Have you ever lost money out of carelessness, perhaps by keeping it in an arbitrary place you can’t remember? The purpose of a wallet is to store your cash and keep it safe and secure. Crypto wallets are similar to our physical wallets, except that cryptocurrency wallets hold a digital form of money stored on the blockchain.
Cryptocurrency wallet
A cryptocurrency wallet is a software application installed on a blockchain-enabled device. It generates and stores your private and public keys, interacts with the blockchain, tracks your balances, and allows you to send and receive cryptocurrency safely and securely.
The function of a crypto wallet
Let’s use the traditional online banking system to illustrate how crypto wallets work. The conventional bank is analogous to the blockchain in that currencies are stored, and transactions are carried out in both cases. Your bank account number is similar to your public keys, also known as wallet addresses. Your crypto wallet is your online banking app, and your app login information is analogous to your private key. The blockchain, like a bank, tracks and records all transactions that come in and out of your account. You can send and receive currencies using the cryptocurrency wallet and the online banking app. If someone obtains or steals your private keys, they could steal your funds, the way your funds can vanish if someone steals your bank login information. Your crypto wallet enables you to manage your funds and is also the key to your assets.
Types of cryptocurrency wallet
We have two major wallet types: the hot wallet and the cold wallet.
A hot wallet by design generates and stores your keys online. The wallet application on your computer or mobile device is internet-enabled, making it risky because it is vulnerable to attacks and hacking.
On the other hand, a cold wallet generates and stores your keys in the cloud. Cold wallets are hardware devices that serve the purpose of offline generation and storage of private keys. These wallets include BC Vault and the Ledger nano backup pack. The most important thing to remember before purchasing a hardware wallet is to buy directly from the manufacturer. Do not purchase used hardware wallets because they may be compromised.
In conclusion, it is imperative to be wise in picking a cryptocurrency wallet for the custody of your assets, as the famous saying “Not your keys, not your coins” is true.