What is a Cryptocurrency Wallet?
If you’ve been involved with cryptocurrencies for a while you probably came across the term “cryptocurrency wallet”.
The name instantly reminds us of the physical wallets we carry in our pockets, but obviously, cryptocurrency wallets work in a different way.
In fact, cryptocurrency wallets don’t store any digital coins.
Instead, a cryptocurrency wallet only saves the public and private key of the user which he/she can use to send and receive virtual coins. On cryptocurrency networks, everything is recorded and stored on the blockchain ledger so there is no actual storing of money by each user separately, but only the records on the blockchain exist.
Using the private and public keys, users can write in the blockchain and create new records (new transactions). Then, the system updates the new account balances in the blockchain for the two users.
So, now that we know what a cryptocurrency wallet is, let’s see what are the different types you can use to send and receive digital money.
Software cryptocurrency wallets are computer programs that store the public and private keys for the user. These can exist in the form of applications designed for desktop pcs, smartphones or internet browsers (web-based crypto wallets).
These work pretty much as any other software and can be linked on multiple devices. Also, it’s possible to have a wallet with most crypto exchanges offer
A hardware cryptocurrency wallet is a specially designed piece of electronic equipment for storing your cryptocurrency keys.
These devices are considered a more secure option for storing your digital coins compared to the software wallets because the private key (required for sending or spending coins) never leaves the hardware wallet. While with a software wallet there is the possibility of it being hacked and losing the private key as a result. Paying for a hardware wallet is worthwhile if you have a serious amount of money invested in digital currencies.
When it comes to storing your public and private keys, one can do so by memorizing a mnemonic recovery phrase which can then be used to access your bitcoins. This is known as a brainwallet in the crypto community.
While it may appear as the safest option, it rarely proves that in the real world. This is because there is always the possibility of the person forgetting the mnemonic recovery phrase or it being hacked.
So, before you can buy and sell cryptocurrencies you will need a digital wallet and choose one of the ways in which to store your crypto keys. Some wallets support more than one cryptocurrency which is always a better option.
Investing in cryptos is safe as long as you keep your private key secure. If you lose access to the private key then you lose all your digital coins.
The number one thing to consider when choosing your digital wallet is security. Hacking techniques have grown much more potent than in the past and this matter needs to be taken seriously. Millions of crypto coins have been lost due to different hacks either because of user mishandling or weak wallet/network security.