A cryptocurrency wallet is a digital wallet that securely stores cryptocurrencies. It functions with the use of cryptography, which gives it security and allows it to connect to the blockchain. This permits it to conduct transactions. More than ‘storing’ crypto, the cryptocurrency wallet’s more important role is being the middleman in cryptocurrency storage and transactions.
How a cryptocurrency wallet works
Arguably, a cryptocurrency wallet does not actually store cryptocurrency, as there is really no physical wallet nor physical coin to store. A cryptocurrency wallet is a series of private keys and public addresses that are necessary to the owner’s transactions regarding his crypto. This public address is linked to all transactions that involve an owner’s crypto, which is all recorded on the blockchain. Whereas private keys are used to confirm transactions in the blockchain in the process of matching keys. All that exists is a record of cryptocurrency transactions in the blockchain and the wallet’s ability to bridge the transaction between the blockchain and the owner.
Additionally, owners cannot access their cryptocurrencies without a wallet. It is proven necessary in crypto trading, which makes it essential to choose the right cryptocurrency wallet.
Types of cryptocurrency wallets
- Desktop crypto wallet – this is installed on a laptop or a PC, making it accessible only to the computer it is installed. This is among the most secure wallet types. The downside is that when your computer unexpectedly gets a virus, you might lose all your funds.
- Online crypto wallet – it is installed on the cloud, which means you can access it from any device with the help of an internet connection. The advantage of this wallet is its accessibility. However, online wallets are operated by third parties, which makes it susceptible to hacking and theft.
- Mobile crypto wallet – it runs on a mobile app, which gives it efficiency in usage. This is considerably smaller due to the limited space on mobile phones.
- Hardware crypto wallet – this wallet type is installed on the hardware, such as a flash drive, USB, or hard drive. Your private keys and public addresses are stored offline, but when making transactions, it has to be connected to the internet. This provides more security. However, the downside is its compatibility with limited web interfaces.
Cryptocurrency wallets are highly necessary for transacting cryptocurrency trades. Your choice of wallet may differ on your choices of security, efficiency, and accessibility, but the main point is to find a wallet that will securely store your funds.