What Are Crypto Wallets?

What Are Crypto Wallets? How Crypto Wallets Work? What Are The Types Of Crypto Wallets? Should I Have A Crypto Wallet?

Crypto Wallets are the devices or programmes where you store your private keys, to make your crypto possessions safe, secure and accessible. Crypto Wallets are used to send, receive and use cryptocurrencies.

Since cryptos are digital in nature, and can’t hence be carried in a pocket. They are instead on Blockchain and can be accessed through a private key stored in your wallet. Crypto wallets are like banks as they save and facilitate transactions.

Crypto Wallets are like traditional wallets in a way, that both store your assets. But they differ, in a sense that crypto wallets can be used to receive, send and keep record of cryptos.

How Crypto Wallets Work

Crypto wallets are user specific and contain user’s public and private keys. Public key is like a user name and private key is like a password. Anyone who has access to the private key of any wallet, can control the amount stored in it.

Public key is required to receive payment and private key is used to spend cryptocurrency/ make crypto payment. To receive payment from others, you will require to give your public key to them, and to transfer money to others, you will first require your private key to access your wallet and then public key of the person, to whom you want to transfer your cryptos.

For every private key, there is a unique set of public keys representing a same wallet. That means, you can give different public keys to different users to receive crypos to the same wallet.

No cryptos are stored in a wallet. They are stored on Blockchain and the wallet only allows and facilitates the user to use its crypto balance.

When any user sends some cryptos to a wallet through public key, the reciever needs to use his private keys to access, unlock and spend the received amount.

Even though, this transaction does not invlove transfer of any physical coins or currencies, but it as a transaction gets recorded on a blockchain. Consequently, the amount is debited from the sender’s wallet and credited to the receiver’s wallet.

Types Of Crypto Wallets

Crypto wallets can be classified on the basis of various criteria.

Based upon, whether they are connected to the internet, there are two kinds of crypto wallets; Hot wallets and Cold Wallets.

Hot Wallets

Hot wallets is that type of crypto wallet that is connected to internet. It is also known as hot storage. In such wallets, the private keys are stored in cloud.

They are available online and transaction from them can be done very quickly.

Since they are available online, they can be accessed any where, any time. However, being connected to internet, they are vulnerable to cyber-thefts and hacking.

Cold Wallets

Cold wallets is that type of crypto wallet, that is not connected to internet. These wallets are maintained offline to ensure safety from online cyber-threats. Cold Wallets are also known as cold storage.

In such wallets, private keys are stored in a hardware like a USB or paper document. Here, transactions are made offline and then validated online.

Based upon their nature, crypto wallets can also be classified as; Paper Wallets, Hardware Wallets and Software Wallets.

Paper Wallets

As the name suggests, such a wallet exists in the form of a printed paper, which contains both your private key and public key. These keys are either in the form of an alphanumeric code or a QR code.

These cryptos are stand alone wallets and not connected to internet, they are therefore considered safe and hence used to store large amounts of cryptocurrencies. However, they are fraught with a high risk of user error. In addition, there is every likelihood that you might forget where you kept your paper wallet.

How do Paper Wallets work? First you put your money in a software wallet, and from there you transfer them to your paper wallet.

Hardware Wallets

A hardware wallet exists in the form of a peice of hardware like a USB. They are not connected to internet and hence exist as cold storage. To access such wallets and to make payments from them, they are first connected to computer just like a flash drive.

It is safer and secure way of holding your cryptos, as they are less vulnerable to cyber-attacks, because of no connection with the internet.

It is mostly used by such persons, who are primarily into buying cryptos and storing them for future.

Software Wallets

It exists in the form of a programme or an application, that is run on your mobile, laptop or desktop. These wallets are connected to internet, and hence exists as cold storage.

Being connected with internet makes them available every where, every time, but at the same time renders them vulnerable to cyber-attacks.

Such wallets are preferred by those persons who want to keep a real-time track of the ups and downs occuring in their crypto-holdings in their wallets.

Now you might ask, should I transfer my cryptos from my exchange to my wallet or not? It is purely going to be your own choice and you should decide that after reading the pros and cons of having a crypto wallet:

Pros Of Having A Crypto Wallet

  1. You Own Your Cryptos: If you have your cryptos in your wallet, it really means that you own them and get freed from all the restrictions and limitations imposed by an exchange on its users.
  2. Immunity From Exchange Hacks: When you hold your cryptos in your wallet, you don’t need to worry about “what if the exchange gets hacked” like depressing questions.

Cons Of Having A Crypto Wallet

  1. You Own The Responsibility: Having your cryptos in your wallet might seem satisfying, but at the same time it imposes a lot of responsibility on you. After all being your own bank is not an easy job.
  2. You Should Be Technically Familiar: You need to understand how things in this ecosystem work and keep yourself abreast with the technological aspects of this world. You might, otherwise, end up losing you all cryptos.
  3. Extra Expenditure: If you want to own a wallet, whether online or offline, you will have to expend some extra money in doing so.

These pros and cons of having a crypto wallet will help you in deciding whether you should have your own crypto wallet or not.

FAQs About Crypto Wallets

What is a Crypto Wallet?

A crypto wallet is a device or a programme, that allows you to store your private keys to help you get access to your crypto possession and at the same time prevent others from doing so.

What is a Hot Wallet?

A hot wallet is that kind of crypto wallet that is connected to internet. It is also known as hot storage and in these wallets, the private keys of a user are stored in cloud.

What is a Cold Wallet?

A cold wallet is that kind of crypto wallet that is not connected to internet. These wallets are maintained offline to make crypto holdings of a holder free from any cyber threats. It is also known as cold storage.

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