Are you looking to learn the basics of cryptocurrencies and blockchain technology, or are you planning to invest in the market for these assets? In that case, one of the first things you need to know is the cryptocurrency wallet. This guide provides all the information you need about a cryptocurrency wallet. This information includes how wallets work, different types and introduction of the best and most popular wallets available. Follow us with an overview of what you need to know about cryptocurrency wallets.
Before you start answering the question, "What is a cryptocurrency wallet?", Think about how you store your cash in the real world. You certainly do not hold them in your hand, do you? Instead, you'll probably need a leather wallet or any other type of wallet, or even a piggy bank.
Anyway, it is wise to save your money in a safe place where it is not likely to be lost or stolen. Cryptocurrency wallets follow exactly the same basic principles. However, in the digital world of cryptocurrencies and blockchain technology, the situation is slightly different.
Creating a cryptocurrency wallet, you will be able to send and receive various cryptocurrencies. So now that you have a basic understanding of what a cryptocurrency wallet is used for, we will explain in more depth how it works.
Coins are not stored in physical wallets because cryptocurrencies do not exist physically. Instead, the blockchain consists of trading records that specify the details of the private and public keys that control the currencies.
To ensure full understanding, we will explain the wallet address as well as the private and public keys, as these concepts are all interrelated.
The wallet address is like a bank account number. Giving a bank account number to another person is not a risk, because people will need it if they want to transfer money to you.
In the world of cryptocurrencies, if someone wants to transfer currency to you, you can easily give them your wallet address.
Of course, no two wallets have the same address, and the address of each wallet is unique. In addition, there is no limit to the number of wallet addresses a user can create and have.
For better understanding, we have provided a example of the address of a bitcoin wallet:
As you can see, an address is made up of a combination of numbers and letters. Because the blockchain structure is often transparent, it is easy to see how much balance a particular cryptocurrency wallet has and what transactions the owner has made. Note that the address of the cryptocurrency wallet does not indicate the true identity of its owner. That's why privacy is one of the most important and attractive features of the blockchain.
Have you ever noticed that the wallet address is very similar to the bank account number, so how does the owner control the funds?
Basically, each cryptocurrency wallet address has a unique private key and a public key.
The private key allows you to access funds related to the wallet address. While you will need the public key to get coins from others.
Suppose you want to transfer money from your bank account to someone else's bank account, in which case you must enter your private password. No one, not even the bank, has access to this code. Otherwise, if someone knows what the password is, they can send money from your bank account.
A private key does exactly the same thing and is specifically associated with a specific wallet address. This is while a public key is mathematically linked to your wallet address and is actually a "hashed version" of it.
A public key is a copy of a digital wallet private key by applying complex mathematical algorithms.
A hash function allows a sequence of letters and / or numbers (called "input") to be encrypted into a new set of letters and / or numbers (called "output"). This function creates a layer of security and ensures that your wallet cannot be hacked.
Pay attention to the example below:
Looking at these two phrases, you may realize that these two sets of keys are completely different. From a human point of view, yes, however, software technology knows that these two keys are specifically related.
Access to the private key proves that you own the wallet and its coins and allows you to transfer your funds whenever you want.
Since bitcoin and other cryptocurrencies are not physical money, they are stored digitally in the blockchain. Blockchain is like a huge accounting office that stores every transaction that has ever taken place in the system, as well as the total balance of accounts at each public address.
Each cryptocurrency wallet is directly linked to the blockchain, so it allows you to record transactions in its office. However, an encryption wallet is a protocol that generates your public and private keys. Without it, you can not access your real-world capital.
To better understand this relationship, think about walking into a store and paying for goods using a credit card. There is no physical exchange of money between you and the store. However, by entering your private PIN number, you confirm that you own the money so that they can transfer the funds from your account to the store account.
In a digital wallet, by entering your private key, you confirm that you own the coins and then you can transfer them to someone else. This is the only way coins can be transferred from person A to person B. There is no real exchange between physical coins. The transaction is done simply by registering the transaction in the blockchain and changing the balance in your encrypted currency wallet.
