What Is A Crypto Wallet?

How Do Crypto Wallets Work?

A crypto wallet is a secure digital wallet dedicated to cryptocurrency. If you want to dive into the world of cryptocurrencies, you must first configure your wallet, even before knowing in which currencies you want to invest. There are many cryptocurrencies in the world circulating in the market. To name a few, Bitcoin, Etherum, doge coin etc. Indeed, it is the tool that will help you manage your cryptocurrencies. Each crypto wallet has a private key that allows you to access its content. However, the crypto wallet is not only intended to put aside the bitcoins and ethers that you exchange. It also allows you to send and receive cryptocurrency securely.

There are several types of crypto wallets, such as mobile apps and wallets that look like USB drives. However, most crypto wallets work more or less the same way: they store combinations of private keys that allow you to sync your wallet across multiple devices in order to send and receive cryptocurrency.

It is essential to know how to use and configure a crypto wallet before making your first purchase of cryptocurrency. With that in mind, let’s find out how crypto wallets work and how to choose the right one for you.

How Do Crypto Wallets Work?

In general, crypto wallets come in software or hardware form. Although each type of crypto wallet works differently, all are designed to give you secure access to your cryptocurrency.

Be aware, however, that a crypto wallet does not contain any cryptocurrency; it only holds the public and private key information necessary for cryptocurrency transactions. Cryptocurrency is stored in a blockchain, which serves as a digital ledger for decentralized cryptocurrencies.

Difference Between Public Or Private Keys

In general, two types of keys are linked to crypto wallets: public keys and private keys.

Public keys work the same way as a bank account number. A public key is a sequence of random numbers that can be shared with a third party, for example during a cryptocurrency exchange, without compromising the security of your wallet. This key allows you to receive cryptocurrency, often in the form of a wallet address which is a shorter version of the wallet’s public key.

Private keys must in principle, as their name suggests, remain private. They allow you to access cryptocurrency in the blockchain. Therefore, if someone has access to your private keys, that person also has access to your cryptocurrency.

Transferring Cryptocurrency From My Crypto Wallet?

It is relatively simple to send cryptocurrency to another wallet. Once you have the recipient’s wallet address, you can open your crypto wallet, select the amount you want to send, and then complete the transfer.

Cryptocurrency prices fluctuate every minute, so keep an eye on the market situation when you are going to send or receive cryptocurrency in your wallet. Bitcoin price has dropped in recent months and now it is getting up again. Same is with the other cryptocurrency prices such as Ethereum coin price, doge coin prince, Shiba Inu price and hogecoin price has been up and down for the last few months. Now relatively these crypto prices are getting stable again and the market is rising again.

Types Of Crypto Wallets

As we have just seen, crypto wallets can be divided into two categories: software wallets and hardware wallets. However, there are several types of wallets that do not belong to any of these categories.

Let’s take a closer look at the three most popular types of crypto wallets.

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Hosted Wallets

Hosted wallets are easy to configure, which explains their popularity. These wallets are “hosted” directly on the exchange platform on which you can buy your cryptocurrency. If you have ever purchased cryptocurrency from an exchange, such as Coinbase or Kraken, and stored it there, you have already used a hosted wallet.

With a hosted wallet, the exchange platform preserves your private key. Since this private information is stored and accessible online, it is potentially exposed to hackers. The use of hosted wallets may also be limited, which means that you may not be able to perform certain cryptocurrency transactions, such as purchasing an NFT. However, the positive aspect is that if you forget your password, the exchange can help you recover this data.

Also Read About: What is Decentralized Finance (DeFi)?

Non-Custodial Wallets

A “non-custodial” wallet allows you to fully control your cryptocurrency, without having to call on a third party. In general, these software wallets offer more freedom and functionality than hosted wallets. For example, if you want to buy NFTs or do cryptocurrency staking (a process of earning interest by strengthening a blockchain network), you should consider the “non-custodial” wallet.

With this type of wallet, your cryptocurrencies are only accessible using a private key that you manage yourself. Since you are the only person with this key, you must protect it. Indeed, if you forget or lose your key, you will not be able to access your cryptocurrency. If someone else becomes aware of your key, the contents of your wallets are potentially at risk.

Hardware Wallets

Hardware wallets also called “cold wallets” or “cold storage wallets”, are physical devices that look like USB keys. The private key you need to access your cryptocurrency on a blockchain is stored on this device.

Since a hardware wallet is not connected to the internet and exists in physical form, it is considered the most secure way to store cryptocurrency. A cybercriminal on the other side of the world has no way of accessing your cryptocurrency without this device.

However, hardware wallets also have some disadvantages. For one, popular offerings from companies like Ledger and Trezor can be quite expensive. On the other hand, if you lose your wallet, you will need a recovery phrase to regain access to your cryptocurrency. Losing this recovery phrase will result in the loss of your cryptocurrency.