We all know that the digital currency or the cryptocurrency does not have a physical existence. It is electronic and is managed electronically. So the cryptocurrency wallet is the one that enables the users to carry out all the electronic operations related to the cryptocurrency. There are several types of cryptocurrency wallets out there, and every wallet works in almost a similar way.
The wallets are not supposed to store the cryptocurrency but enable the users to send and receive the digital currency through a Blockchain exchange. For that, the wallet stores a secure digital code and public secure code.
This secure digital code is none other than the private key and the other, as the name suggests, is the public key. While sending the cryptocurrency, over a Blockchain exchange, to another person, you are sending the ownership of that particular crypto to that particular recipient. The private key acts as the secure code you will use to access your bank account for instance and the public key will act like the account number related to that secure code.
When you transfer the crypto, the recipient should have the private key of the exact match as of your public key, in order to get the ownership of the crypto. Like an important password, your private key should be secret, such that you are safe from any kind of theft or hack.
The wallet also monitors the budget and keeps the record of every transaction you made through it. So it is also a kind of your ledger that keeps all the data related to your every transaction. Types of Cryptocurrency Wallets: The cryptocurrency wallets are categorised into two types and that includes:. Hot Wallet: Hot wallets are the ones that are connected to a network and make use of the online platforms.
These wallets are very common among the crypto owners, and the wallet providers are responsible for the security of the cryptocurrencies. These wallets can be run on a web browser or downloaded as an app on a smartphone. But, it is never safe to keep a large amount of digital currency in a hot wallet as these are always connected to the internet and are at high risk for hacking.
Cold Wallet: Cold wallets are safer, as these are entirely offline. These can be a software or an app, that you can run on your smartphone, desktop or keep it in a plugin hardware device, like a USB. Since these are kept at a particular place, these do not provide instant access. To make transactions through a cold wallet, one needs to push a button which is not approachable for the hackers.
Hence it becomes more secure than the hot wallet. The wallet is further secured by a pin or a password, enhancing the safety of the private and the public key stored in it. But since these provide the maximum security, these are expensive too. Before opting for a cryptocurrency wallet, you need to go through thorough research based on your requirements. Xornor Technologies is a leading crypto exchange development services provider in India.
If you need to know more about cryptocurrency, crypto wallets as well as crypto exchange development services, feel free to contact us. Your email address will not be published. It will be best if we define the process with the help of an example. The example will explain how crypto funds transfer between two wallets.
Consider two friends Adam and Daniel. Adam wants to send bitcoin to Daniel. Both own bitcoin wallets to accomplish this task. Adam decides to send 0. Addresses are long and compress of lower-upper case letters and numbers. They are all unique which usually start at 1 or 3.
Adam then logs into his wallet and clicks on the send bitcoin button. He then inputs the public address of Daniel and enters the amount 0. With the help of miners, the transaction will varify in the blockchain by solving complex mathematical problems. After confirmation, it will be added to the blockchain permanently. If Daniel logs on to his wallet, his private key allows him to access the funds that were sent to him by Adam.
Remember, the private key and the public key have to match for Daniel to access the funds. The public key is linked to your wallet address and hashed version of it. Hashing allows encryption of a series of numbers and alphabets to a new set of numbers and letters. It encrypts the input string to a hashed output string.
It is the way how the private and public key is interrelated. Mainly, the public key is a hashed version of your private key. They look completely different but, co-related as the public key derived from the private key. Once they match, it proves that you are the owner of the wallet. Also, it allows you to access the funds and transfer them. There are many types of crypto wallet that exists. Every wallet offers the same function of accessing and transferring of funds, but each wallet is fundamentally different from one another, including pros and cons.
If you are confused about what kind of wallet to get, read this section to find out the best option for you. Crypto wallets can be of many types such as hot wallet, cold wallet, mobile, a desktop wallet, paper, hard wallet, custodial, full node, online, multi-coin, and single-coin. Based on the internet connection, there are two types of wallets:. These wallets operate without an internet connection. Hardware wallets store the private and public keys in a secure hardware device. It supports multiple cryptocurrencies.
