We discuss what a crypto wallet is in this post. 300+ million people around the world use/own cryptocurrencies (Source: buybitcoinworldwide). Crypto wallets keep users’ public and private keys while offering an easy-to-use interface to manage crypto balances. Additionally, they support cryptocurrency transfers through the blockchain. Some wallets even allow users to perform certain actions with their crypto assets such as buying and selling or interacting with decentralized applications (DApps).
Cryptocurrency transactions do not represent a ‘sending’ of crypto tokens from your mobile phone to someone else’s mobile phone. When you are sending tokens, you are actually using your private key to sign the transaction and broadcast it to the blockchain network. The network will then include your transaction to reflect the updated balance in your address and the recipients.
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So, the term ‘wallet’ is actually a sort of the wrong name as crypto wallets do not really store cryptocurrency in the same way physical wallets hold money. Instead, they read the public ledger to show you the balances in your addresses and also hold the private keys that enable you to make transactions.
Examples of crypto wallets include;
- Public.com,
- Mycelium (available on iOS and Android),
- Electrum,
- Coin base,
- Ledger Nano X, etc.
Contents
Types of crypto wallets
a) Cold Wallets
A cold wallet is one that is offline. By offline we are meaning, that the wallet has no access to the internet. Or simply, you are not going to be able to access it on the internet.
Examples include; hardware wallets and paper wallets.
A paper wallet is an actual location where your private and public keys are printed.
A hardware wallet is one where an external device stores your keys. An external drive can be a USB drive, pen drive, etc.
b) Hot Wallets
A hot wallet is one that is online. Meaning it is accessible through the internet.
Examples include; desktop wallets, web-based wallets, and mobile wallets.
The private keys are stored and encrypted on the app itself. Which is kept online.
Before deciding on whether you want a cold or hot wallet, it is important to note that even though hot wallets are more accessible, they are vulnerable to attacks from hackers. And although cold wallets have limited accessibility, they are safer.
They both have their flaws. And they both have their advantages. You have heard the saying, do not put all your eggs in one basket. Some crypto owners are not putting all their eggs in one basket and you will find that they are owning both hot and cold wallets concurrently (at the same time).