The traditional wallet was invented shortly after the appearance of paper money in the 1600s, usually made of horse or cow leather, with pouches for other items. Our modern wallets emerged in the early 1950s and quickly adapted to holding cash and credit cards. Today, there are certain wallets that only exist in cyberspace to hold cryptocurrency. These cryptocurrency wallets help keep digital currency secure and allow the owner to complete online transactions quickly and privately.
How Do Cryptocurrency Wallets Work?
While the term “wallet” makes many people assume that crypto wallets hold coins themselves, in reality, the coins remain on the blockchain. A cryptocurrency wallet is a program that stores access keys, both public and private, that identify a person’s ownership of coins or tokens on a blockchain. To receive or send cryptocurrency, users must have a cryptocurrency wallet that can interact with different blockchains that facilitate transactions between parties. The ability to complete this function lies in the possession of both private and public keys.
The owner of the wallet unlocks it using their private key and sends coins to the public address of the recipient. When the transaction is completed and recorded on the blockchain, the transaction record reflects a lower balance in the sender’s wallet and a higher balance in the recipient’s wallet.
Types of Cryptocurrency Wallets
There are two main kinds of electronic wallets that individuals can use to keep their cryptocurrency safe—a hardware wallet and a software wallet. Each comes with distinct advantages and disadvantages, and users must decide which one is best for them.
Hardware wallets are small electronic devices that attach to a computer. They are designed to store information about cryptocurrency accounts securely offline. Available online or in reputable electronics stores, most experts agree that a hardware wallet is the safest way to store large amounts of cryptocurrency.
Hardware wallets are extremely secure as they have private keys that identify the owner and their account when they connect to their computer and want to do a cryptocurrency transaction. They are difficult to hack as long as they are purchased from an authorized reseller and remain in the physical control of the owner. The level of security and ease of use make hardware wallets extremely desirable for people holding crypto.
The three most popular hardware wallets on the market today are the Legend Nano S, Trezor and KeepKey. Each one has slightly different advantages that owners must analyze to see which the best fit for their needs is. Differences include compatibility with different types of cryptocurrencies, design, size, and cost. Overall, however, hardware wallets are an extremely good purchase for those who worry about losing their cryptocurrency investment.
Software wallets are convenient and easily accessible because they are not a physical storage device. Instead, it is a software program that stores the keys to digital currency on your computer or smartphone. Using a password, owners can access their coins and perform transactions. Many software wallets are free and easy to use, so many beginners who are exploring the world of cryptocurrency find them to be an excellent way to hold funds while gaining expertise.
Some popular software wallets include Jaxx, Trust, Ethos, Brave, and Metamask. The biggest downside to software wallets is that they exist online and on the owner’s computer or phone. This makes them somewhat more susceptible to hacking, malware, and viruses.
The Right Wallet for Every Owner’s Needs
It’s important to investigate crypto wallets carefully and match them to the owner’s needs. There are definite advantages of using one type of wallet over another. So much depends on experience, familiarity with cryptocurrency, and technical ability.
In other words, software wallets have a few possible vulnerabilities because they exist online and are managed by third parties. However, they are convenient, user-friendly, accessible from many different devices, and generally secure. Hardware wallets are more difficult to hack because they can be physically secured. However, there are fewer user-friendly features and they can only be used when joined to the owner’s computer. Owners who have done their research will feel confident choosing the right wallet to fit their needs.