What Is a Crypto Wallet? (Beginner Friendly Guide)

Hilda Warner

Binance

Buy and Sell Crypto

A crypto wallet is an online wallet that is generated by the exchange. The wallet is generated for each customer and they will be able to use it to store their cryptocurrencies. You’ll be able to buy and trade cryptocurrencies with the money in the wallet. The wallet will be generated with a public address and a private key. The public address is generated so that people can send cryptocurrencies to your wallet, and the private key is generated so that you can send cryptocurrencies out of your wallet.

What Is a Digital Wallet, Exactly?

When most people hear digital wallet, they likely think of something like Apple Pay, PayPal, or maybe even Venmo. Digital wallets are simply online accounts that let you store, send, and receive money. Some digital wallets allow you to connect directly to your bank account while others offer prepaid debit cards or mobile apps that function as prepaid credit cards. Other digital wallets are virtual currencies (think Bitcoin) or even gift cards.

digital wallet
Credit:MMM

Regardless of what form it takes, when you use a digital wallet, all transactions occur directly between you and your financial institution; no middleman can see what you’re buying or selling. The only thing someone could potentially learn about your purchases is how much money was in your account at any given time.

How Does a Cryptocurrency Wallet Work?

There are two types of cryptocurrency wallets: software and hardware. Software wallets can be installed on any computer or mobile device. While they are more convenient to use, they are still potentially vulnerable to cybertheft because your private keys can be downloaded by hackers.

Hardware wallets offer an alternative to software wallets. They allow you to store your private keys offline and away from hackers’ reach, making them safer than software wallet counterparts. In addition, unlike other wallets that don’t provide insurance for your coins, hardware wallets have microchip-enabled security features. These features ensure that if someone steals your wallet, it can’t be used without a PIN number which only you know—similar to how bank ATMs work. If someone does steal it, all of your coins will be safe in another location (provided you’ve backed up your wallet properly). Below we’ll look at some key facts about Different Types of Wallets; but first, let’s go over how public and private keys work!

How Public & Private Keys Works?

A crypto wallet has both public and private keys. The public key, which acts as your identity in crypto space, isn’t tied to any specific information about you; it’s just an alphanumeric string that allows people to send money to your wallet or add it to their address book so they can see where their payments are coming from.

Meanwhile, your private key is linked directly to your wallet and gives you access to its funds. If someone has access to your private key, they have control over all of its contents — including bitcoin (BTC), ether (ETH) and other types of cryptocurrency stored in that particular address. Protecting that private key should be one of your biggest priorities! Just like physical wallets, losing your crypto wallet means losing everything inside it forever.

  How to Accept Crypto Payments as a Business on a Website

You don’t need to worry about getting physically mugged on your way home with some BTC: hackers would do whatever they needed to do to get ahold of your private key first.

Are There Different Types of Wallets?

In reality, there are many different types of crypto wallets, with each one offering its own unique benefits and security. In order to better understand how they work, it’s important to look at how wallets function in general. All types of wallets—even bitcoin-only ones—provide a public address and private key that allow you to send and receive digital currency. The difference between them largely lies in what happens when you want to do so. Some only allow access from your computer or certain mobile devices, while others can be accessed from anywhere in world as long as you have an internet connection; still others keep keys offline for increased safety.

If you plan on getting involved in cryptocurrency investing or trading, having a wallet that works seamlessly with whatever exchanges and trading platforms you use will save considerable time (and headaches). Wallets also differ on features like whether they offer multi-signature options, two-factor authentication (2FA), automatic backups, vanity addresses, escrow services and more. At last count, some 140+ digital currency wallet options exist around today’s market; most fall into one of several main categories: desktop/laptop/mobile software wallets.

The original Bitcoin client was released as open source code by Satoshi Nakamoto back in 2009. This means that anyone can check, audit and verify its operation—an essential feature for something handling money. Early versions were text-only and mostly useful for tech-savvy folks; today’s clients are much easier to use thanks to powerful interfaces (e.g., Mycelium) or streamlined concepts (e.g., Coinbase). Also, you no longer need to download gigabytes of blockchain data or sync them with your computer’s hard drive.

Thanks to cloud technology, today’s software wallets allow you to create and access an account from anywhere in world so long as you have internet access; simply put, they enable you to easily be your own bank without compromising on security.

How Do Mobile Wallets Work?

While there are many different types of crypto wallets available, mobile wallets, desktop wallets and web-based wallets are among some of the most popular. Mobile wallets work as extensions of your phone or tablet, so you can keep your cryptos close by at all times.

Desktop wallets can be accessed from anywhere via your computer; if you choose to store large amounts in desktop or hardware wallets, make sure to keep them in a safe place. And web-based and web wallets are typically designed with security measures in mind; they typically aren’t intended for storing large amounts of cryptocurrency. If you do store significant assets on online or mobile wallet platforms, we recommend setting up two-factor authentication (2FA) to secure your accounts and protect against unauthorized access.

