Blockchain Wallets
What Are Blockchain Wallets?
The whole concept of Blockchain is fascinating, no doubt. However, there is a catch here. As cryptocurrencies are becoming the order of the day in financial markets, a lot of patience goes into understanding and managing them. We know that cryptocurrencies are digital money, so where do we store them?
The answer to this question is Blockchain Wallets. In layman’s terms, if you want to leverage the blockchain technology, you should be familiar with what a blockchain wallet is and how it works.
Developed by a company named Blockchain, blockchain wallets are basically computer programs that allow you to monitor and transact cryptocurrencies. In these wallets, transactions are recorded in the blockchain, that is, if someone sends you cryptocurrency units the transactions are assigned to the address of your blockchain wallet but recorded in a distributed ledger.
Here’s what you need to know about blockchain wallets.
How does a blockchain wallet work?
A transaction’s private and public keys are stored in the blockchain wallet store. With multiple blockchains in the network, there may arise a need for interactions among stakeholders to authenticate a transaction. These interactions are necessary to allow users to purchase or sell one or several cryptocurrencies.
Before understanding how blockchain wallets work, let us first discern the role of public and private keys that are stored on blockchain wallets for authenticating a transaction. These keys are overall non-identical pairs of large numbers. While the public key can be shared with anyone, private keys are generally kept as a secret. No matter how many times you attempt to open the wallet, it will grant you access only when the order of private and public keys match with each other. Only when private and public keys pair together, users can grant access to the blockchain wallet to visualize the value of their digital assets and conduct operations on them.
Consider this example to enhance your understanding.
You can assume that someone has sent you some units of Bitcoin. When the sender does this, the person is assigning the owner of those Bitcoin units to the address of your blockchain wallet. For you, the private key in your wallet must match the public key that the currency is assigned so that you could spend those coins. When the public and private keys pair successfully, the balance in your wallet will increase. In this process, there is no exchange of currency units, but a transaction is committed. This transaction is recorded on the blockchain, and the changes hence reflect in your wallet.
Now, let us skim through the types of blockchain wallets that are available in the marketplace today.
Basically, there are four types of blockchain wallets that are available to store and reflect any transaction on a blockchain.
1. Software Wallets
2. Hardware Wallets
3. Paper Wallets
4. Single or Multi-currency Wallets
Software Wallets:
These are software applications that can be downloaded on desktops or mobile phones. They can even be accessed online. Depending on the utility of the device on which they are to be used, they are further categorized as:
1. Desktop Software Wallets: These wallets are meant for PCs and laptops. For safety concerns, it is required of you to make sure that your system is virus protected.
2. Online Software Wallets: Hosted on clouds, these wallets can be accessed from any internet-friendly device through a web browser. While using this wallet, a user must make sure that your private keys are not saved online.
3. Mobile Software Wallets: Available as mobile apps, these are the most flexible and popular software wallets. They also facilitate the scanning of QR codes for easy and faster fund transfer.
Hardware Wallets:
The private key of users on a hardware device such as USB or any other external hard drive is stored in hardware wallets. These wallets are compatible with various web interfaces and allow support to multiple cryptocurrencies. For using these wallets, there is a need for you to link them with any internet-enabled device. Further, you need to enter an assigned pin and confirm the same online. Provided with the security they offer, hardware wallets are undoubtedly the safest wallet options that are available. PS: All units of cryptocurrencies are stored offline in these wallets.
Paper Wallets:
In the case of paper wallets, the pair of public and private keys are generated using a software application and are then printed to authenticate a transaction. These wallets generally work with software wallets for buying and selling of funds. Basically, currency units are transferred from software wallets to the public address on paper. For unlocking these funds, currency units are transferred from the paper wallet to an associated software wallet. Termed as ‘sweeping’, this process involves QR code scanning and manually adding keys for completing the transaction.
Single or Multi-currency Wallets:
While Bitcoin is the best known protocol in the blockchain network, Ripple, Ethereum, Litecoin, and other coins are soaring in terms of the interest of users. If you or your customers need to work with multiple currencies for receiving or transferring funds, you need not require separate wallet for every currency unit. You can opt for a wallet that either makes use of a single currency unit or supports multiple cryptocurrency units. Opting for a multi-currency wallet is an enhanced and flexible choice.
Now, a question arises: How can you choose a blockchain wallet that best fits to your needs?
As an individual user, you are liable to choose a blockchain wallet based on your preferences. It depends on how often you would like to interact with blockchain protocols and what safety level fits your individual needs the most. If you are not satisfied with any of the available wallets, you can always approach vendors for customizing your own blockchain wallet. These customized wallets can be tailored to provide seamless experiences to both end users and customers, avoid fees that exist within the prevailing blockchain wallets, and meet the highest standards in terms of security and safety.
Originally published at www.intellipaat.com on February 22, 2019.
