You need a place to store your cryptocurrencies, the same way you need a physical wallet to protect your cash, credit cards and other portable and mobile assets. When you purchase a cryptocurrency from any cryptocurrency trading platform, you have two options. You either leave the keys to your crypto in the account, or you can choose to move them to a cryptocurrency wallet. Just like your physical wallets stores your cash when you are not using them, a cryptocurrency wallet stores your cryptocurrencies for future trade and exchanges.
A cryptocurrency wallet is an application program that stores the public and private keys for crypto transactions. In addition, cryptocurrency wallets are designed to provide the users with a digital platform for safely storing and managing cryptocurrencies and other blockchain assets. Crypto wallets help facilitate trades by allowing the users to receive, send, and trade cryptocurrencies.
There are different types of cryptocurrency wallet. Some types only allow the users to hold one type of cryptocurrency while some types allow the users to hold multiple types of cryptocurrencies such as Ethereum, Bitcoin, Litecoin, Bitcoin Cash, and others.
Crypto wallets provide security, which ensures that only the cryptocurrency owner can access the assets through a security password and other security measures. Crypto wallets can be accessed through computers and smartphones.
How Cryptocurrency Wallets Works and Facilitates Transactions
A crypto wallet does not physically or directly store cryptocurrencies. It instead stores information about your pair of cryptographic public key and private key. These keys are usually used to track ownership of a cryptocurrency and to send, receive, and trade cryptocurrencies.
Public keys are components of a digital code which is affixed to a decentralized blockchain which is identical to account numbers issued by banks. Public keys are essential in allowing other users to make payments to the wallet addressed formulated from it.
Private keys are also components of a digital code; however, they are unique to a person’s crypto wallet; just like a bank account password, a credit card pin. Private keys usually match and prove an individual’s ownership of public keys. Crypto wallet owners use their private keys to carry out all transactions on their owned cryptocurrency wallet. In contrast to a public key, a private key facilitates the sending of cryptocurrency from the wallet addressed formulated through the public key.
Types Of Cryptocurrency Wallets
There are different types of cryptocurrency wallets which serve different purposes that depend on your plans for your crypto. For instance, long-term crypto investors who intend to hold onto it for a long time as a store of value usually prefer their cryptocurrencies stored in a secured offline storage wallet. Those who are more actively involved in cryptocurrency transactions, on the other hand, usually prefer the more convenient and easily accessible online storage wallet. There are primarily two types of crypto wallets, and they are:
Hardware Crypto Wallet: Hardware cryptocurrency wallets are also known as colds storage or cold wallets. This type of wallet stores your public and private keys in an entirely offline device that has no internet connection. Most of the popular hardware wallets devices have a striking resemblance to USB drives.
Because of its offline nature, they are usually very difficult to hack and thus considered more secured and favored by many crypto enthusiasts. However, it still carries some risks which includes risks of loss or misplacement.
Software Crypto Wallet: The software crypto wallet is also known as hot crypto wallets. While a hardware crypto wallet can be likened to a physical wallet where you keep your cash, a software crypto wallet can be likened to an online bank account.
Software crypto wallets are usually connected to a user-friendly exchange platform. However, it carries many risks compared to its hardware counterpart. There are many options you can choose when it comes to software or hot crypto wallets, and it can be accessed through a computer or smartphone. However, because the software wallet is basically connected to the internet, users stand a greater risk of having their wallets hacked.
Cryptocurrency wallets are essential for both long-term crypto investors who want to hold onto their coins for a long period or short-term investors who want to trade and exchange the coins at short intervals. Crypto wallets play a vital role in facilitating the sending and receiving of cryptocurrencies and also facilitates crypto exchange transactions.
Before choosing a wallet for your crypto, it is advisable to access your investment plans, goals, and your risk tolerance levels.