A cryptocurrency wallet is used for the sending and receipt of cryptocurrencies such as Bitcoin and Ethereum, and are essential in order to use cryptocurrencies. Wallets feature keys which allow only their owners to use them.
For any given coin, it is strongly recommended to use the official, or at least an officially endorsed, wallet, because some ‘wallets’ are nothing more than malware. Never use a wallet if you do not know or do not trust its source.
In spite of their name, cryptocurrency wallets is that they do not actually store your Cryptocurrency. Then why are they called wallets?
Keys of a Wallet
Every Cryptocurrency wallet has two types of keys: a private key and a public key. A private key is a completely secure digital code that is known only by the wallet’s owner.
A public key corresponds to a certain value of cryptocurrency. Public keys can be shared with the person with whom you are trying to make a transaction. The private key enables you to sign a personal message with the public key, which enables you to prove to the other party that you are the owner of your cryptocurrency wallet.
It is important to note that the private key is essential for keeping your cryptocurrency account and the money inside it. You should not share your private key with anyone.
Classification of Cryptocurrency Wallets
There are various types of wallets, which differ based on the type of functionality, the online/offline mode, and the method through which the wallet is accessed. The major types of wallets are:
- Desktop Wallet:
A desktop wallet is basically a desktop application which connects with online servers.
- Mobile Wallet:
There are cryptocurrency wallet applications that are designed for smartphones as well. These not only involve remote accessibility but also give the option of mobility.
- Online Wallet:
An online wallet is a cloud-based service, accessible through a web browser on a desktop or mobile device. These are secure services and allow secure transaction–if the online wallet is from a reputable company. But if the wallet is offered by an organization which lacks security or good synchronization, it could be risky.
- Hardware Wallet:
Hardware wallets are specific physical devices—like a USB or a hard drive– that are used for the purpose of safekeeping cryptocurrencies. When they go online, they can connect to cryptocurrency networks, and when the transactions are completed, they can be disconnected and stored safely offline.
- Paper Wallet:
Paper wallets act as a hardcopy key for accessing cryptocurrency. Essentially, your private key is stored as a QR code and printed out on paper; it can be inputted whenever you need to make a transaction. Since the paper just contains a QR code and no other data about your cryptocurrency, it can improve security and functionality.
How Secure Are Cryptocurrency Wallets?
Security of cryptocurrency wallets varies. Some of the best wallets use biometric locks as well as other security features. One feature you can insist on is multi-signature transactions. Encrypt your keys. As with all software, it is important to back up.
You should have at least one backup on an external hard drive of some sort, preferably with no internet connection, so that you can retrieve it in case of a hard drive crash or other data emergency. If you lose access to your cryptocurrency wallet, then you can say goodbye to your cryptocurrency!
How to ensure the security of a Cryptocurrency Wallet?
There are additional measures that you can take to make sure your Cryptocurrency is safe. These include:
- Keep your wallet backed up:
You should only store a small amount of cryptocurrency in your online or desktop wallets. These wallets can be accessed by hackers. For amounts of cryptocurrency, it is better to use a physical or a paper wallet. These wallets act like a backup and work even if your computer gets hacked or stolen.
- Keep your wallet up to date:
If your wallet uses any type of software, always make sure that you have that it is updated regularly. Updates help ensure that any vulnerabilities or bugs in the system are fixed in order to thwart hackers.
- Maximize the number of security layers you use:
When it comes to cryptocurrency wallets, the more layers of security, the better. Make sure that you are using a cryptocurrency wallet that is popular and known to be secure. Use a strong and complex password to access your cryptocurrency wallet–don’t use simple passwords, guessable phrases about you, or dictionary words.
