If you’ve been around blockchain and cryptocurrency for any length of time, undoubtedly you’ve heard of cryptocurrency wallets. They are used for Bitcoin and other cryptocurrencies like Ethereum, or Ripple, or Libra. Indeed, wallets “are a necessary factor for investing and owning cryptocurrencies of any sort,” says Qadir Ak, for CoinPedia Guide.
But just what is it? Is it something you carry as a physical item to put in your pocket?
With millions of people using cryptocurrency and the wallets that support them—there remains a good deal of misunderstanding of how they work. Perhaps it is because they do not carry their digital coin in anything that is physical.
Bankrate says that “A cryptocurrency wallet is an app that allows cryptocurrency users to store and retrieve their digital assets.” The cryptocurrency wallet is a convenient way to store all of one’s cryptocurrency. You can acquire Bitcoin or other cryptocurrencies, and carry them in your cryptocurrency wallet—that is you can store it all in one place—where you can make transactions. Some wallets will only store Bitcoin, while others can store other coins in a multi cryptocurrency wallet.
The cryptocurrency wallet uses a software program “to store, send, receive private and public keys,” according to Qadir AK, (Coin Pedia ) and are used to track ownership. You can send and receive coins through blockchain. “Wallets are a necessary factor for investing and owning cryptocurrencies of any sort,” AK continued.
The cryptocurrency wallet software programs interface with various blockchains used to monitor the balance of your coins and to send money. When someone sends you cryptocurrency they sign off ownership of the digital coins to your wallet’s address.
Five Categories of Digital Wallets
With a basic understanding of what the cryptocurrency wallet is, let’s take a look at the five categories available. The authors at Finder provide an excellent review. Here’s a recap of the five wallet categories.
The most common cryptocurrency wallets have been made for the desktop. Typically these are free to download for Windows, Linux and Mac—and they are easy to use. They are secure, and you’ll have a number of choices. However, there is a risk of computer viruses and malware. One disadvantage is that they are inconvenient to manage your crypto on the go. Popular desktop wallets are Electrum, Exodus, and Copay.
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The mobile wallets are apps that run on your smartphone, and are similar to desktop wallets. The mobile wallet features have many of the same advantages and disadvantages as desktop wallets. They are convenient, easy to use, and are free to download. Some risks include losing your phone, which can open up an opportunity for hacking. The mobile wallet is easier than the desktop wallet. Mobile wallets include Coinomi, Edge, and Jaxx.
The web based online wallets, mostly provided by exchanges, are connected to the Internet—and they are easy to set up and use. They typically require an email address and a password to create an account. They’re convenient and can be accessed from any computer. The biggest disadvantage is security. Because they are online—they can become targets for hackers. To find a web wallet—consider blockchain.info, Coinbase, or MyEtherWallet.
Hardware wallets are one of the most secure options available to you. They “add another layer of security by keeping your private key on a USB stick or specially designed piece of hardware”. You can plug your USB stick into any computer. From there you log in, transact, unplug and go. While your transactions are completed online, your private key is stored offline and protected against the risk of hacking. The hardware option includes the following features: Offline storage, easy to set up and use. However, it is the most expensive option, and it’s inconvenient for quick access to your funds.
Unlike the other options, they’ll cost you. Prices will vary with the model you choose, but you can expect to pay upwards of $150. Popular hardware wallets include KeepKey, Ledger Nano S, Ledger X, or TREZOR.
The last option I’ll cover, is paper. With paper wallets you take your private keys entirely offline. With paper—you will print your public and private keys and use that piece of paper as your wallet.
The key features, and advantages for a paper wallet include security, they are free from the risk of malware or hackers, and it’s free to set up.
The disadvantages are that they can be confusing for beginners, and they can be can be damaged, lost or stolen. So keeping a copy in a lockbox or fireproof safe may be a good backup.
Paper wallets are “typically used by advanced users who want a high level of security.” You can transfer money to a paper wallet using a software wallet to send money to the public key printed on the sheet of paper—typically printed as a QR code for easy scanning. To transfer money—you will first transfer money to a software wallet by “manually typing the private key into the software, and then transfer money from the software wallet to the recipient as usual.”
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Planning to use Bitcoin for your next purchase of coffee? Then you’ll need to ensure you have the right wallet. Knowing what your options are before you dive in will help you to minimize trial and error. With the millions of users in the market, you have plenty of options available to you.