Crypto currencies wallets
(Reading time 6 minutes)
As our new and
exciting journey in the Crypto world continues, where you’ve learned more about
the basics of the cryptocurrencies, the blockchain technology, today I am going
to talk about crypto currencies wallets.
A cryptocurrency
wallet is a software program that stores the private and public keys. This
program can interact with various blockchains to enable the user to send and
receive digital currency and monitor your balance. If you want to use Bitcoin
or any other cryptocurrencies, you must have a digital wallet.
•
So how do they work?
There is a lot of
misunderstanding about the way crypto wallets work even though millions of
people are using them every day. Unlike our traditional pocket wallets, the
digital wallets do not store any digital currency. Because the currencies do
not get stored on a single location or exist anywhere in a physical form. All
that exist are the records of the transactions stored on the blockchain. What? So how do I get my money?
The wallet is a
software program that stores your private and public keys and interface with
various blockchain so you can monitor your balance, send money and conduct
other operations. Let’s see this with a simple example:
Every wallet has a
Private Key and a Public Address. The private key is something that you don’t
give away. You keep this for you. The Public Address is the one you are giving
to another person that want to send you funds. So when someone wants to send
you 2 Bitcoins or any other
cryptocurrency that person is
signing off ownership of those coins to your public wallet address. For you to
be able to spend those coins and unlock the funds, the private key stored in
your digital wallet must match with the public address. If they match the
balance in your wallet will increase and in the senders will decrease. There is
no actual exchange of real coins. The transaction is one way. It can not be
reversed back. Only if you decide to send back the coins to the person that
have send you those coins.
•
Are there different types of wallets?
Yes, there are
several different types of wallets that provide a different ways to store and
access your digital currency. Wallets can be broke down in three distinct
categories:
•
Software
•
Hardware
•
Paper
• Software
Software wallets can be: desktop, mobile and online
Desktop: wallets are downloaded and installed on your PC
or a laptop. They are only accessable from a single computer where they are
downloaded. Desktop wallets offer one of the highest security, but if a
computer is hacked, then you might loose your funds.
- Online: wallets run on the cloud and are accessible from any computing device
in any location. While they are more convenient to store your private keys
online and are controlled by a third party, makes them vulnerable to hacking
attacks and thefts.
- Mobile: wallets run on an app on your phone and can be used anywhere except
retail stores. Mobile wallets are usually smaller then desktop wallets because of
the limited space available on a mobile phone
• Hardware
Hardware wallets are different from a software wallet, because the
private keys can be stored on a USB. Although hardware wallets make transaction
online, they are stored offline which gives them more security. The hardware
wallets are compatible with several web interfaces and can support different
currencies. You simply plug in your device to any computer with internet
connection, enter your pin, send the currency and confirm. With the hardware wallets
it is easy to make the transaction, while they are keeping your money offline
and away from danger.
• Paper
Paper wallets are very easy to use and they provide a very high level
of security.
The term paper wallet refers to a physical copy or printout of
your public and private keys
When you want to transfer Bitcoin or any other
currency to your paper wallet you can do this
by transfer of funds from your
software wallet to the public address shown on your paper wallet.
And if you
want to withdraw or spend currency, all you need to do is transfer funds from
your
paper wallet to your software wallet. This process is called ‘’sweeping’’,
and can be done
manually by entering your private key or by scanning your QR
code on the paper wallet.
· How secure are cryptocurrencie wallets?
Wallets are secure
to varying degrees. The level of security of the crypto wallets depends of the
type of wallet that you are using (desktop, mobile, online, paper, hardware)
and the service provider. Keeping your money on an online wallet is the most
vulnerable and risky. Offline wallets, are the most secure, and simply cannot
be hacked, because they are offline. No matter what wallet you use, the most
important thing is not to lose your private key, and to be very careful when you
are sending your money, not to send it to a scammer. Because the transaction it
cannot be reversed or stopped.
It is good to take certain security
precautions like:
- Backup your wallet. Keep most of the
money on a secure place, like a hardware or a paper wallet. And store small
amounts of currency for everyday use online on your computer or mobile. If you
choose to use an online wallet there are risks of being hacked.
- Update software. Keep your software
up to date, so you will have the latest security available.
- Add extra security
layers. The more
layers of security the better. Set up long
and complex passwords and ensuring that any withdrawal of funds requires
a password to start. Use wallets that have a good reputation and provide extra
security like two factor authentication and additional pin code every time a
wallet get’s opened. Install antivirus and anti malware.
When
accessing an online wallet make sure that your address is secure. Never access
from public Wi-Fi.
·
Do I need to use a single wallet for every cryptocurrency?
Almost every coin has its own infrastructure, so yes you will need
another wallet for almost every coin. But luckily for us, multi-currency
wallets have been invented, so you do not need to keep all of your currencies
into separate wallets. Especially if you are a person who is trading on a daily
basis with multiple coins. If you are a person that buys a coin and wants to
HODL, then you can keep on a separate wallet. Hardware wallets like” Ledger
Nano S Wallet, Trezor, Keepkey give you the opportunity to keep multiple
currencies.
More and more
people are joining in the world of Crypto every day. Some people are happy
storing there coins in software or desktop wallets, some people want to use
more secure wallets. And if you are a long term investor, this is not a bad
idea. If you want to HODL your coins for a long time, the best way is to store
them on a paper or a hardware wallet. The Hardware wallets are one of the
safest ways to secure your coins. Your coins will be safe even if your computer
get’s hacked or someone stole your hardware wallet. If by any chance you lose
your hardware wallet, you can always restore all your coins to a new wallet.
Without knowing your secret pin code, no on can transfer coins from your
hardware wallet. Also no spy recorder or Trojan can record what’s happening on
your hardware wallet. Regardless which wallet are you going to use, you must be
always cautious, use more security measures. Many people do not take it
seriously and then when they will get hacked, they start to cry. As an example:
Have you seen anyone going on the street, carrying a wallet in his hand filled
with a lot of money so everyone can see it? It is the same with the digital
wallets. Keep your funds safe, where nobody accept you can see it.
In the next post I
am going to talk about the safest types of wallets that you can use.
Until the next post
– STAY SAFE and
Thank
you for reading
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