A crypto wallet is an application that serves like a wallet for cryptocurrencies. It stores the passkeys that are used by users to sign for cryptocurrency related transactions. Moreover, it offers the interface that is a must to access the cryptocurrency.
Cryptocurrency wallets depend on the internet in order to access the blockchain network for the specific crypto that’s being used.
Since cryptocurrencies are pieces of data that are stored in a database, a crypto wallet finds all such pieces that are related to the public address and combines them in the interface of the application.
Whether it is sending a cryptocurrency or receiving it, both are easy with a crypto wallet.
Types of crypto wallets
Majorly, there are two types of crypto wallets- custodial and non-custodial.
Talking about custodial wallets, a third party hosts them and also stores the keys. This third party could be a firm that offers enterprise-level data security systems that are used by businesses to maintain and protect data. Custodial wallets are provided by certain cryptocurrency exchanges.
Moving on to non-custodial wallets, the users are themselves responsible to protect the keys.
Besides the custodial and non-custodial wallets, there are two subcategories of wallets: hot and cold.
While the former is connected to the internet or a device, the latter has no connection.
The hot wallet has three types:
- Online/web wallets
- Desktop wallets
- Mobile wallets
The cold wallet has two types:
- Hardware wallets
- Paper wallets
How does a crypto wallet work?
When someone sends either Bitcoins or any other digital currencies, they sign off ownership of the digital coins to the receiver’s wallet address.
The private key in the receiver’s cryptocurrency wallet has to match with the public address allocated to the currency in order to utilize those coins other than unlocking them. If both the private and public keys match, the receiver’s balance increases in their crypto wallet with the balance decreasing in the sender’s wallet. All in all, no physical exchange happens in terms of real coins.
Using a cryptocurrency wallet
The process of utilizing a cryptocurrency wallet for transactions is based on the type of wallet a user has.
To use a crypto wallet, all that needs to be done is entering the public address of the recipient along with the amount of crypto to be transferred. Upon doing so, the transaction has to be confirmed.
While entering the address, caution is important since cryptocurrency transactions are irreversible. Once an incorrect address is entered, getting back the coins is impossible.
Why are crypto wallets important?
Crypto wallets do not store the cryptocurrency. Instead, holdings are stored on the blockchain and are accessible through a private key.
Ownership of the digital money is proved by the key, which also enables transactions. Having said that, losing the private key means losing access to money. It is for this reason, keeping the hardware wallet safe is highly recommended.
Cryptocurrency wallets are important for many things such as:
Cryptocurrencies management
With crypto wallets, users can track the balance for cryptocurrency assets.
Transactions
To send and receive crypto payments, crypto wallets are very important.
Connection to dApps
A crypto wallet is mandatory to link and interact with 3.0 decentralized applications.
Key management
All cryptos are available on the blockchain like a public key address. With a crypto wallet, users can handle the private encryption keys that are utilized to not just access a specific address but let a transaction happen.
Which crypto wallet to use?
Each crypto wallet has its own benefits, uses as well as trade-offs. Hence, which crypto wallet to use is all about a user’s needs.
Some helpful suggestions are listed below:
- A hot wallet is the ideal choice for high risk, regular and fast online payments.
- An offline device is suitable in terms of holding the coins for long-term.
- Those who are inclined towards the NFT market must choose a crypto wallet that is compatible with NFT marketplaces.
A few important factors to consider when picking a crypto wallet include:
- Fees of the crypto wallet
- Backup options of the wallet
- Security features
- If DEX and dApp integration are needed
- Platform compatibility
- Reputation and durability of the wallet in the market
- Supported coins
- Whether the wallet is user-friendly
One piece of suggestion is the fact that storing huge amounts of coins in a single wallet is very risky. For intact security, a combination of hot and cold wallets is the right choice.
Uses of crypto wallets beyond cryptocurrency
No doubt most of the cryptocurrency wallet applications are utilized for the purpose of storing cryptocurrencies. However, it can also store keys related to both fungible and non-fungible digital tokens that represent securities, goods, financial assets, etc.
Taking an example, a token stored in a cryptocurrency wallet may represent tickets to a concert or a rare artwork in a supply chain or any other thing that has a digital value to it.
Distributed ledgers that have decentralized consensus mechanisms depend on the capability security model. This means that an encryption key’s possession authorizes the action that is represented by the transaction.
In the case of Bitcoin, the transactions transport Bitcoins to some other encryption key, which also means another owner. On the other hand, in matters related to a supply chain, the signed transactions track the asset that is being handled.
In the coming time, a whole new, trustless worldwide economy might be dependent on crypto wallets and blockchain; thereby, allowing everything, be it tax information, consumer preferences, personal financial or professional histories or any other thing.
Digitized representations of identity documents such as passports, voter registration information, licenses, birth certificates as well as voting cards can also be stored in cryptocurrency wallets.
How to secure crypto wallets?
Two major ways to secure a cryptocurrency wallets include:
Backup
This is one the best ways to protect a crypto wallet. The major share of the cryptocurrency should be stored in an extremely safe environment like a cold storage. Hot wallets are great to store small amounts, which can be utilized for transactions.
With offline storage options, hot wallets can be backed up, which is helpful to recover lost wallets.
Software updates
Since a hot wallet is risky, keeping the wallet prepared for attacks is possible through software updates or by improving the security. Another way is to add extra layers of security via additional PIN or two-factor authentication to access the wallet application.
Best crypto wallets
Though there are many wallets available but some of the best known cryptocurrency wallets are:
Trust Wallet
Trust wallet, it is among the most popular and safe crypto wallets. It allows purchasing Bitcoin within minutes besides enabling earning interest on various cryptocurrencies.
Binance Wallet
This one is again among the most reliable and secure options. Investors can move crypto between Binance.com account and Binance Chain Wallet. Binance Wallet provides crypto loans, Binance Visa cards and Binance pay.
MetaMask Wallet
A reputed cryptocurrency wallet, MetaMask Wallet offers a wide portfolio of blockchain applications. The wallet provides a key vault, safe login, token wallet as well as token exchange to manage cryptos and various other digital assets.
Ledger Wallet
To securely exchange as well as protect cryptocurrencies and other crypto assets, Ledger Wallet is trustworthy. It offers products like Ledger Nano S Plus, Ledger Nano S, Ledger Nano X, etc.
Trezor
Trezor is also an excellent crypto wallet with utmost security and convenient interface other than several other features. It offers accessibility via a 12 to 24 words long recovery seed.
Conclusion
Cryptocurrency types are growing day by day and more and more people are becoming aware about them. As a result, the need for crypto wallets is increasing since nobody wants to take risks regarding the security of their cryptos.
Despite certain flaws that need to be fixed immediately, the future of crypto wallets looks bright, thanks to the exponential growth of cryptocurrencies adoption.
However, while picking a crypto wallet, one has to be very careful and do proper research. Unless everything looks fine, finalizing a wallet must be avoided, especially if someone is new in the crypto world.
