The world is becoming more and more globalized and in need of a different currency to what we have become accustomed to. As a result, they are inclined to welcome cryptocurrency as a new monetary system soon. You can bet they would have no problem with that as long as it is controlled by a trustworthy cryptocurrency trading platform who tick all the boxes in terms of the features they offer and in offering a secure platform to trade from.
One of the known digital currencies, Bitcoin has reached the minds of many around the world and in all likelihood sparked a lot of interest along the way as the first to offer access to decentralized money.
Two of the main benefits would be the fact that it is:
- Censorship resistant, and
- Immutable against manipulation by the authorities, other central entities, and governments. Everyone involved in trading this way has equal authority.
Without the intervention of 3rd party providers or intermediaries, Bitcoin can operate its own economy due to a peer-t0-peer protocol and decentralized structure.
However, with the good comes the bad in that there are risks and reward from trading this way. To help protect consumers there is a need for tokens in a digital wallet.
What is a Cryptocurrency Wallet?
If you intend using Bitcoin or other currencies like it, you’ll need a digital wallet that acts as a software program to store both public and private keys that let you interact with different blockchains so the user may send and receive coins and check their balances.
How Does it Work?
Millions would make use of cryptocurrency wallets. However, there seems to be quite a bit of misunderstanding concerning how it works. Unlike your every wallet or purse one would carry with you, digital wallets do not hold currency. These are not stored anywhere or in any physical form. All you will see is records of transactions on the blockchain. A wallet like this one serves as a software program that not only stores the relevant keys that needed to interact with blockchain but also allows the user to conduct other operations, such as sending monies.
When you send any digital currency such as Ethereum, you will sign off ownership of it to your wallet’s address.
Before you can start spending the coins by unlocking the funds within the cryptocurrency wallet, the private key you have needs to correspond with the public address that it has been assigned to. Once the private and public keys match, the wallet balance will increase while the sender’s records will decrease.
As there would be no physical exchange taking place, the transaction would just be signed off by a transaction record on the blockchain.
Different Types of Wallets Used to Store Cryptocurrencies
There are various ways to store as well as access digital currencies thanks to several types of wallets being used to make this happen.
Wallets are broken down into three different, yet unique categories, namely hardware, paper, and software for which, mobile, desktop, or online is used
Let’s break these down further:
Hardware – These type of wallets differ significantly from software wallets as they would store the user’s private keys on a USB and stored offline for increased security. You can compare them with numerous web interfaces that can support different currencies. One would merely plug in the device to an internet-enabled PC, key in your pin, then send the currency.
Paper – These wallets are just as easy to use and offer a high level of security. Do not confuse this with the wallets you would use to carry physical notes. In this case, we are talking about a piece of software that securely produce a pair of keys that are printed in paper form. Any funds are transferred from your paper wallet to the software wallet. They refer to this as ‘sweeping,” that can be accomplished manually through keying in your private keys or scanning a QR code.
Mobile wallets – These are run on your phone via an app and can be utilized anywhere to make payments.
Desktop wallets – They are downloaded and stored on your computer and can only be accessed from a single computer. It is said these offer the highest level of security. Although there is still a chance that a virus or hacker may wipe it off your PC.
Online wallets – You may have guessed it that these run on the Cloud and can be accessed anywhere and on any device. Due to your private keys being stored online, you are more vulnerable to theft and hacking attacks.
As you can see, your level of security would depend on the type of wallet used. Offline wallets are way more secure as hackers do not have access to them and are not reliant on a 3rd party for security. In all cases, one should take the necessary precaution and study the cryptocurrency trading platforms you intend using before signing up.