It’s no secret that storing crypto is different from holding fiat money. However, just like bank accounts in the traditional financial industry, crypto wallets play a critical role in protecting assets and personal data. Moreover, a crypto wallet is the first thing that novice traders and investors face when they get to know the crypto universe.
This article will figure out what a cryptocurrency wallet is and what types of wallets there are.
What is a crypto wallet?
A cryptocurrency wallet is a tool or software that is used to interact with the blockchain network. The primary purpose of such wallets, as one might guess, is the transfer, receipt, and storage of digital assets, as well as the payment for goods and services in stores that accept payments in crypto.
Unlike bank accounts, some crypto wallets allow their owners to fully control all operations related to their assets by controlling the public and private keys. In general, a wallet is an alphanumeric code with its place in the blockchain, which is created through the generation of private and public keys.
The public key can be compared to the bank card number or the number of a crypto wallet, which, if necessary, can be transferred to a third party when sending funds. The private key serves as a means of decrypting funds by the recipient, verifying transactions, and cannot be shown to unauthorized people.
Types of crypto wallets
Depending on the operating principle, crypto wallets can be divided into “hot” and “cold” wallets. A hot wallet has a permanent internet connection, making it possible to quickly and conveniently access the balance. Active traders and users who continuously need access to the balance choose this type of wallet.
A cold wallet, in turn, does not have an internet connection but is accompanied by a physical medium for storing the key. This gives cold wallets a significant advantage over hot wallets in the case of a hack attempt. A cold wallet is convenient for long-term investments.
The main types of wallets:
Software (hot) wallets:
- Web wallets allow you to access your balance through a web browser. It is often used when working with centralized exchanges, where the exchange has access to the user’s private key.
- Desktop wallets — are software that you can install on your PC. They provide complete control over the keys and your data.
- Mobile wallets are the same as desktop wallets but are designed for mobile devices. They are pretty convenient for daily financial transactions.
Hardware (cold) wallets are hardware devices that resemble USB devices in appearance. They are considered the most reliable way to work with digital assets.
- Paper wallets are sheets of paper with a printed address and a QR code that must be scanned when making transactions. Disadvantage: there is no possibility to send funds in part; each time, a user has to send the entire balance at once. However, paper wallets are very resistant to hacker attacks.
With the WhiteBIT exchange, you have the opportunity to store your assets on a cold wallet, thereby providing an additional degree of protection for your funds. Being one of the most reliable crypto exchanges globally, we use a whole software package to protect your assets. The transactions themselves are very convenient to monitor and track on a computer and in a mobile application via the wallet mode.
Data backup
❗️ You should never forget about the backup, which helps restore access to the wallet even after losing the hardware device. It is pretty easy to do this by backing up the wallet.dat file or by the seed phrase. Wallet.dat is a software wallet file that stores all information about the wallet, transactions, and private keys. You can copy it from C:\users\PCName\appdata\roaming\CoinName and save it to the third-party media. In this case, however, one will need to do a backup copy after each new operation. In addition, such files can be damaged, in which case the coins can be irretrievably lost. Therefore, it is advisable to create two or three copies, which is also a disadvantage of using this method.
Another method of backing your data is using a seed phrase — a set of random words (12, 18, or 24) generated by the program when creating a wallet. One needs to remember this phrase and enter it in case of losing the wallet key.
A wallet is an essential element of work with cryptocurrency, so choose wisely based on the type of activity, frequency of use, and other individual criteria.
