Since Bitcoin was created in 2009, cryptocurrency has become nothing short of a phenomenon. Over the years, especially recently, the popularity of cryptocurrency and blockchain technology has exploded. Establishing itself as an unignorable trend and something the masses want to be a part of.
A crucial part of using cryptocurrency is your crypto wallet. But what is a crypto wallet? In this post, we’ll dive into the world of cryptocurrency, focussing our attention on crypto wallets. So, whether you’re looking to invest in cryptocurrency or simply want to be more informed on the subject, we’ve got you covered!
What is Cryptocurrency?
Cryptocurrency is a decentralised digital currency based on blockchain technology. The most popular variations include Bitcoin and Ethereum, but there are thousands of different cryptocurrencies in circulation — and more and more will continue to appear as time goes on.
Unlike traditional money, there’s no central authority managing and maintaining the value of a cryptocurrency. Instead, these responsibilities are distributed among cryptocurrency users via the internet.
What is a Crypto Wallet?
A crypto wallet is a piece of software or a physical device that allow you to securely store and access your cryptocurrencies while keeping your private keys safe (passwords that give you access to your cryptocurrency). Therefore providing a secure and reliable way to send and receive crypto transactions.
Crypto wallets consist of two types of keys, private and public keys:
- Public Keys: A public key serves as the address you use to send crypto to the wallet.
- Private Keys: Private keys can be compared to a safe deposit box key. If you have access to the private key of a crypto wallet, you can access and control the balance it holds.
A crypto wallet is similar to a bank account. However, the vital difference is that it’s controlled by a key only you control. You use this key to initiate transactions.
How Do Crypto Wallets Work?
Blockchain is a public ledger where ‘blocks’ of data are stored. Blocks are records of transactions, balances held at addresses, and people who have keys to those balances. Cryptocurrencies aren’t technically stored in a wallet. Coins exist on a blockchain, and the wallet allows for interaction with the balances held on the blockchain. Your wallet stores addresses and lets you move coins while allowing others to see the balance held at each address.
Most crypto wallets let users store, send and receive cryptocurrency. However, some versions have additional features that allow you to buy and spend forms of cryptocurrency. Though typically, the steps involved with receiving or sending funds to a crypto wallet are as follows:
- Receive crypto: To do so, you must retrieve an address/public key from your crypto wallet. Find the ‘generate address’ feature, then copy the address/QR code and send it to the person who will send you crypto. Essentially it acts very much like a bank account number and sort code when sending conventional funds.
- Send crypto: To send crypto, you need the address of the recipient’s wallet. Find the ‘send’ feature in your wallet and enter the address of the receiving wallet. Simply select the amount of crypto you need to send and confirm the payment.
What is a Crypto Wallet Type?
The term ‘crypto wallet’ describes two distinct types of wallets, software wallets and hardware wallets.
Software Wallets
A software wallet is a form of a computer program or mobile app used to store private keys online. Software wallets are unique to specific cryptocurrencies, while hardware wallets (more on these in a minute) are often used to support multiple currencies.
Software wallets can be used online, referred to as custody wallets, which aren’t completely secure. Whereas when using apps installed on mobile devices or computers, the private keys are stored on the device.
Hardware Wallets
Hardware wallets are small devices (similar to a USB stick) you use to store crypto offline, which means nothing is stored on your phone or computer. This provides users with a more secure way to send, receive and store crypto. However, hardware wallets tend to be more complex to use than software wallets. Typically, hardware wallets use one of the following ways to interact with computers:
- Web-based interfaces
- Company-created apps/software
- A separate software wallet
The Pros and Cons of Using Crypto Wallets
Crypto Wallet Pros
Security
Crypto wallets provide a high level of security when users perform transactions. When you consider that financial exchanges and centralised institutions can be hacked and their databases compromised — crypto wallets are swiftly becoming an attractive alternative. As a crypto wallet user, you own the private key to access and use your cryptocurrencies, and it’s the only key. Essentially it’s like having a safe or safe deposit box with one key that opens it.
New, Exciting Technology
In the digital age, owning the latest, best and most popular technology is something consumers love. Owning a new and exciting technology has massive appeal, and the use of cryptocurrency and crypto wallets is no different. As time goes on, more and more people are dipping their toes into the crypto ecosystem, and a key part of doing so is obtaining and using a crypto wallet.
Financial Opportunities
Bitcoin may have been the first, but since its creation, there have been many different types of cryptocurrencies and massive trends such as NFT acquisition. Having a crypto wallet allows users to discover and engage with brand new financial opportunities with the potential to make a lot of money. Such opportunities have the ability to open doors and create a level playing field for creatives, investors and many other people. In many ways, crypto wallets and private keys are — if crypto maintains its current progression — a sneak peek into the future of finance.
Crypto Wallet Cons
Cybercriminals
New technology linked to financial opportunities naturally attracts cybercriminals. While the technology used for crypto wallets provides more security than centralised accounts, there will always be cybercriminals developing new and creative ways to scam or hack users.
Even reputable hardware providers have suffered at their hands, with databases being hacked and user information leaked. And then there are the classic scams evolving to work effectively within the crypto world, such as email scams. With this in mind, it’s critical to stay as diligent and careful when using crypto wallets, especially during the early days of your cryptocurrency usage.
Complex Systems
The technology is still relatively new, and although there are several user-friendly interfaces, it’s not easy to use effectively off the bat. Using crypto wallets can be challenging. This factor puts many people off crypto, as they either lack the confidence to use it efficiently and securely or simply aren’t tech-savvy enough to utilise the systems. It’s safe to say there is a lot of required knowledge to take on board and the need to be very careful when performing various tasks. Because at the end of the day, it’s a decentralised form of currency, meaning it’s your responsibility.
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