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Monday, May 18, 2020

A Beginner's Guide to Cryptocurrency Wallet





Most people think that a cryptocurrency wallet holds Bitcoins and other cryptocurrencies. A cryptocurrency wallet, though, doesn't hold any coins at all. So, what does a cryptocurrency wallet do? What is the difference between a mobile wallet and an online wallet? Here is a complete beginner's guide to cryptocurrency wallets.

How do Cryptocurrency Wallets Work?

Cryptocurrency wallets are small software programs that store public and private keys. They interact with blockchains to process cryptocurrency transactions. Each cryptocurrency wallet has a unique address, a private key, and a public key. The address is like a bank account number. The public key is an encrypted address that other people can use to send money to you. The private key is the key that unlocks your wallet and allows you to send money to other people.

A cryptocurrency wallet doesn't hold any coins. A cryptocurrency wallet confirms your ownership of cryptocurrency. Cryptocurrency doesn't exist in a central location, so no one can hold it or put it into a wallet. Instead, the ownership of cryptocurrency gets recorded in a blockchain. A blockchain is like a ledger system that is held on many different computers. When you buy Bitcoins, the coins don't get transferred into your wallet. Your ownership of the coins gets recorded by a digital transaction in the blockchain.

What Are the Different Types of Cryptocurrency Wallets?

There are several different types of cryptocurrency wallets. Some wallets are more secure than others, and some are more convenient to use. Here is an explanation of the various types of cryptocurrency wallets:

Online Wallets

An online wallet is the most convenient type of cryptocurrency wallet. Online wallets exist on a server on the internet. So, you can access an online wallet from any device that can connect to the internet. Online wallets are password protected. They also often use other security measures, such as two-factor authentication. Even so, because they are accessible online, online wallets are vulnerable to hacking.

Desktop Wallets

Desktop wallets are local programs stored on a desktop device. You can only access a desktop wallet using the local device. Desktop wallets are more secure than online wallets. Even so, they are only as secure as your PC is. A desktop wallet could still be vulnerable to hacking if your PC is not secure.

Mobile Wallets

Mobile wallets are cryptocurrency wallets that you keep on your mobile device. Mobile wallets are convenient because you have access to them wherever you go. You can use a mobile wallet on the go. And, you will also be able to pay for goods in physical stores with a mobile wallet by scanning a quick response (QR) code. Mobile wallets offer the same level of security as desktop wallets do. The drawback of mobile wallets, though, is that mobile devices are more likely to get lost or stolen.

Hardware Wallets

Hardware wallets are devices that store nothing else but your cryptocurrency wallet. Hardware wallets are very secure. They are only connected to the internet when you are using them. They could, though, like mobile devices, get lost or stolen.

How Secure are Cryptocurrency Wallets?

Cryptocurrency wallets store confidential information. If a hacker gets hold of your private key, they have the key to your money. Any cryptocurrency wallet that you use over the internet is vulnerable to hacking. So, you should always keep all your security software up to date. There are also other steps that you can take to keep your cryptocurrency wallet safe.

When it is available, you should use two-factor authentication for all your transactions. Two-factor authentication will protect you by asking for confirmation of each transaction.

Some cryptocurrency wallets also provide multi-signature authentication. Multi-signature authentication provides extra protection by asking for confirmation from a different device.

It is also a good idea to back up your cryptocurrency wallet. If you have a secure backup, you will be able to use that backup to access your funds if you lose your wallet. Remember, your wallet does not hold your coins, it holds your keys. So, if you lose your mobile wallet, but you have a backup on your desktop, so you have not lost your cryptocurrency.

How to Choose a Cryptocurrency Wallet

There are lots of different cryptocurrency wallets available. There are several things to consider when you are choosing a cryptocurrency wallet. You need to think about how and where you will want to use the wallet. You will need to look at the security features that the wallet has. And, you will need to check which cryptocurrencies the wallet is compatible with.

Conclusion

Cryptocurrency wallets hold the keys to your cryptocurrencies. So, whichever type of wallet choose, you must take good care of it. A cryptocurrency wallet may not hold any money, but it is the key to the blockchain that does.