As most cryptocurrencies like Bitcoin are not available in any physical shape or form, they can’t be technically stored anywhere. Private keys, which are used to access your public Bitcoin or cryptocurrencies, address such a concern that they need to be securely stored.
What is a crypto wallet?
A crypto wallet is an online tool that is used to interact with a blockchain network. The easiest means to sift through the dozens of current cryptocurrency storage methods is to classify them into three wallet groups such as software, hardware, and paper. Also, they are referred to as hot or cold wallets, based on their existing mechanisms.
How do crypto wallets work?
Crypto wallets do not store cryptocurrencies. They function by providing the required tools when interacting with a blockchain. What they do includes generating the vital information (i.e., public and private keys) when sending or receiving cryptocurrencies via blockchain transactions.
The wallet needs an address, which is an alphanumeric identifier. This is created based on the public and private keys. The address is a specific ‘location’ on the blockchain where the coins are sent.
Public vs. private keys
A public key consists of a set of information that is shared with others to receive funds. Meanwhile, a private key should be kept from anyone as this provides access to your cryptocurrencies, regardless of what wallet you are using.
In case your computer or smartphone gets compromised, you can still access your funds in another device as long as you have the private key or seed phrase. However, you need to keep in mind that coins never leave the blockchain. Instead, they are simply being transferred from one address to another.
Let’s take a look at the specific features and functions of different crypto wallets.
Hot vs. cold wallets
Crypto wallets can be defined as ‘hot or cold’ based on how they operate.
A hot wallet is any wallet that is connected online. This wallet type is easy to set up and where funds can be accessed instantly. This makes things convenient for traders and other users.
For the cold wallet, it is not connected to the internet. Instead, it uses a physical medium when storing the keys offline. This makes it resistant to online hacking attempts. Cold wallet is a safer option for crypto storage. It is more suitable for long-term investors or ‘hodlers.’
Software wallets
Software wallets come in different types. Each has its distinct features. Most are somehow connected online like hot wallets. The most common types are web, desktop, and mobile wallets.
Web wallets. These can be used to access blockchain using a browser without any web installation or downloading anything online. Exchange wallets and other browser-based wallet providers are part of this software wallet.
In many cases, users create a new wallet and set a personal password when accessing it. However, in some service providers, they are the ones who manage the private keys on your behalf. Users should be cautious about this despite this may sound convenient. This practice has risks especially when you are entrusting your funds to someone else.
Before selecting the most suitable wallet for you, ensure to check the technical approach of all available wallets. Upon using cryptocurrency exchanges, make use of the current protection tools like multifactor authentication, anti-phishing code, and withdrawal address management.Desktop wallets. These wallet types consist of a software that can be downloaded or worked on your computer. Unlike the web-based versions, desktop wallets provide you full control over your keys and funds. As you generate a new desktop wallet, a file that contains the private key details that will be used to access your cryptocurrency address will be stored locally on your computer. Every time you encrypt your desktop wallet, you are required to provide a password when you run the software.
It is vital to back up that essential file that stores your private key or seed phrase so you can easily access your funds on other devices in case your computer is inaccessible.
In general, desktop wallets are safer than most web-based version wallets. Always ensure your computer is free of viruses and malware before setting up your wallet.Mobile wallets. These wallet types work like a desktop wallet. They are quite convenient to use as they enable you to send and receive cryptocurrencies by using QR codes. Like computers, however, mobile devices can be vulnerable to malicious apps and malware. It is highly recommended to encrypt your mobile wallet with a password and backup your private keys in case your mobile phone is lost or broken.
Hardware wallets
Hardware wallets are physical or electronic devices that use a random number generator to create public and private keys. These keys are not connected to the internet. Instead, they are simply stored in the device itself. These wallets are like cold wallets and deemed as one of the most secure options. They enable you to set up a PIN code to safeguard your device and provide a recovery phrase, which can be used for a lost wallet.
However, hardware wallets are considered less user-friendly. Also, the funds are more difficult to access as compared to hot wallets. Use a hardware wallet if you plan to hold your cryptocurrencies for a long period or whenever you are holding a huge load of cryptocurrency.
Paper wallets
A paper wallet is a piece of paper where a cryptocurrency address and the private keys are physically printed with QR codes. These codes are scanned to execute cryptocurrency transactions.
Some paper wallet websites enable users to download the codes to generate new addresses and keys while offline. These wallets are highly resistant to online hacking attacks and a good alternative to cold storage. Paper wallets are not suitable for sending partial funds.
With several flaws, it is risky to use paper wallets and not highly encouraged.
A new platform: More than just a storage
AladiEx is an emerging digital platform that seeks to assist millions of micro, small and medium enterprises (MSMEs) raise the funds that they need for their projects for the next five years through the help of global investors.
As part of AladiEx’s 3S Supply is the hardware wallet that stores the user’s private keys (vital information used to authorize transactions set on the blockchain network) in a secure hardware device.
What makes AladiEx different from all its counterparts is that the digital assets where the private keys are held 100% by AladiEx. They are covered by the $100 million insurance policy in case of third-party hacks, copying or theft of private keys, insider theft, anomalous acts by AladiEx staff or executives and the loss of the keys.
AladiEx is more than just a storage. We are an asset management system that enables you to invest, track, and spend. Learn more about this innovative platform by visiting us at https://aladiex.io/ today.
CLOSING THOUGHTS
Cryptocurrency wallets are an integral part of using Bitcoin and other cryptocurrencies. They are one of the basic pieces of infrastructure that make it possible to send and receive funds through blockchain networks.
In the course of your interaction with cryptocurrencies and Blockchain technology, it is essential to master all the different types of crypto wallets as they are there to cater to different requirements and vary in terms of security, convenience, accessibility and so on.
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