In order to use cryptocurrencies, a potential user must have a cryptocurrency wallet. But what is a cryptocurrency wallet? What role does it play in securing your cryptocurrencies?
A cryptocurrency wallet, to put it simply, is a digital medium used to buy, send, receive and spend digital currencies, such as Bitcoin and any other supported altcoins or tokens. Users can view their cryptocurrency balances and make transactions using a cryptocurrency wallet.
How Does it Work?
Note that since cryptocurrencies are virtual currencies that runs on the blockchain, wallets are created not to contain or store cryptocurrencies but to act as a medium for the user to interact within the blockchain. A wallet generates and holds both private and public keys that allows users to access their cryptocurrencies conveniently.
Imagine a vault. Storage vault helps secure things conveniently and securely. The same goes for a cryptocurrency wallet. It acts as a storage of both private and public keys, which are needed for any cryptocurrency transactions.
Each wallet gives its users a unique account number more popularly known as a wallet address. A public key is used to generate a unique wallet address. Wallet addresses are simplified versions of public keys and a combination of randomly generated upper and lowercase letters, and numbers. Just like normal bank accounts, a wallet address can be shared with other people to receive cryptocurrencies.
Sample of a BTC Address:
Private keys, on the other hand, serves as the password or verification code of the user’s cryptocurrency transactions. It gives users access to the actual funds they have on the blockchain. Unlike public keys which can be shared publicly, private keys MUST ALWAYS be kept safely by the user. So, if the user unlucky losses his public key or address, it can always be retrieved given that he still has the private key.
Cryptocurrency wallets let users view their existing balances and move cryptocurrency funds (such as buying and selling cryptocurrencies) on the blockchain system using these keys. A public key is only tied to one private key, meaning only the user can verify the transactions within his or her wallet.
Types of Cryptocurrency Wallet
Wallets can be classified into two categories: hot wallets and cold wallets. A hot wallet is a wallet connected to the internet while cold wallets are not. Under these categories are various cryptocurrency wallet types, namely, paper wallets, hardware wallets, and software wallets.
Selecting a specific type of wallet depends on the needs of each individual as every wallet has different functions and features. Some wallets are made for only a single cryptocurrency, while some offer more than one coin or altcoins.
Paper wallets are cold wallets wherein public and private keys are printed out in a sheet of paper (usually in a QR code form). This is not connected to any servers, and the only way to access it is to enter the key into any software wallet or scan the QR code. Open source services are available online to create the keys locally on your computer or device. This means that the data is not sent over the internet, leaving it safe and secure (considering that your device is virus-free and malware-free). Since these wallets are printed out, users must keep it carefully to avoid any theft by losing it.
Hardware wallets are dedicated electronic devices (like USB) that stores a user’s private and public keys. It uses a Random Number Generator (RNG) to generate public and private keys. Users need to plug-in their device in any computer or laptop with an installed program that lets users do transactions.
This kind of wallet comes in three different forms, namely, web, desktop, and mobile wallets. The similarity with these forms is they are all connected to the internet.
Web wallets allow users to access blockchains through the use of any web browser without installing anything. Though they are more convenient to access, it can be vulnerable to hacking attacks and theft.
Desktop wallets are downloaded and installed on a specific computer or laptop. It gives users full control over their keys and funds. Ensuring that the computer is free from any viruses or malware before and during the wallet is installed helps remove the possibility of any malicious hacking attempts.
It is important to regularly backup the desktop wallet and private keys in order to access this wallet in case the computer or laptop in which the wallet is installed malfunctioned.
Like its desktop counterpart, a mobile wallet runs in a smartphone using a mobile application. These are considered more convenient than the desktop wallet as it can technically be used anywhere and everywhere with the use of the mobile phone.
Most of the coins or tokens available in the market have their own wallet. In the case of Swipe Token (SXP), it has its very own Swipe Wallet app which runs on the Ethereum blockchain. The Swipe Wallet application supports multiple types of cryptocurrencies where users can buy, send, and spend it instantly within the app.
Having a cryptocurrency wallet is an essential part of managing cryptocurrency funds. By using a wallet, users can easily send and receive cryptocurrency funds. On which kind of wallet is safe to use, it really depends on the needs of each individual. Each type of wallet has a unique function which is why it is important to identify your needs before getting a specific type of wallet.