What Is A Cryptocurrency Wallet? A Deep Dive
Like your traditional currency notes, you just can’t fold up your Bitcoin, Ethereum, Dogecoin, or any other cryptocurrency holdings and put them into your wallet. So, how do you safeguard the digital coins that you own? You can do so with the help of a cryptocurrency wallet. They exist in a variety of formats, ranging from hardware wallets – a physical device – to apps that you can run on smartphones or computers. These wallets keep your private keys — the passwords that grant you access to the cryptocurrency — safe and accessible.
Here are the types of cryptocurrency wallets:
There are three main types of cryptocurrency wallets you can choose from — paper wallets, hardware or physical wallets, software or online wallets.
Paper wallets: Here you can write down your private key on a tangible medium, such as paper, and store it in a secure location. However, this isn’t safe, especially if you are the sort to leave paper pieces scattered all over the house.
Hardware wallets: Also known as physical wallets, here the keys are stored in a device that’s kept at a secure location and only connected to a computer when you wish to utilise your cryptocurrencies. Like paper wallets, even hardware wallets run the risk of being lost or destroyed.
Software or online wallets: In these wallets, the private keys are stored in an app or other software, or in an online wallet. This allows you to send, receive, and use cryptocurrencies in the same way you would perform transactions in an online bank account.
A software wallet is an example of hot storage, while the other two types of wallets — paper and hardware — are also known as cold storage. To put it another way, hot storage wallets are those that are connected to the Internet and could be used to pay for items immediately as well as acquire additional cryptocurrencies in real-time. However, when it comes to cold storage wallets, all they do is hold the private keys.
One thing to keep in mind is that if you lose your private keys, you will lose access to all your cryptocurrencies. As a result, it’s critical to keep your hardware wallet secure or use a trusted service in case you are using a software wallet.
The simplest way to get started in your cryptocurrency journey is by using an online wallet provided by a large exchange that offers a blend of security and accessibility. However, since your personal information is stored online, your safety against hackers is limited to the extent of the security of your wallet provider. So, look for measures like two-factor authentication while using an online wallet.
Eventually, whatever you choose, be sure you know where your private keys are and that you’ve kept your wallet passwords safe. You don’t want to lose your cryptocurrencies just because you misplaced your keys.