Cryptocurrency wallet or blockchain wallet is a digital, web-based wallet where its users can securely store, manage, and buy and sell their cryptocurrencies, such as Bitcoin, Ethereum, or other digital assets. To put it simply, it can be seen as a digital representation of a physical wallet and allows users to interact with the blockchain network. Since it is web-based, it can be accessed from any mobile, computer, laptop, or tablet with an internet connection.
Unlike physical wallets, which hold physical currency, the main function of cryptocurrency wallets is to facilitate the cryptographic functions of encryption and decryption. Thus, a cryptocurrency wallet carries the following:
- Public key – it is a unique address that is visible to others and is used to receive funds. It also exhibits the available balance against the address.
- Private key – it is to be kept secret which should never be visible to anyone else. The famous adage for this is “not your private key not your coins” explains the importance of keeping one’s private key completely hidden. It is also used to digitally sign transactions and access the funds stored in the wallet. Hence it is a good security practice to create backup of the private key, use strong passwords and enable two-factor authentication.
Types of Blockchain or Cryptocurrency Wallets:
There are three main types of wallets – software, hardware, and web wallets.
- Software Wallets: As the name suggests, these wallets are software programs or apps which can be installed on computers, smartphones, or other devices. They are user-friendly and provide a very easy interface for managing cryptocurrencies and interacting with the blockchain network. Some of the well-known software wallets are – Guarda, Coinbase, Mycelium, Exodus, Electrum, etc.
Software wallets can be further categorised as follows:
- Desktop Wallets: A desktop wallet is installed on a personal computer or laptop, these wallets are comparatively secure than a web wallet but require users to be cautious about malware and computer security.
- Mobile Wallets: Mobile wallets are created for smartphones and tablets, providing easy access to cryptocurrencies on the go. They are convenient for everyday transactions but require users to protect their devices from loss or theft.
- Hardware Wallets: Hardware wallets are physical devices which are mainly created to store cryptocurrency private keys offline. Thus, they tend to render a high level of security by keeping the private keys away from internet-connected devices. This feature of hardware wallets causes it to be one of the most secure options for storing cryptocurrencies. When a transaction needs to be undertaken then a hardware wallet can be connected to a computer or smartphone via USB or Bluetooth. Examples of some of the well-known hardware wallets include Ledger Nano X, Ledger Nano S, Trezor Model T, Ellipal Titan, CoolWallet Pro, KeepKey, etc.
- Web Wallets: As the name suggests, web wallets operate through a web browser and does not require a software installation. They are very similar to Google Pay or Apple Pay, only that web wallets are used for cryptocurrencies. Thus they could be easily accessible from any device with an internet connection. The most important thing to remember when using a web wallet is that the users must depend on the wallet provider to keep their private keys secure. Of all the different types of wallets, web wallets are the most convenient for quick access and easy setup. Some of the most popular Web Wallet are MyEtherWallet and MetaMask.
Another wallet is a paper wallet, which is not a wallet technically. It is a physical document where a user documents their public and private keys of their wallet. This documentation is done to keep the private key secure. Paper wallets are considered cold storage and offer protection against online attacks. The important thing to be remember is that they require careful handling, storage, protection from physical damage, and ensuring the documentation is not lost.
It is advisable to do a complete research before choosing the type of cryptocurrency wallet one would like to use.