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As our new and exciting journey in the Crypto world continues, where you’ve learned more about the basics of the cryptocurrencies, the blockchain technology, today I am going to talk about crypto currencies wallets.
A cryptocurrency wallet is a software program that stores the private and public keys. This program can interact with various blockchains to enable the user to send and receive digital currency and monitor your balance. If you want to use Bitcoin or any other cryptocurrencies, you must have a digital wallet.
- So how do they work?
There is a lot of misunderstanding about the way crypto wallets work even though millions of people are using them every day. Unlike our traditional pocket wallets, the digital wallets do not store any digital currency. Because the currencies do not get stored on a single location or exist anywhere in a physical form. All that exist are the records of the transactions stored on the blockchain.
What? So how do I get my money?
The wallet is a software program that stores your private and public keys and interface with various blockchain so you can monitor your balance, send money and conduct other operations. Let’s see this with a simple example:
Every wallet has a Private Key and a Public Address. The private key is something that you don’t give away. You keep this for you. The Public Address is the one you are giving to another person that want to send you funds. So when someone wants to send you 2 Bitcoins or any other cryptocurrency that person is signing off ownership of those coins to your public wallet address. For you to be able to spend those coins and unlock the funds, the private key stored in your digital wallet must match with the public address. If they match the balance in your wallet will increase and in the senders will decrease. There is no actual exchange of real coins. The transaction is one way. It can not be reversed back. Only if you decide to send back the coins to the person that have send you those coins.
- Are there different types of wallets?
Yes, there are several different types of wallets that provide a different ways to store and access your digital currency. Wallets can be broke down in three distinct categories:
- Software wallets can be: desktop, mobile and online
- Desktop:wallets are downloaded and installed on your PC or a laptop. They are only accessable from a single computer where they are downloaded. Desktop wallets offer one of the highest security, but if a computer is hacked, then you might loose your funds.
- Online: wallets run on the cloud and are accessible from any computing device in any location. While they are more convenient to store your private keys online and are controlled by a third party, makes them vulnerable to hacking attacks and thefts.
- Mobile: wallets run on an app on your phone and can be used anywhere except retail stores. Mobile wallets are usually smaller then desktop wallets because of the limited space available on a mobile phone
Hardware wallets are different from a software wallet, because the private keys can be stored on a USB. Although hardware wallets make transaction online, they are stored offline which gives them more security. The hardware wallets are compatible with several web interfaces and can support different currencies. You simply plug in your device to any computer with internet connection, enter your pin, send the currency and confirm. With the hardware wallets it is easy to make the transaction, while they are keeping your money offline and away from danger.
Paper wallets are very easy to use and they provide a very high level of security. The term paper wallet refers to a physical copy or printout of your public and private keys. When you want to transfer Bitcoin or any other currency to your paper wallet you can do this by transfer of funds from your software wallet to the public address shown on your paper wallet. And 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 is called ‘’sweeping’’, and can be done manually by entering your private key or by scanning your QR code on the paper wallet.
- How secure are cryptocurrencie wallets?
Wallets are secure to varying degrees. The level of security of the crypto wallets depends of the type of wallet that you are using (desktop, mobile, online, paper, hardware) and the service provider. Keeping your money on an online wallet is the most vulnerable and risky. Offline wallets, are the most secure, and simply cannot be hacked, because they are offline. No matter what wallet you use, the most important thing is not to lose your private key, and to be very careful when you are sending your money, not to send it to a scammer. Because the transaction it cannot be reversed or stopped.
It is good to take certain security precautions like:
- Backup your wallet. Keep most of the money on a secure place, like a hardware or a paper wallet. And store small amounts of currency for everyday use online on your computer or mobile. If you choose to use an online wallet there are risks of being hacked.
- Update software. Keep your software up to date, so you will have the latest security available.
- Add extra security layers. The more layers of security the better. Set up long and complex passwords and ensuring that any withdrawal of funds requires a password to start. Use wallets that have a good reputation and provide extra security like two factor authentication and additional pin code every time a wallet get’s opened. Install antivirus and anti malware.
When accessing an online wallet make sure that your address is secure. Never access from public Wi-Fi.
- Do I need to use a single wallet for every cryptocurrency?
Almost every coin has its own infrastructure, so yes you will need another wallet for almost every coin. But luckily for us, multi-currency wallets have been invented, so you do not need to keep all of your currencies into separate wallets. Especially if you are a person who is trading on a daily basis with multiple coins. If you are a person that buys a coin and wants to HODL, then you can keep on a separate wallet. Hardware wallets like” Ledger Nano S Wallet, Trezor, Keepkey give you the opportunity to keep multiple currencies.
More and more people are joining in the world of Crypto every day. Some people are happy storing there coins in software or desktop wallets, some people want to use more secure wallets. And if you are a long term investor, this is not a bad idea. If you want to HODL your coins for a long time, the best way is to store them on a paper or a hardware wallet. The Hardware wallets are one of the safest ways to secure your coins. Your coins will be safe even if your computer get’s hacked or someone stole your hardware wallet. If by any chance you lose your hardware wallet, you can always restore all your coins to a new wallet. Without knowing your secret pin code, no on can transfer coins from your hardware wallet.
Also no spy recorder or Trojan can record what’s happening on your hardware wallet. Regardless which wallet are you going to use, you must be always cautious, use more security measures. Many people do not take it seriously and then when they will get hacked, they start to cry. As an example: Have you seen anyone going on the street, carrying a wallet in his hand filled with a lot of money so everyone can see it? It is the same with the digital wallets. Keep your funds safe, where nobody accept you can see it.
In the next post I am going to talk about the safest types of wallets that you can use.
Until the next post – STAY SAFE and
Thank you for reading.
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