safest to use. But since most of the cryptocurrencies do not offer the paper wallets, these are not that popular. Technically, the copy of your cryptocurrency is printed on a paper in the form of a QR code. When you want to make a transaction, you need to scan this QR code. So despite being the safest, these are not as convenient as the other wallets.

Atomic Wallet, Bread Wallet, Mycelium, Exodus, Copay, are few of the most popular cryptocurrency wallets. Before opting for a cryptocurrency wallet, you need to go through thorough research based on your requirements.

Xornor Technologies is a leading crypto exchange development services provider in India. If you need to know more about cryptocurrency, crypto wallets as well as crypto exchange development services, feel free to contact us.