Crypto Wallets: An Introduction
Are you still perplexed by what a crypto wallet is? You might think that this is some kind of traditional wallet where you can store bills or loose coins. Well, there’s a little similarity — a crypto wallet serves as storage for your digital currency. But before we go deeper, let’s try to identify exactly what a crypto wallet is.
What is a crypto wallet?
If you own cryptocurrency, you need a place to keep it. So, crypto wallets were made. Anyone who will buy or exchange cryptocurrencies has to have a digital wallet — a software or app that holds the digital currency and enables you to send and receive cryptocurrencies.
A crypto wallet comes with a public and private key. It is important to understand the two and their uses.
Public Key — composed of alphanumeric characters, a mix of lower and uppercase, and between 26 to 35 characters. The Public key serves as your bank account number if you compare it to the traditional banking system. Thus, it allows you to receive digital currency using this key.
Private Key — This key is considered to be most important in keeping your wallet safe and secure. It serves as the unique code or phrase that only the wallet owner should have access to. In case you lose your mobile wallet, this key will allow you to restore access to your wallet. A private key can take many formats and the most common is the mnemonic phrase.
- 256-character binary code
- 64-digit hexadecimal code
- QR code
- Mnemonic phrase
What are the kinds of crypto wallets?
Crypto wallets are categorized into two types: cold wallets and hot wallets. To identify the difference, we look at their uses. The cold wallet is otherwise known as a hardware wallet. It usually looks like a flash drive or hard disk drive. If you’re planning to keep your digital currency for a long period, then this is the wallet of choice.
Examples of cold wallets are:
- Hardware wallet. By far one of the most secure Bitcoin wallets for the reason that your private keys are kept in a physical device that is not connected to the internet. The drawback is the cost of the device that may be around $50 to $200.
Part of the continued crypto wallet adoption is the expansion of different brands that offer wallets to consumers.
According to Mordor Intelligence, the global hardware wallet market was valued at USD 202.40 million in 2020.
The global hardware wallet market is expected to be valued at USD 877.69 million by 2026, registering a CAGR of approximately 29.24% over the forecast period (2021–2026).
With plenty of choices, it can be confusing which crypto wallet to choose. It’s recommended to pick a wallet based on the price, security features, and variety of cryptocurrencies it can support. It also helps to look for renowned brands and reviews from users of the product.
It can be intimidating, especially for first-timers to process all this in one sitting. This is why we’ve outlined a guide on how to activate a crypto wallet properly. While every wallet is a little different, the activation process is almost similar.
Familiar hardware wallet brands include Trezor, Ledger Nano S, and Ledger Nano X. Choose the brands that have positive feedback and buy from an official reseller.
How to activate a hardware wallet
- Open the app/website on your device. Plug the wallet into a laptop or desktop and follow the quick installation instructions that you will see on the screen.
- In the installation process, you are required to nominate a PIN code and write the seed phrase to recover your wallet in case you lose it. Make sure to write it down so you won’t forget.
- In the last part, you’ll be asked to choose what cryptocurrency you want to activate in your wallet. Select from the list and then you’re good to go.
- There’s also an option to customize the name of your wallet, so it’s up to you to rename it with whatever nickname you choose. Be as creative as you want!
It’s worth mentioning that most hardware wallets come with an app or website that enables you to view your transaction history. So, if you plan to activate more coins and verify your transactions, simply go to your wallet dashboard, and you will find all the details there.
- Paper wallet. It is another form of cold wallet. Unlike the hardware wallet that comes with a relatively expensive device, a paper wallet only requires an open-source or an offline public and private key generator, and yes, a piece of paper.
There are websites that offer free services to generate public and private keys. It involves printing both keys on paper and options of adding a QR code that can be scanned for easy referencing and faster transactions.
But if you are uncomfortable doing it online, there’s another way to do it. Some developers upload the tool’s source code on Github that can generate these keys. For those with advanced knowledge or skill in coding, you can check the source code for randomicity in results.
Generating public and private keys using an offline tool is the safest way to do it. The downside of using a paper wallet is that it’s susceptible to external damage, theft, and general human negligence. A word of advice: keep these paper printouts in a safe place.
The hot wallet is also referred to as a software wallet. To access your wallet, you need to be connected to the internet. It works as a type of banking app that is only accessible when you are online. Since it’s an online wallet, fund transfer from hot wallet to cryptocurrency exchanges is much easier, faster, and more convenient.
Types of hot wallets:
- Desktop wallets. An online software or application has to be downloaded and installed on your desktop or laptop. This wallet is useful if you are keeping your digital currency for the long haul.
- Web wallets. This wallet is accessible via a web browser plug-in. Many consider this as the least secure among the hot wallets because it’s prone to phishing and malware.
- Mobile wallets. Similar in functionality to desktop wallets, the advantages of mobile wallets are the portability and flexibility in exchanging funds. Many mobile wallets can facilitate fast payments in near-field communication (NFC) or QR-enabled physical stores.
Choosing a crypto wallet depends on your primary goal. For instance, if you want to invest in cryptocurrency trading and you have daily transactions, then the hot wallet may be a better option.
Generally, securing your hot or cold wallets is the main priority, and if there’s a questionable request to access your account, it would be better not to deal with them.
The next part of this series is all about securing your crypto wallet. Don’t miss it and subscribe to our Medium page for more articles from this series.
Author: Gabriel Silang