What Are Crypto Wallets
What Are Crypto Wallets
Everything You Need to Know About Crypto Wallets
I’d like to address a topic we are all familiar with but have questions about how it works and is protected: Crypto Wallets. Where do we keep our digital assets like coins or NFTs? How do we do transactions? It’s all thanks to our crypto “wallets.” So, how do these wallets work?
What Are Crypto Wallets?
Briefly, crypto wallets keep your cryptocurrency safe and accessible while storing your public and private keys. But, I have to say that these wallets are not actual wallets. Your crypto tokens are not stored in your crypto wallet. Instead, they control the private keys that provide you the ability to conduct transactions as well as read the public ledger to show you the balances in your addresses. Thanks to crypto wallets, cryptocurrency transfers can be made through the blockchain.
Crypto wallets are enabling the sending and receiving of digital currencies such as Bitcoin and Ethereum. Some wallets even permit users to carry out certain operations with their cryptocurrency assets, such as purchasing and selling or utilizing decentralized applications (dApps).
Sure, there are several types of crypto wallets including physical devices, software, and even paper.
First, I should mention private and public keys. After that, we can mention the types of crypto wallets.
What Are Public and Private Keys?
Private Keys
Similar to a password, a private key is a secret alphanumeric value that is used in cryptography. Private keys are also employed in cryptocurrencies to validate ownership of blockchain addresses and sign transactions.
An essential component of bitcoin and other cryptocurrencies, a private key's security features guard against loss and illegal access to cash.
Remember that if someone succeeds to obtain your private key, they will also have access to your Bitcoin holdings, posing a risk to your cryptocurrency. The same is true if you misplace your private key; if you can't get to it for whatever reason, you probably won't be able to get to your coins.
For example, an actual private key may look like this, combining letters and numbers:0xy86u09f28de778fe1676172r44kcd90831u81esj12fjdf851f29d0f0542b5y5f6
Public Keys
Users can receive cryptocurrency into their accounts using a public key, which is a cryptographic code. The tools needed for your cryptocurrency are the public key and the private key.
It’s linked to the holder’s private key, which is needed to “unlock” the public key.
Let’s take another example; your mailing address can be your public key, and many people have access to that information and can send you things. That’s also similar to sharing your IBAN for direct deposit – you can give it to anyone, but they cannot withdraw money with it or access your account in any way.
Since we address private and public keys, now we can move on to the seed phrase.
What Is a Seed Phrase?
A seed phrase can restore access to your crypto wallet and every asset. A seed phrase is a group of random words generated by your crypto wallet when you first set it up, and it's incredibly important to keep a record of these words. In case you lose your phone, your phone breaks, your computer dies, or anything similar, your seed phrase allows you to set up a new wallet on a phone, browser, or hardware device and regain full access to your cryptocurrency.
Even though they are not the same, private keys and seed phrases can both be used to access your wallet and spend your coins.
In a typical fraud, a con artist poses as a representative of a wallet manufacturer and requests your seed phrase to confirm your possession of a wallet. No reputable business will request this information from you. Ever. So, keep an eye out for this kind of fraud.
You must remember that seed phrase since no one else will have it.
Types of Crypto Wallets
The types of Crypto Wallets depend on you, i.e., your needs and how you want to use them, so you need to choose the wallet that suits you.
Hardware Wallet
Hardware wallets, aka cold wallets, are fully offline storage providers for your keys. You can find hardware wallets similar in design to a USB device. For some conditions, paper-based hardware wallets can be appropriate for crypto storage. A paper-based crypto wallet simply documents your public and private keys on a paper piece.
In general, hardware wallets are proven tools for traders to protect their digital assets. Since hardware wallets operate offline, they limit the vulnerability to hacking. But, in addition, the risks of loss and theft aren’t eliminated. The two most popular hardware wallets are Trezor and Ledger.
Software Wallet
SThe presence or absence of an Internet connection is one of the distinctions between software and hardware wallets. However, software wallets are mainlycan also be stored within a computer's desktop or hard drive'. Briefly we can say that while cold wallets are kept offline, software wallets are kept locally on the desktop or hard drive of a computer. As a result, money kept in hot wallets is more easily available and is, therefore, more vulnerable to hacking.
Keeping large amounts of cryptocurrency in a hot wallet is a risky security practice, but precautions can be taken to mitigate the risk. For example, using a hot wallet with a strong password.
Examples of hot wallets include:
Web-based wallets
Mobile wallets
Desktop wallets
To Sum Up
It’s helpful to consider the above mentioned components when choosing and creating the crypto wallets you’ll use. Also, it’s vital to keep your private keys to yourself and keep your seed phrase hidden as a recovery plan. Likewise, choosing a hardware wallet according to your investment budget will also be very useful.
Later in my next post, I’ll explain how you can protect your NFTs. Don’t forget to subscribe to my newsletter so you don't miss anything!