  Fastest Growing Cryptocurrency : It's Not Bitcoin (2022 Statistics)

How Do Hardware Wallets Work?

Hardware Wallets
Credit: 7Labs

You can store all of your coins in a software wallet if you’d like, but hardware wallets are more secure. Rather than storing your cryptocurrency on your computer or phone, they connect to your computer via USB and stay there. If someone gains access to your computer, they won’t be able to find it. And if you lose it—or it gets stolen—you don’t have to worry about things getting even worse. The two most well-known hardware wallets are Ledger Nano S and Trezor.

What Is Cold Storage For Bitcoin or Altcoins?

Essentially, it’s what you use to store your cryptocurrencies in when you’re not trading or spending them. The phrase cold storage can also refer to a wallet that you store on an external device, like a USB key or even printed on paper (more commonly referred to as a paper wallet). For most crypto users today, cold storage means storing their digital assets on an offline computer or hardware wallet. If someone steals your password and two-factor authentication (2FA) code, they still cannot access your crypto if it’s stored offline.

What Is a Paper Bitcoin Wallet (Cold Storage)?

Paper wallets are simply Bitcoin private keys printed on a piece of paper. If generated and printed with care, paper wallets are secure cold storage devices. Paper wallets offer a very high level of security as long as they are not physically stolen, lost or destroyed. Printer security and physical theft are major concerns when using paper wallets for Bitcoin storage. Bitcoins stored on paper wallets can be protected by following these general rules: keep only small amounts of bitcoins on them (no more than necessary) and do not reuse addresses (to generate new ones) instead use newly generated addresses each time you want to receive coins.

Like other cold storage methods (such as hardware wallets), users must take care to avoid losing their private keys by storing them in secure locations.

What Are Web and Desktop Wallets Good For?

For starters, they’re incredibly convenient. Desktop wallets are downloaded and installed directly to your computer, which makes accessing your crypto extremely easy—you can be up and running within minutes. Plus, because you control everything locally, it’s much safer than trusting an exchange to hold your funds for you. Just make sure that if you’re going with desktop wallet over web or mobile option, you take extra precautions to secure your computer from malware and hackers who prey on unsuspecting crypto holders.

If you choose poorly or don’t set up your wallet properly, there could be big consequences for losing access to your coins forever. You need to know exactly what you’re doing when it comes to setting up and using one of these wallets. That said, as long as you know what you’re doing (and stay vigilant), desktop wallets are far more secure than any web-based cryptocurrency service.

  What is Cryptocurrency (Beginners Guide To Crypto)

Also remember: using a multi-signature wallet with at least two keys means even if someone gains unauthorized access to one device, they still won’t have another key required in order to move funds out of your account. Keep in mind that most experienced Bitcoin users use multiple keys in their wallet setup. This adds another layer of security by requiring multiple parties/devices to agree before bitcoins can be spent — making them even more difficult for malicious actors or hackers looking for vulnerable network points.

Which Cryptocurrency Wallet Should I Use?

A cryptocurrency wallet acts as your on- and off-ramp to crypto. Whether you’re simply moving tokens between exchanges or buying and selling, making sure your wallet can do what you need it to do can save you both time and money. Knowing how to pick a suitable crypto wallet will make all of your transactions—and there are many!—much easier.

When selecting a cryptocurrency wallet, there are three things you want to keep in mind: security, interface, and fees. To help narrow down your options, here’s an overview of what each factor means for finding one that fits you best.

The first thing we want to talk about is security. Because cryptocurrencies have recently exploded in popularity, they’ve also drawn attention from hackers eager to get their hands on digital assets by any means necessary. It goes without saying (but I’ll say it anyway!) that losing access to your hard-earned funds isn’t good news for anyone who’s serious about cryptocurrencies! For safekeeping purposes, look for multiple authentication options like two-factor authentication and device location history tracking tools; these two features go hand in hand when trying to protect users from brute force attacks because attackers usually have access only from a single device. You also want to be certain your private keys aren’t stored online because that just gives hackers another avenue into stealing from you.

Crypto Wallet
Credit:Unsplash

Another aspect of a crypto wallet worth considering is its interface. Things should be easy to find and intuitive, especially if you’re new to cryptocurrencies and wallets. You should feel confident looking at an app and knowing where everything is within seconds of launching it for the first time. But don’t put too much stock into intuitive until you try out some apps yourself!

Finally, think about fees. Cryptocurrency transaction costs often creep up over time so make sure to select a wallet that offers competitive rates while still providing stellar customer service. Note: If you’re someone who wants full control over your blockchain asset experience then take advantage of an open source solution such as MyEtherWallet for generating contracts and interacting with different blockchains.

Conclusion

With all the hype around the cryptocurrency world, people are investing a lot of money into it. With that there is a need for a safe place to store your cryptocurrencies. That’s where digital wallets come in and the blockchain technology gives them their security.