A cryptocurrency Wallet is a piece of software or hardware that you can use to store and manage your cryptocurrencies.
Most people have misunderstandings about crypto wallets. They think your cryptocurrencies are sorted in your crypto wallet, but you can only use crypto wallets to store and manage your cryptocurrency. It doesn’t mean that you store your cryptocurrencies in your wallet. Got confused? Let me make it clear.
Your cryptocurrency has no physical form, it’s just a unique record that is stored on a blockchain database, and a blockchain database is stored on decentralized and distributed networks of computers. So When it is stored on thousands of computers across the world, then how is it possible for you to store your cryptos in your wallet?
In reality, you only store public and private keys in your wallet. Those keys make you the owner of all the cryptocurrencies which are associated with it. you can use those keys to access your crypto on the blockchain and manage it as you want.
That’s why it is very important to never lose the key. If you lost the keys you lost your cryptocurrencies. Another most important thing to remember is; never ever give your wallet’s private key to anyone. If anyone has access to your private key, he has access to your cryptocurrencies. In simple words, who owns the private key, they own the cryptocurrencies. Be safe!
Cryptocurrency wallets could be hot or cold. It simply means if your wallet is somehow connected to the internet it will be called a hot wallet. And if your wallet is not connected to the internet all the time it will be called a cold wallet.
Types of Cryptocurrency Wallets
1. Software based Crypto wallet
The software-based wallet is the piece of software that you install on your computer or your mobile phone to manage your crypto. the software-based wallet could be desktop, mobile or online, let’s see the difference
This type of wallet you download and install on your PC or Laptop. Desktop wallets are considered highly secure, however, if your computer gets a virus or hacked, you might lose all of your cryptocurrencies.
This type of wallet you download and install from the app store to your smartphone or other smart devices like tablet or iPad etc. mobile wallet is lightweights, simple, and very easy to use.
Online wallets are also called cloud-based wallets. As the name suggests it runs on the cloud and as long as you are connected to the internet, it can be accessed from any computing device from anywhere. Online wallets are more convenient to access but also more vulnerable to hacking because It stores private and public keys in the cloud and is also controlled by a third party.
2. Hardware Based Cryptocurrency Wallet
It’s a piece of hardware, mostly in the form of a USB stick or memory card. You connect it to your computer and use it with the help of software to manage your cryptocurrencies. It is considered more secure in the comparison of software-based wallets.
3.Paper based Crypto Wallet
This type of wallet is just the piece of paper on which your public and private keys are printed, mostly in the form of QR codes. You will need to scan those keys or manually type when you want a transition to execute. Paper wallets provide a high level of security.