Note that the items described here are very technical. When you use cryptocurrency wallets, this software does everything for you, and in fact you do not really need to understand the technology behind these programs.
Cryptocurrency wallets are divided into different categories and choosing one of them depends more on your personal needs. Basically, different wallets offer different features such as more security, user-friendliness or ease of use.
Categories of cryptocurrency wallets include hot wallets and cold wallets:
Hot wallets are cryptocurrency storage platforms that are connected to the Internet. Hot wallet is one of the most common types of cryptocurrency because it is simple to install and easy to use. When you create an account at a cryptocurrency exchange, download a mobile wallet app, or install a desktop wallet on your laptop, you are actually creating a hot wallet.
If you regularly trade cryptocurrencies in exchange offices or use these assets for everyday payments, it is a good idea to store your cryptocurrency in a hot wallet. Since these types of wallets are connected to the Internet, you can perform cryptographic transactions seamlessly with a few clicks on your mobile phone or computer.
Hot wallet categories include desktop wallets, mobile wallets and web wallets, each of which is briefly described below.
Desktop wallets are loaded on a specific laptop or computer and can only be accessed from that particular device. Overall, these wallets offer a good combination of security and convenience. However, it should be noted that if a hacker can remotely control your device, he can access your wallet.
The most popular options available as desktop wallets are Exodus wallets and Atomic wallets.
A mobile wallet is almost like a desktop wallet because the wallet is loaded and installed directly on your device. You typically have access to your wallet by downloading and installing a mobile app that lets you spend your coins by scanning a QR code at physical stores that support cryptocurrency payments.
The most popular options available for mobile wallets are Trust wallet and Coinomi wallet.
Web wallets provide the most convenience for the user when sending coins, however they also have the least security. This is because the wallet service company usually has complete control over it.
For example, you can store your cryptocurrencies in an exchange. The exchange stores your coins on a central server, meaning that if hacked, the hacker can access all of your funds. For this reason, it is best to keep only a small number of coins in web encryption wallets if necessary.
Metamask wallet is one of the most popular wallets on the web, which also has the ability to sync with mobile applications and supports a wide range of cryptocurrencies. Blockchain Wallet is also known as one of the most secure web wallets with a long history in the field of cryptocurrencies.
Unlike hot wallets, cold wallets operate offline and are not connected to the Internet for storage. For this reason, these types of wallets are the safest and most secure way to store cryptocurrencies. Cold wallet users only connect their cold wallet to the Internet when making a transaction.
Hardware wallets and paper wallets are both cold wallet options. However, hardware wallets are more popular because they are easier to use and customer support is provided by their manufacturer.
In terms of security, there is no better option than a hardware wallet. This type of wallet is a physical device whose sole purpose is to store your private and public keys. This device will never connect to the Internet unless you need to transfer money. However, you enter your private PIN directly on the device, making it almost impossible for a hacker to access your keys. This means that even if your device is stolen, it will not be possible to see the keys until the device PIN is available.
The most popular hardware wallet options are the Ledger Nano X and Nano S wallets and the Treasure wallet.
Paper wallets are one of the least valuable types of wallets. All you have to do is print your private and public keys on a piece of paper. The keys are not connected to any server, meaning the only way one can access them is to have physical paper. If you need to transfer money, you can easily enter the keys into a software or web wallet, or just scan the QR code you typed.
Simply saying, a paper wallet is a term used to write public and private keys on a physical document. The main problem with this type of wallet is the possibility of physical damage and environmental impact. Paper wallets may be destroyed by theft or destruction and can never be recovered.
You can go to websites like bitaddress.org or bitcoinpaperwallet.com to make these types of wallets.
The main difference between hot and cold wallets is their internet connection. Hot wallets are connected to the Internet, while cold wallets are only connected to the Internet when transactions are made.
While cold wallets offer a superior security solution for cryptocurrencies, their main drawback is that they are almost impractical for everyday use of cryptocurrencies. Sending from a cold wallet is not easy compared to hot wallets.
