Sep 26, 2018 By Katherine Flores
Even Wallets Get a Crypto Upgrade
A cryptocurrency wallet works as a software program to store private and public keys to your coins. It’s not just a holding place for money, though. This is no simple folder. It does much more. In fact, the wallet software program interacts with the blockchain. That’s so users can send and receive digital currency as well as monitor their balance. Bottom line is, if you want to use cryptocurrency you’ll need a digital wallet.
How do they work?
Millions use cryptocurrency wallets but not really for storage. That’s because crypto coins aren’t actually stored in any single location. Truth is, they don’t really exist anywhere in any physical form. They’re called coins but in reality are records of transactions – each one a long number - stored virtually on the blockchain.
What actions can I take with the wallet?
Not only can you store both your public and private keys, you can also interact with various blockchain users. Also, monitor your balance, send money, and conduct other operations thanks to the wallet.
When a person sends you digital currency, they sign off ownership of the coins to your wallet’s address. Now it’s ultra-clear why you need the wallet. In order to unlock the funds, the private key stored in your wallet must match the public address of the currency. So then, if public and private keys match, the balance in your digital wallet will increase, and the sender’s will decrease accordingly. That means there’s no actual exchange of real physical coins. Rather, it’s a numbers game.
This exchange is thus recorded onto the blockchain and you will see a change in the balance within your cryptocurrency wallet. You’ve got coins. That’s the essence of how a virtual wallet works.
Wallets break out into three distinct categories – software, hardware, and paper. Software wallets could be a desktop, mobile or online variation.
- Desktop: Just download or install this type of wallet on a PC or laptop. You can access the wallet from this single computer only. Desktop wallets offer high security for this reason. However, if that computer gets hacked or a virus your funds are at risk.
Example: Exodus – A multicurrency wallet with high levels of anonymity protection, fantastic usability, lots of extras, and supports TONS of coin types.
- Online: These wallets run on the cloud. So, they’re accessible from any device in any location. While more convenient, online wallets store your private keys online and are controlled by a third party. For those with trust issues and cloud conspiracy theories, this likely makes them too vulnerable.
Example: Green Address – Because it’s a multi-signature wallet, security’s exceptional for an online wallet. Private keys aren’t held by the third party server but payments must be approved by Green Address. Although that means less anonymity it’s a bonus for security’s sake.
- Mobile: Crypto wallets can also run on an app on your phone. These are particularly useful because you can just pull them out for use anywhere, even retail stores. One drawback though, mobile wallets are usually smaller and simpler than other wallet types because of limited space.
Example: Enjin – This mobile wallet has a high overall rating with exceptional anonymity protection and it’s super easy to use but it only supports five types of currency and offers no extra services.
- Hardware: Some wallets differ from software wallets in that they store a user’s private keys on a hardware device like a USB. Although hardware wallets can make transactions online, they are stored offline. This makes them more secure. Not only that, but hardware wallets can be compatible with several web interfaces and support different currencies. What’s more, they make transactions easy. You just plug in the device to any computer or device. Get online, enter a pin, then send or receive currency and confirm. So, hardware wallets are a way to have the best of both worlds. They make it easy to end and receive funds while also keeping your money offline and secure.
Example: Trezor – Considered to be the ultimate in security, Trezor works like a vault for your cryptocurrency. It supports many currency types and offers medium level anonymity but not great for on-the-go.
- Paper: These wallets are easy to use and provide a high level of security. Although the term paper wallet often refers to a physical copy or printout of your public and private keys, it can also be software that generates a pair of keys that are then printed. So, paper’s not quite as old school as it sounds. You can transfer virtual currency to your paper wallet with a simple transaction sending funds from your software wallet to the public address shown on your paper wallet. Alternatively, if you want to withdraw or spend currency, just transfer funds from the paper wallet to your software wallet. You can do this manually by entering your private keys. Or just scan the QR code on your paper wallet.
Example: Bitaddress – A way to create a paper wallet that’s found online, Bitaddress helps also create a private and public key for you. So, it’s a fun, super easy, and totally secure way to make a paper wallet.
Keep Your Wallet Secure
Once you’ve chosen the perfect wallet for your precious cryptocurrency it’s just a matter of keeping it safe. This is easier than you might think and takes about the same amount of effort as keeping your computer info secure.
- Back it up. Just like with your cellphone or home computer, wallet backups are crucial. An easy way to manage this is to only store small amounts of currency for everyday use online. Then keep the vast majority of your funds in a high security spot on your computer or mobile. Meanwhile, cold or offline storage options for backup (like paper or USB) will protect you against computer failures and recover your wallet should it be lost or stolen.
- Update software. Keep your software up to date so that you have the latest security enhancements available. You should regularly update not only your wallet software but also the software on your computer or mobile.
- Add extra security layers. Think of it like a snowstorm when it comes to security, the more layers the better. Setting long and complex passwords helps. Also set it up so that funds withdrawal requires a password. Use wallets with a solid reputation. Then add extra security layers like two-factor authentication and pin code requirements for every wallet opening.
What You Want in a Wallet
So, now you know some wallet basics but how can tell which wallets are best? Here are some things to think about on your search for the perfect wallet. It’s all about your priorities. For instance, convenience may be a crucial factor but it can also come at the cost of security. Bonus features might require new learning but maybe you just don’t have the time and energy for that. It’s critical to figure out what matters most to you and how much you’re willing to compromise for each factor.
To make it a little easier, here are some factors to consider:
Cost - Is it free? What are the drawbacks of using a free or less expensive wallet?
Security - Does the company have an exceptional track record for safety?
Mobility - Easy to hold onto and difficult to lose? How accessible is it really?
Usability - Is the wallet intuitively designed? Storage for various altcoins?
Convenience - How fast and easily can you make a purchase when necessary?
You may want a wallet that offers the best combination of the above-mentioned traits. Remember, all wallets have winning features as well as weaknesses. We hope you have a clearer understanding now of what virtual wallets hold in store for you, namely cryptocurrency and the power to use it.