They are of the size of a USB-stick. Some even come with tiny displays showing balance and other important information. Through a USB-port, you can connect them to your computer. Moreover, these wallets are safe from any computer viruses and also consider the safest, among all wallets. You only need to connect it to the internet when transferring funds. Even then, it requires a pin code for verification.
Hence, it is safe from all online hacking attempts. If you never lose your hardware wallet and keep it safely, your crypto will be stored safely. Hot wallets are wallets that are connected to the internet. Desktop wallets are a software program that you download and install in your computer. Through the software, you get to transfer and access your crypto funds. Any hot wallet is always vulnerable to internet attacks, and desktop wallet is no exception. These wallets support multiple operating systems, so it does not matter if you are windows, MAC, or a Linux user.
Some desktop wallets also come with a similar mobile app, allowing you to access your wallet on the go. Mainly, the private and public keys stores in the hard-disk of the computer. So, the only way your wallet could access by someone else. If your computer gets stolen or if a hacker gains remote access to your desktop. This type of wallet is safe, compared to mobile and web wallets. Mobile wallet is similar to a desktop wallet. The edge it has over desktop wallets is that you can use for payments in retail stores.
Also, these wallets accept crypto as a form of payment. You can complete the payment process by scanning a QR-code. Mobile wallet is great for those who use crypto daily to make small payments. Sadly, it is not as secure as desktop wallets and is a popular choice for hackers to steal from. But the security features are being updated and beefed-up constantly to make them as a reliable wallet choice. The ability to control private keys fully gives the user peace of mind.
We can classify wallets into two categories based on control:. Instead, they store in the servers of the wallet provider. In case, these servers get hacked, you lose your wallet balance. Example of custodial wallets includes wallets provided by exchanges.
So, as long as the device is safe, the keys will remain safe. The wallet provider will be unable to reset or recover your funds in case the user loses the recovery phrase. Any hardware wallet is an example of a non-custodial wallet. Some cryptocurrencies offer wallets for currency only. You cannot access and use other coins in that wallet. These wallets hold addresses of several cryptos in the wallet seamlessly. It is convenient to hold multiple cryptos in one single wallet.
Users who have a diverse portfolio can benefit from these wallets. The truth is, there is no definite answer here. Each wallet is different from the other and offers unique benefits to the user. It depends what your specific requirement is, whether you trade single crypto or multiple, have a large number of coins or just want to hold a small amount, your budget, whether you can use it on the go. These are the questions you need to ask yourself before you invest in a wallet.
Here are some of the factors and our suggested wallet for that factor:. The best crypto wallet varies from person to person. It depends on your preference. Security is of the utmost importance when it comes to choosing a crypto wallet. Similarly, your crypto wallet is a valuable asset as it contains virtual coins. Here are some tips you can consider as best practice for using a crypto wallet:.
These were some tips to secure your wallet and ensuring your privacy is not compromised. The most important tip is to never share your private key with anyone. It is yours and meant to be known to only you. Finally, It is important to secure your crypto wallet to prevent any unauthorized access and possible theft.
We have listed some best practices to prevent your wallet from being hacked, stolen, or compromised. It starts with never sharing your private key with anyone. There is no single best wallet. It depends on what your requirement is. For some, security is of the utmost importance. Many prefer speed and convenience over everything else. While some prefer simplicity and ease-of-use. We have given our suggested wallet for each requirement.
Cryptocurrency has changed the way we perceive money. In the future, they might even replace the existing money system. And the medium through which you access your crypto is a crypto wallet. By Option Invest. Last Updated: Cryptocurrency Trading Explained. What Is A Crypto Wallet? How Does Crypto Wallet Work? For Example:. Types Of Crypto Wallet.
Bitcoin and crypto. A physical wallet is used to store physical currency, however a Bitcoin wallet does not store bitcoins within it. How can this work? How does crypto wallet work? Unlike cash transactions where one party of a transaction transfers an electronic amount of money. You may be asking yourself: How does a cryptocurrency wallet work? What types of wallets are there? Keeping it short and sweet, a cryptocurrency wallet is a.