Storing large amounts of digital assets in a hot wallet, such as a web wallet or mobile wallet, is not recommended as it exposes your assets to potential security threats such as cyber theft. Therefore, it is recommended that investors keep only a small amount of currency in hot wallets and consider cold storage spaces for their long-term investment.
Now that you know the different types of wallets and their features, the question that may come to your mind is their security. In general, no matter what kind of wallet you use, if someone has access to your private key, they will have access to your financial resources.
So obviously under no circumstances should you share your wallet private key with others, even the closest ones. However, the main question is what security measures are in place to prevent access to wallet's private key without informing the owner?
Any cryptocurrency wallet that connects to the Internet (for example, desktop, mobile or web wallets) will always be vulnerable. Because hackers can be very smart. They are always finding new ways to access other people's data, so you need to make sure you do your best to protect your private key.
Here are some examples of how hackers can access cryptocurrencies in Internet-connected wallets:
There are several ways to protect your assets from these threats. First of all, you should always make sure that your device uses the latest and most up-to-date software. By updating your software, you will always have the highest level of security.
It is also a good idea to set up extra security layers in the wallet. There are many cryptographic wallets that allow you to enable 2-factor authentication (2FA), which means that to access your wallet you must enter the code that is sent to your mobile phone or email address.
It is also a good idea to consider a wallet that has the ability to activate multi-signature capabilities. Basically, multi-signature capability means that in order to send money, the user has to confirm the transaction using two or more separate devices. That way, if one of your devices is lost, stolen or hacked, the offender will not be able to access your encrypted currency because they need another device or devices.
Finally, it is recommended that you backup your wallet from time to time. This will allow you to write down a backup password so that if something happens to your wallet, you can still access it.
By ensuring that all of the above security measures are followed, you can be sure that your cryptocurrency wallet is safe from hackers.
This is a very important question, the answer to which depends on the coins you want to keep.
Although Bitcoin is the most well-known and popular cryptocurrency, hundreds of new cryptocurrencies (called Altcoins) have emerged, each with distinct ecosystems and infrastructures.
If you only have bitcoins, you need to find a wallet that is compatible with bitcoins. However, what if you have both bitcoin and litecoin?
If you're interested in investing and maintaining a variety of cryptocurrencies, the good news is, you do not need to set up a separate wallet for each currency. Instead of using a wallet that supports a single currency, setting up a multi-currency wallet enables you to use a single wallet to store multiple currencies. These wallets allow users to store different cryptocurrencies on different blockchain in a single wallet, which is much easier than using several different wallets for each coin.
However, it all depends on what wallet you choose to support. For example, some of the tokens on the Ethereum blockchain are called ERC-20 tokens. So, if you have a variety of ERC-20 tokens, you can usually store them all in one wallet that supports Ethereum storage.
Note that if you send your coins to the wrong address or wallet that does not support their storage, in most cases you will lose your currencies and will not be able to recover them.
As mentioned earlier, the blockchain protocol is a pseudonym, not anonymous. This means that although your wallet address does not contain your name and identity, people can still access much of your other information. This information includes all previous transactions that were made by the wallet address, including the amount and other addresses related to the transaction.
However, this issue does not really matter. Because unless you give someone your real identity, it will be very difficult for them to know the owner of the address. Just remember, governments now legislate cryptocurrency exchanges.
This means that if you want to buy cryptocurrency using Fiat money, you have to provide your identification documents. So in the best case, the exchange knows that your identity is related to the wallet you sent it for.
By now you are expected to have a good understanding of the nature of the cryptocurrency wallet, how it works and its different types. In addition, you should know about how to protect your wallet against hackers, as well as information that you do not disclose when using it.
The last part of this guide is dedicated to introducing some of the best cryptocurrency wallets available. The list of options available as cryptocurrency wallets is growing and choosing one of them can be confusing. Answer the following questions first:
Answering these questions, you can choose the best wallet among the popular ones such as : Trust wallet, Coinomi, MetaMask, Atomic, Safepal,......
You can download and install these wallets completely free using GooglePlay, AppStore or using the official website of each.