A cryptocurrency wallet is a digital wallet that refers to an electronic device, phone app,
computer software or an online service that allows an individual to make electronic
transactions. It stores private and public keys and interacts with various blockchains to
enable users to send and receive digital currency and monitor their balance, send money
and conduct other operations.
In this three part series we take a look at the types of crypto wallets and how to secure them.
When a person sends you bitcoins or any other type of digital currency, they are essentially signing off ownership of the coins to your wallet’s Public Key. To be able to spend these coins(money) and unlock the funds, the Private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the sender's will decrease accordingly.
There is no actual exchange of real coins(money). The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.
There are two categories of Cryptocurrency wallets, namely; custodial and non - custodial wallets. A non - custodial wallet gives you full control of your private keys which proves sole ownership of the coins stored in the wallet while in a custodial wallet, you entrust a third party to control and secure your private keys -this does not give you ownership of the coins, if this "third party" is hacked or decides to defraud you, you have no way to claim or retrieve your coins. Examples of custodial wallets are web - based wallets and most cryptocurrency exchanges except for DEXs (Decentralized Exchanges).
TYPES OF WALLETS
There are several types of wallets that provide different ways to store and access your digital currency. Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.
1) DESKTOP WALLETS
Desktop wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded and installed. Desktop wallets offer one of the highest levels of security however, if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
2) ONLINE/WEB WALLET
Online or web wallets run on the cloud and are accessible from any computing device in any location with an internet connection. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking, attacks and theft.
3) MOBILE WALLET
Mobile wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
4) HARDWARE WALLET.
A hardware wallet is a rather unique type of cryptocurrency wallet that stores the user’s private keys in a secure hardware device.
It is the most secure way of storing any amount of cryptocurrency, there have been no verifiable incidents of money being stolen from a hardware wallet. Unlike paper wallets, which must be imported to software at some point, hardware wallets can be used securely and interactively. Moreover, they are immune to computer viruses, the funds stored cannot be transferred out of the device in plaintext and in most instances their software is open source.
Some hardware wallets even have screens, which add another layer of security, as they can be used to verify and display important wallet details. For instance, a screen can be used to generate a recovery phrase and to confirm the amount and address of the payment you wish to make. So, as long as you invest in an authentic device made by a trustworthy and competent manufacturer with a good reputation, your funds will be safe and secure. Hardware wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB flash drive. Although hardware wallets make transactions online, they are stored offline which delivers increased security.
Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy.
Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
5) PAPER WALLET
A paper wallet is essentially a document which contains a public address that can be used to receive Bitcoins and a private key, which allows you to spend or transfer cryptocurrency stored at that address.
Those are often printed in a form of QR-codes so that you can quickly scan them and add the keys to a software wallet to make a transaction. Paper wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward.
Transferring Bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.
By Francis Mudenda
Tutor, Web Dev, Author, Crypto Investor
In this three part series we take a look at the types of crypto wallets and how to secure them.
When a person sends you bitcoins or any other type of digital currency, they are essentially signing off ownership of the coins to your wallet’s Public Key. To be able to spend these coins(money) and unlock the funds, the Private key stored in your wallet must match the public address the currency is assigned to. If public and private keys match, the balance in your digital wallet will increase, and the sender's will decrease accordingly.
There is no actual exchange of real coins(money). The transaction is signified merely by a transaction record on the blockchain and a change in balance in your cryptocurrency wallet.
There are two categories of Cryptocurrency wallets, namely; custodial and non - custodial wallets. A non - custodial wallet gives you full control of your private keys which proves sole ownership of the coins stored in the wallet while in a custodial wallet, you entrust a third party to control and secure your private keys -this does not give you ownership of the coins, if this "third party" is hacked or decides to defraud you, you have no way to claim or retrieve your coins. Examples of custodial wallets are web - based wallets and most cryptocurrency exchanges except for DEXs (Decentralized Exchanges).
TYPES OF WALLETS
There are several types of wallets that provide different ways to store and access your digital currency. Wallets can be broken down into three distinct categories – software, hardware, and paper. Software wallets can be a desktop, mobile or online.
1) DESKTOP WALLETS
Desktop wallets are downloaded and installed on a PC or laptop. They are only accessible from the single computer in which they are downloaded and installed. Desktop wallets offer one of the highest levels of security however, if your computer is hacked or gets a virus there is the possibility that you may lose all your funds.
2) ONLINE/WEB WALLET
Online or web wallets run on the cloud and are accessible from any computing device in any location with an internet connection. While they are more convenient to access, online wallets store your private keys online and are controlled by a third party which makes them more vulnerable to hacking, attacks and theft.
3) MOBILE WALLET
Mobile wallets run on an app on your phone and are useful because they can be used anywhere including retail stores. Mobile wallets are usually much smaller and simpler than desktop wallets because of the limited space available on a mobile.
4) HARDWARE WALLET.
A hardware wallet is a rather unique type of cryptocurrency wallet that stores the user’s private keys in a secure hardware device.
It is the most secure way of storing any amount of cryptocurrency, there have been no verifiable incidents of money being stolen from a hardware wallet. Unlike paper wallets, which must be imported to software at some point, hardware wallets can be used securely and interactively. Moreover, they are immune to computer viruses, the funds stored cannot be transferred out of the device in plaintext and in most instances their software is open source.
Some hardware wallets even have screens, which add another layer of security, as they can be used to verify and display important wallet details. For instance, a screen can be used to generate a recovery phrase and to confirm the amount and address of the payment you wish to make. So, as long as you invest in an authentic device made by a trustworthy and competent manufacturer with a good reputation, your funds will be safe and secure. Hardware wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB flash drive. Although hardware wallets make transactions online, they are stored offline which delivers increased security.
Hardware wallets can be compatible with several web interfaces and can support different currencies; it just depends on which one you decide to use. What’s more, making a transaction is easy.
Users simply plug in their device to any internet-enabled computer or device, enter a pin, send currency and confirm. Hardware wallets make it possible to easily transact while also keeping your money offline and away from danger.
5) PAPER WALLET
A paper wallet is essentially a document which contains a public address that can be used to receive Bitcoins and a private key, which allows you to spend or transfer cryptocurrency stored at that address.
Those are often printed in a form of QR-codes so that you can quickly scan them and add the keys to a software wallet to make a transaction. Paper wallets are easy to use and provide a very high level of security. While the term paper wallet can simply refer to a physical copy or printout of your public and private keys, it can also refer to a piece of software that is used to securely generate a pair of keys which are then printed. Using a paper wallet is relatively straightforward.
Transferring Bitcoin or any other currency to your paper wallet is accomplished by the transfer of funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, all you need to do is transfer funds from your paper wallet to your software wallet. This process, often referred to as ‘sweeping,’ can either be done manually by entering your private keys or by scanning the QR code on the paper wallet.
By Francis Mudenda
Tutor, Web Dev, Author, Crypto Investor
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