In this article, I will explain the basic knowledge to understand a Wallet using simple and real examples.
What is a cryptocurrency wallet?
First, consider how you keep your real money (Fiat currency). It is safest to keep it in a bank! By using a cryptocurrency wallet, you would follow the same guidelines. It is protected by a cryptographic key and will allow you to safely send and receive bitcoins and other cryptocurrencies from your wallet.
How does a Cryptocurrency wallet work?
Cryptocurrencies are not stored in a physical wallet but in a digital wallet, as they represent digital value. A wallet address is similar to a bank account number. Don’t be afraid to give someone else your wallet number, as people will need it if they want to transfer funds to you. Like using your bank account, your wallet number can be used for your company to pay your payroll, a client can pay their invoice, or you can use it to do crypto transactions. As in the physical world, no two bank account numbers can be the same, the same way no two wallet addresses are the same, and also, there is no limit to the number of wallet addresses you can create. Here is an example of an address: 1JV4v1FiGpE1VY7kD7KMovmNfNT3t6LmfP. As you can see, it is a combination of numbers and letters, using upper and lower case. But wallet addresses do not reveal identity in the real world, which is why it is referred to on the blockchain as a ‘pseudonym’.
What are the different types of wallets?
There are many types of wallets available, and the one you choose will depend on your needs. Each wallet can offer different solutions, such as extra security, ease of use or convenience. The main types of cryptocurrency wallets are:
Desktop wallets must be downloaded to a computer and can only be accessed from that specific device. Generally speaking, they offer a good combination of safety and comfort. Yet, it is important to remember that if a hacker could control your device remotely, they could gain access to your wallet.
A mobile wallet works similarly to a desktop wallet, as it is downloaded directly to your phone. Normally you can access your wallet by downloading a mobile application, which allows you to spend your cryptocurrencies by scanning a QR code.
Web or online wallet
A web wallet offers the highest convenience when sending cryptocurrencies to someone else. However, it is also the least secure. This is because the wallet provider generally has full control over it. An example would be storing cryptocurrencies on an exchange. The exchange would store your cryptocurrencies on its central server, meaning the hacker could access all your funds if they were hacked. Keeping only a small amount of cryptocurrencies in your web wallet is better.
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Paper wallets are one of the most undervalued wallets out there. All you need to do is print your private and public keys on paper, and that’s it! Your funds are safe! This is because the keys are not connected to any server, which means that the only way someone could access them is if they had the physical paper. When you need to transfer funds, you should enter the keys into a software or web wallet, or even easier if you will scan the QR code that you printed.
In terms of security, there is nothing better than a hardware wallet. It is a physical device with the sole purpose of storing your private and public cryptographic keys within the hardware. The device doesn’t need to be connected to the internet unless you need to transfer funds. However, you must enter your private PIN directly on the device, making it virtually impossible for hackers to access your keys.
What security do wallets provide?
You already know the different types of wallets and their convenience levels. Now, let us learn about the level of security they provide. Any cryptocurrency wallet connected to the internet (for example, a desktop, mobile or web wallet) will always be vulnerable. Although abusive hackers are not ethical people, they can be very smart. They come up with ways to access other people’s data, so you need to make sure that you do everything you can to protect your private key. Here are examples of how a hacker could access your stored funds with an internet connection.
- Key recorder
- Remote access to your device
- Identity fraud
First of all, you should always make sure that your device is using the latest software. As hackers find new methods, they can bypass built-in security controls, so by updating your software, and you will always have the highest level of security. It is also advisable to configure extra layers of security. Many wallets allow you to configure two-factor authentication. A wallet with authorization for several firms is also advisable. A multi-signature wallet must send funds, and the user must authenticate the transaction using two or more separate devices. In this way, if one of your devices is lost, stolen, or hacked, the criminal will not be able to access your cryptocurrencies since they would also need the other devices. Finally, it is recommended that you back up your wallet regularly. This is accomplished by typing a backup password phrase so that if something were to happen to your wallet, you could still regain access. By carrying out all the above security measures, you will ensure that your wallet is safe and secure against possible hacks.
Can all cryptocurrencies be stored in the same wallet?
This is the million-dollar question: the answer is sometimes it depends on the cryptocurrencies you have. For example, you only need a bitcoin-compatible wallet if you only have bitcoin. However, what if you have bitcoin and litecoin? Although each has its blockchain, it is possible to use one wallet for several cryptocurrencies. These wallets allow you to store different cryptocurrencies within the same wallet, which is much easier than using a different wallet for each cryptocurrency.
Interestingly, most available tokens were created on the Ethereum Blockchain, meaning they are “ERC-20” compliant. Therefore, if you have many ERC-20 tokens, you can store several of them in the same wallet. Other cryptocurrencies are not as flexible, so always check with the wallet provider before transferring funds because if the cryptocurrency is incompatible, you will lose them forever.
Which wallet is the most reliable?
I hope you are taking good note of what a cryptocurrency wallet is, its technology, and the available types. I also hope that you are already getting a good idea of how to protect your wallet from hackers and the information it reveals or does not reveal when you use it. Now let’s know more about the best-valued wallets in the cryptocurrency market that are available today. Unfortunately, as hundreds of different providers are now, I cannot review them all. Instead, I’m going to recommend four of the most popular ones.
Exodus is a desktop wallet of multiple cryptocurrencies that will allow you to store several of them and different, such as bitcoin, litecoin, and dash, as well as several ERC-20 tokens. One of the best features of Exodus (besides being free) is that it is very easy to use. When you log in, you can see your entire wallet in a very visual pie chart, which will also allow you to know the current market value of each cryptocurrency. The wallet provider will never have access to your private keys, nor are they connected to the Exodus servers. For greater convenience, Exodus has a built-in ShapeShift API, allowing you to buy and sell cryptocurrencies within the wallet.
It is best if you are looking to store your bitcoins on a mobile phone. Others claim that the Bread wallet offers “nerd-level security.” This wallet is directly connected to the Bitcoin Blockchain. The user interface is very clean, which makes it perfect for beginners. Bread also has a great feature that allows you to scan the QR code of the wallet address to which you want to send funds, and this functionality will allow you to make purchases with bitcoins in the real-world store. This wallet only supports bitcoin, but don’t forget, it is completely free.
Ledger Nano S
For the maximum layer of security, there is nothing better than a hardware wallet, such as Ledger Nano S. It is a physical device that allows you to store cryptocurrencies outside the web environment. When you want to carry out cryptocurrency transactions, you simply plug the wallet into your device, like a laptop, and then insert your private PIN. If your wallet is lost or stolen, you can recover your cryptocurrencies by inserting your backup password on another device. You will have to pay approximately 90 euros for a Ledger Nano S. However, and it is worth the investment if you have many cryptocurrencies. If you are interested in acquiring it, I recommend you do it from the official website of Ledger Nano S.
Jaxx is also one of the most popular multi-currency wallets and is available for download on most desktop and mobile devices. For added convenience, you can also access the wallet through the Google or Firefox browser extension, which makes it ideal if you need to send funds on the go. Jaxx developers never have your private keys, as they are only stored on your device. Also, like Exodus, a built-in ShapeShift API allows you to trade cryptocurrencies directly from the wallet itself.
I hope this article will help you. If you have read it from cover to cover, you should have an initial idea of what a wallet is, how its technology works, and what it can be used for