The number of cryptocurrency holders is increasing. Today, tokens can be used not only for investment but also for daily transactions. And to avoid risks, you should select the best wallets.
Keep reading to make the right choice.
How Cryptocurrency Wallets Are Structured
It is common to say that cryptocurrency is “stored” in special wallets. However, this is not quite true. After all, digital money itself is in a blockchain – a ledger. Cryptocurrency wallets contain only keys (data), which give owners access to funds, allowing them to conduct transactions or receive transfers.
By choosing a reliable wallet, you can be sure that no one will steal your tokens while traveling, paying tuition fees, making donations, betting on websites such as https://22bet.ug/, or making investments.
Any wallet, regardless of its type, contains two keys:
- A public one, which anyone can use to send a transfer to a specific recipient-owner of the key.
- A private one – the so-called “security key,” known only to the owner and serves to confirm transactions.
Essentially, a key is a digital string consisting of a chain of random numbers generated cryptographically. It is something like an electronic signature, which is now widely used to authenticate documents sent over the Internet.
The first cryptocurrency wallet was published in 2009, at the same time that Bitcoin (BTC) was introduced. It was intended for this digital money and was called Bitcoin-qt. A little later, it was renamed Bitcoin Core.
To this day, it remains the best wallet for cryptocurrency, serving as a reliable and popular way to store bitcoins and altcoins. And as other types of coins become available, developers offer new ways to store them.
Now, all crypto wallets have different features and capabilities, but each integrates the basic principles of cryptocurrency:
- Direct transfers between two users, with no third party involved.
- Receiving crypto through a public key, transfers through a private key.
- Availability of the wallet irrespective of user location.
- Preservation of operation histories in the public registry.
- Impossibility to cancel the transaction.
Simply put, a cryptocurrency wallet is a software tool that helps save, receive, and send digital currency. The way it works is as follows:
- The sender of digital money creates a transaction, specifying the recipient’s wallet address, and signs it with a private key.
- The generated information block is sent to the blockchain network, where it is checked by miners (information about the sender and the recipient, technical legality of the transfer, etc.).
- The recipient, having seen the received payment, decrypts it with a cryptographic key and receives the funds.
- After confirmation, the transaction is added to the blockchain and cannot be reversed/modified.
Types of Wallets to Pick
A software wallet is one of the most popular ways to store cryptocurrency. It is characterized by multi-platforms, fast access to funds, and relative reliability:
Online vaults are as accessible as possible. To run them, all you need is a connection to the Internet.
They work on the principle of a normal site and do not require downloading software to the PC. The private key and the user’s personal data can be stored on the servers of the provider, for example, the exchange.
In this case, it is an exchange wallet. They are convenient but not secure. The vast majority of exchanges have encountered hacking attacks that have resulted in the loss of funds.
In addition, among the companies’ employees are crooks who do not mind profiting at someone else’s expense. Despite this, many traders choose exchange wallets because of the constant availability of coins. They earn on the difference of quotations, and it happens that the minutes of delay lead to the loss of significant profits.
They require a special application to be installed on your PC. Desktop software can be safer than the online options, since some developers provide local data storage on the computer and not on their servers.
A desktop wallet gives full control over private keys. However, when using this type of wallet, you must be sure that your computer is virus-free. Another disadvantage is the large amount of memory it takes up on your hard drive.
A mobile wallet is installed on a smartphone/tablet running on Android or iOS. The mobile version is convenient in cases where you need to make payments outside the home, and its safety depends on how well protected the gadget itself is.
If the phone is stolen, attackers will have access to the private key, so you should think about installing additional protection: biometrics, payment passwords, and PIN codes. You should also remember that mobile devices are prone to infection by viruses.
When choosing software wallets, you should keep in mind that they are tied to a physical medium (PC, laptop, tablet, cell phone), the damage or loss of which can lead to irrevocable loss of capital. In addition to these, there are two other types of vaults: hardware vaults and paper vaults.
The first devices looked like USB-flash drives, but now the technology has advanced considerably, and most models are equipped with a display and navigation buttons. Modern devices do not need to be connected to a PC with a USB-connector to confirm the operation. There is a separate button on the device for this purpose.
Hardware devices are one of the safest options for storing cryptocurrency. They can also be susceptible to hacking, but hackers need to have physical access to the storage. If you keep the devices in a secure location, the risk will be minimized. They are more expensive than software options, but they are easier to use, set up, and get backed up.
Keys can be printed and kept on a plain sheet of paper and manually entered when confirming a transaction. If desired, it is also possible to place a QR code on it, the scanning of which simplifies the transactions and the transfer of a public key to the sender.
The paper version is very safe and absolutely free. However, it also should be protected, not so much from swindlers but from damage. After all, paper can get wet and dirty, making the keys unreadable.