Crypto wallets explained
by Maryna Trifonova, Head of Content at Jax.Network
In our rapidly developing world, new technologies quickly become an integral part of our everyday lives. A decade ago, a very small number of people used Bitcoin. Today it’s hard to find a person who has never heard of Bitcoin or owned at least one cryptocurrency. The problem of keeping these digital coins safe comes at the forefront of many discussions now. The best way to do so is a cryptocurrency wallet. But what is it? And how does it work?
What is a cryptocurrency wallet?
Similar to a regular leather wallet, a cryptocurrency wallet is used to store your “funds” in one place securely protected from others. In other words, it’s a piece of software, hardware, or even paper holding your crypto address and the transaction authorization keys. Please note, there is no actual currency stored on a crypto wallet, as your cryptocurrencies aren’t physical money. Your cryptocurrency is digitally stored on the blockchain, but you need the keys on your crypto wallet to perform transactions.
A crypto wallet is just a special protocol that generates public and private keys. A public key is mathematically linked to your wallet address and needed for establishing a high level of security. As for a private key, it’s used to access the digital funds associated with your wallet address. Similar to a pin-code on your credit card, it makes sure that nobody else spends your money.
We briefly mentioned a wallet address. What is that? A crypto wallet address is like a bank account number you give your employer to receive your salary. So it’s totally safe to show it to anyone who wants to send you cryptocurrency. Each address is unique, so if somebody decides to send you a monetary gift, nobody else but you will get the funds.
Types of wallets
There are many types of crypto wallets, but we will list only the most popular ones here.
- Mobile wallets are downloaded to mobile phones and accessed via a mobile app. You can also use this wallet to pay for things in physical stores by scanning a QR code.
- Desktop wallets are downloaded to a separate laptop or computer which isn’t connected to the Internet. That ensures solid security and prevents remote hacker attacks. You can access your cryptocurrency only from this device, so you should do your best not to lose it.
- Web wallets are the most convenient but the least secure way to store your cryptocurrency. A most common example would be storing your digital coins at the servers of a crypto exchange. It means that if an exchange gets hacked, your funds will also be stolen with the rest of the cryptocurrency held by this exchange. So try to keep only a tiny portion of your funds at exchanges to prevent this risk.
- Paper wallets are very underrated, as all you need to do is print your keys on the piece of paper and hide it in a safe place. When you need to carry out a transaction, just type your keys into a special software or a web wallet or just scan the QR code you printed.
- Hardware wallets are the most secure way of storing your cryptocurrency. These are the pieces of hardware created for a single purpose — keeping your public and private keys safe.
How is it used?
Crypto wallets can be used in many different ways, depending on your purposes. The first and most obvious use case of crypto wallets is securely storing your crypto assets for a long period of time without the need to use third-party’s services. They are also crucial for receiving and sending cryptocurrency. If you plan to participate in an initial coin offering (ICO) or security token offering (STO), you will also need to store the purchased tokens somewhere.
Another interesting use case of crypto wallets is storing gas which fuels dApps. These are decentralized applications that run on top of the blockchain. As a rule, the creator or the user of such an application has to pay a small fee to the network that supports the blockchain on which it runs. This transaction fee is called gas. You need to hold gas somewhere if you intend to use a dApp. And there’s no better place for that than a crypto wallet.
As you see, crypto wallets aren’t that complicated. In fact, you don’t have to understand all the technical details to use them. And with the QR code technology embedded into them, it’s incredibly simple to use those wallets for transaction purposes. You just need to know what you will store there and for what purpose in order to determine the best option. Pay attention that, similar to bank cards, you can have multiple wallets too.
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