One of the most crucial areas when dealing in crypto is having a secure wallet. That means it’s critical to understand what they’re for, how they work, and how to use them. So, here’s a simple guide to crypto wallets and everything you need to know.
What Is a Crypto Wallet?
Basic Definition: Crypto wallets store your private keys, keeping your crypto safe and accessible. They also allow you to send, receive, and spend cryptocurrencies.
While crypto wallets keep your private keys (the passwords that give you access to your cryptocurrencies) safe and accessible, which lets you send and receive cryptocurrencies. They come in many forms, ranging from hardware wallets (which can resemble a USB stick) to mobile wallets like Coinbase or Electrum.
It is worth noting that cryptocurrency transactions do not represent “sending” crypto tokens from your phone to someone else’s. When you send tokens, you use your private key to sign and broadcast the transaction to the blockchain network. This transaction will then be reflected in your and the recipient’s balance.
Public Keys vs. Private Keys
Every crypto wallet has a public and a private key, a long string of random, unpredictable characters. Both of them also have different purposes, which is essential to know:
Public Key: Your public key allows you to receive cryptocurrency transactions. So, it is public and open to anyone in the system. Your public key is like your bank account number and can be shared widely.
Private Key: Your private key proves your ownership of your respective public key. Therefore, it must be kept secure and secret; your private key is like your PIN.
Why Do You Need a Crypto Wallet?
Your cryptocurrencies are only as safe as the way you store them. Technically, you can store crypto directly on the exchange, but that is not the best method—unless it’s in small amounts or you plan to trade frequently.
If you have significant amounts of cryptocurrencies, it is advisable to store most of them in a crypto wallet, whether a hot or cold wallet. This approach ensures that your assets remain secure and protected, regardless of external factors. By doing this, you retain ownership of your private keys and have full power and control over your finances.
Types of Crypto Wallets
There are two main types of crypto wallets: The first one is software-based hot wallets and the second one is physical cold wallets. Which one is best for you and your needs?
Hot Wallets
Hot wallets are connected to the internet (this is the main difference between hot and cold wallets). Your funds are more accessible, but you also have a higher risk of being open to hackers.
Examples of hot wallets include web-based, mobile, and desktop wallets. Beginners or regular traders who require quick online payments are best suited to Hot Wallets. These wallets enable fast and easy transactions, making them an ideal choice for those who must conduct frequent transactions promptly.
Cold Wallets
Cold wallets are entirely offline. This means it is less convenient for you to access your funds, but they are far more secure than their hot counterparts.
Examples of cold wallets include paper and hardware wallets, and they are best suited to storing large amounts of crypto for long periods.
How do you use a crypto wallet?
Although wallets are different, some are simple, and others are more complex. So, here’s the information on some of the main ones we have spoken about:
Paper wallets: Your keys are written on a physical medium like paper and stored safely. Because crypto is digital money that can only be used on the internet, it is more complicated.
Hardware wallets: Your keys are stored in a thumb-drive device that you keep in a safe place, and it is only connected to a computer when you want to use your crypto. The idea behind this type of wallet is to offer a good balance between security and convenience.
Online wallets: while keys are stored in an app or other software. Using an online wallet, looking for one protected by two-step encryption is best. This makes sending, receiving, and using your crypto as easy as an online bank account or payment system.
Choosing a Crypto Wallet
- Only you can decide which wallet is best for your cryptocurrencies, but there are multiple factors to consider when making a choice, including:
- Physical wallets vs. online
- Security features the wallet offers
- The coins that a wallet supports
- Platform compatibility
- User-friendliness
- Fees
- The reputation of the wallet
- How long has it been on the market?
Whatever you choose, make sure you weigh up your options and choose wisely.
