What is a Cryptocurrency Wallet?
A wallet protects your cash and credit cards, but where are you storing your crypto. When buying digital currency through the trading platform/ exchange, you have the option to leave behind the ‘keys’ to your currency coins within the account in storage. But you could move them off the platform to a personal crypto wallet, which maybe software-connected to the Internet (hot wallet) or an offline device (cold storage). Learn about cryptocurrency wallets, and decide which storage option suits you. A regular old wallet stores your physical currency while your cryptocurrency wallet keeps your digital currency. Specialists in crypto and blockchain technology confirm that crypto-transactions need your wallet address, called your public key, and your private key. A public key is like the bank account number.
You can share it with others; such as people or institutions, so they could send money to you or even take money from your account with your authorization. They can see your public keys as your personal wallet’s address — a more compressed or hashed version of your public key. But a private key is your bank account password or the PIN to your debit card. You would prefer not to give that to anybody as that would give access to your account. As a purely digital currency, crypto is not directly held in your wallet and rather, the wallet stores information about both public and private keys, which maintain your ownership stake in the crypto. Using these keys, you either receive or send crypto transactions while storing your encrypted private key.
Types of Crypto Wallets
There exist different cryptocurrency storage options that serve different purposes, which depend on plans for your crypto. Long-term investors, holding on to it as a store of value, need the security of an offline storage wallet. Those involved in active transactions with crypto, prefer the speed and convenience which online hot wallets offer.
Hardware Wallets are called cold wallets or cold storage, storing your keys offline on devices not Internet-connected. Popular cold wallet devices are similar to a USB drive. Paper wallets with printed information about public/private keys onto a sheet, are used as cold storage. Crypto enthusiasts feel cold storage is the gold standard for protecting digital assets as these are offline, hardware wallets are most difficult to hack. But risks exist as hardware wallets are easily lost or misplaced causing inconvenience. Losing a device that holds keys to your investments and which are not recoverable once gone, is a big financial blow. Hacking remains a concern. If preferring cold storage, experts recommend buying devices directly from the manufacturer, rather than second-hand as buying from a third party, enhances the risk of tampered devices by hackers.
These are called hot wallets. If a hardware wallet is like the billfold in your purse, a software wallet is your online bank account. Often connected to an exchange, they’re user-friendly, and ensure a more mainstream market but with many risks if keeping funds online. Hot wallets take different forms. You access one through the crypto exchange used to buy your coins, download a software program to your computer desktop, or use a smartphone. All options leave your public/ private keys connected to the Internet, ensuring higher risk of hacking than cold storage options.