What are Crypto Wallets - Bitcoin Wallet, Ethereum Wallet & more
The crypto universe is gaining tremendous attention from the new startups, venture capitalists, and giant corporations as it paves the way for a secured and encrypted peer-to-peer transaction without any need for financial institutions or government intermediaries.
People worldwide are considering cryptocurrency as the new gold mine due to its unparalleled returns and rising stock prices.
Hence, many of them are interested in the crypto-verse for staying up to date, learning new skills, discovering different types of cryptocurrencies, etc.
Cryptocurrencies can be traded on some popular crypto exchange platforms like Binance, Coinbase, and Cash app.
Since these platforms are created to facilitate online exchange, they are not built to store your cryptocurrency safely, securely, and encrypted.
Due to their incompatibility for secure storage, the rise of online malpractices and unethical hacking has negatively affected many such platforms in the past, compromising the crypto coins and the user data.
Which triggers us to think,
- Where to store our crypto assets?
- How to spend and track our cryptocurrencies?
- How to protect them from online fraud?
- How to keep them safe and secure, even if we are not around?
These all questions give birth to the crypto wallet.
After reading this detailed article, you will be able to figure out:
- What is a crypto wallet?
- How does it work?
- Why is it important for storing cryptocurrencies?
- What are the different types of wallets that can be used?
So without wasting much time, Let’s jump right into the article.
What is Crypto?
Cryptography is the science of transforming data into anonymous figures to maintain its privacy and security.
Cryptography is nothing but simply concealing information in such a manner that no third party can decode its content, thus keeping its privacy and security intact.
We can find the roots of cryptocurrency in ancient history around 4000 BCE. Specific symbols (or code languages) were created to transfer vital and confidential information to selective people.
In our modern times, cryptography is divided into three types:
- Symmetric cryptography uses the same key for encrypting and decrypting the data.
- Asymmetric cryptography uses two different keys, known as the public key and the private key. The public key is used for encrypting the data, and the private key is used to decrypt it.
- The cryptographic hash function converts the arbitrary length of the data into fixed bit size binary numbers that are computationally irreversible.
Now you know, what the basics of cryptography are, let’s move ahead to find out what a crypto wallet is.
What is a Crypto Wallet?
A cryptocurrency wallet is nothing but a digital wallet used to store, spend, retrieve and exchange cryptocurrencies through the blockchain network.
They are created to protect cryptocurrencies from online attacks, provide cutting-edge security, and help you manage different cryptocurrencies in your crypto wallet.
The crypto wallet securely saves your public key and private key, an integral part of the blockchain network and essential for cryptocurrency transactions.
You don’t need to create multiple wallets to store different cryptocurrencies, as you can store your bitcoins, ether, ripple, dogecoins, and other such cryptocurrencies in your single crypto wallet.
Crypto wallets are classified into two types:
- Hot wallets are commonly used because their setup is quick and are easy to use. A hot wallet is nothing but an online exchange wallet, mobile or desktop wallet, which you can download and use on your devices. They are suitable for everyday crypto users.
On the other side, cold wallets are offline wallets that are not connected to the internet. Hence the level of security in them is unparalleled.
- Cold wallets are used only when you want to transact your cryptocurrencies, giving them unbeatable security than hot wallets.
Cold wallets consist of a hardware wallet and paper wallet. The cold wallet uses a physical medium such as a USB stick or an encrypted physical paper code to secure the keys and make them untraceable to hackers, thefts, and malicious activities.
Most crypto wallet providers use software wallets due to the ease of quick transactions.
However, hardware wallets are a more secure alternative because of their offline usage.
How Crypto Wallet works?
Let us understand this by a short example.
Tom wants to buy an ebook from Rachel; he decides to make the payment in cryptocurrency through his crypto wallet. Rachel, too, has a cryptocurrency wallet, and both mutually agree to the transaction.
These will be the steps in which the crypto wallet will work:
- Tom and Rachel both share their public keys.
- Tom sends one bitcoin to Rachel through her encrypted public key.
- Rachel confirms that the one bitcoin is originating from tom’s wallet.
- After successful confirmation, Rachel uses her private key to receive the payment.
- Rachel then sends the link to her ebook through Tom’s encrypted public key.
- Tom uses his private key to decrypt the data in his public key, thus receiving the link to the ebook.
Pretty simple, right.
To be precise, crypto wallets provide the tools required to interact with the blockchain.
These wallets are created to make peer-to-peer transactions through the blockchain network.
Your public key is nothing but your wallet’s address to send and receive funds in an encrypted form, and your private key is aligned to your public key, which deciphers the data and makes the transaction secure and immutable.
In this process, it is strongly advised that you should never share your private key with anyone and keep it in a safe and accessible space from where you can easily retrieve it so that if your computer or mobile gets compromised, your cryptocurrencies are still secured on the network.
Example of a Crypto Wallet
Metamask is a browser wallet that manages a user’s Ethereum wallet by storing their private key on their browser’s data store and the seed phrase encrypted with their password. It is a non-custodial wallet, that means, the user has full access and responsibility of their private key.
They’ve got support for the Layer 2 blockchains being built on top of Ethereum.
Torus is a user-friendly, secure, and non-custodial key management system for DApps. They’re focused on providing mainstream users a gateway to the decentralized ecosystem.
- Trust wallet
Trust wallet is the leading cryptocurrency wallet in 2021 that supports multiple blockchains. You can store Bitcoin, Binance Smart Chain, Ethereum, and Polkadot coins.
It is one of the popular desktop crypto wallets to manage your blockchain cryptocurrencies. It was created in 2015 to enable desktops to be used for crypto transactions.
It is a renowned crypto wallet made in France. This multicurrency wallet is a USB stick that can be used even on infected computers.
Why Crypto Wallet - Purpose of Crypto Wallet?
Nowadays, people don’t carry enough cash in their pockets. Instead, they store it in banks and digital wallets. Thanks to digital e-commerce and constructive steps taken by governments to digitize the payment systems.
However, they still monitor your transactions by breaching your privacy.
This is where you need a cryptocurrency wallet. It is similar to your physical wallet. The only thing it stores is digital tokens and cryptocurrency.
Benefits of Crypto Wallet
There are multiple benefits of cryptocurrency wallets, but the major ones are listed below.
- Easy to use
- Quick setup
- Store & transact crypto assets
- Secure - your keys, your money
Is Crypto Wallet safe? Can Crypto Wallets be hacked?
Crypto wallets are extremely safe and secure to use; their quick setup and ease of usage make them the most popular wallets in the blockchain universe.
As these wallets interact with the blockchain, there are zero margins of error to create any loopholes for the hackers.
The public and private key mechanisms help them to stay secure, safe, and private.
If you are the one who wants to trade cryptocurrencies, we highly recommend you to go for cryptocurrency wallets.
The coming time will evolve their framework and usage, making them stronger, secure, and immutable.