Crypto wallets — why consider looking into it?
The crypto & NFT boom has led to the adoption of crypto wallets for a variety of purposes. What is this new kind of “plastic cards”, what are they used for, and most importantly how promising are they in times of the crypto mainstream?
Crypto wallet: the concept and types
In general, a cryptocurrency wallet is a place (app or device) to store cryptocurrency. But unlike a physical wallet where the cash is stored, crypto wallets do not store the cryptocurrency itself — to be more precise, they store the user’s public and private keys to manage his or her digital money in the blockchain. While a public key is comparable to a bank account (you share it with other people to transfer currency), a private key is comparable to a PIN to your plastic card (you shouldn’t share it with anyone).
So, crypto wallets allow you to store keys, send and receive cryptocurrencies and some of them provide more features like buying and selling crypto and interaction with decentralized applications (DApps).
Note: Cryptocurrency transactions do not imply “sending” tokens from one phone to another. When you send tokens, you use your private key to sign the transaction and send it to the blockchain network. The network will then incorporate that transaction to display an updated balance on your and the recipient’s address. So, it is important to remember that cryptocurrency is stored in the blockchain, not a wallet. A wallet is just a way to store a confidential key to access your crypto.
Types of crypto wallets
- Hot wallets
Hot wallets, unlike cold wallets, are connected to the Internet. This in turn makes them both more accessible but at the same time vulnerable to hacker attacks. There are different kinds of hot wallets:
This is a traditional application that requires installation on a phone. This wallet is very reliable and convenient for storing private keys while providing a simple user experience.
- Web (i.e. browser extension)
This is a type of online wallet without the need to install an app. Through the browser access, web wallets provide users with the possibility of reaching crypto assets from anywhere, with only keys and a device.
One of the perks of using these wallets is key reset and therefore easy access to your digital funds.
This is an example of a wallet that requires installation on the desktop. Unlike a web wallet, these give you full control over your keys and therefore your assets.
Сold wallets do not require online access and thus they are considered safe and resistant to online attacks by hackers.
A paper wallet is a physical place with printed or written keys. On the one hand, it is one of the best ways to protect your funds from theft, but on the other hand, the loss of this paper can lead to the non-recovery of your assets.
It is an external device such as a USB that stores keys. You need to press a button on the device to approve (sign) the transaction.
Note: In terms of security for storing crypto, it is better to use cold wallets. But by choosing them, you are fully responsible for the security and availability of your keys. If you lose them, it will be impossible to get your savings back.
In general, crypto wallets provide their users with the following perks:
- Security (the level depends on a specific wallet type)
- A long-run option for crypto storage
- Crypto portfolio management
- Extra useful features in addition to the usual transfer and storage
- Various cryptocurrencies transfer
- No intermediary (in comparison with a bank account).
Crypto wallets market state
According to a Statista report, the number of cryptocurrency app users in January 2021 increased…
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